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Billionaire Wins, Fantasy Sports Lose in Illinois Gambling Bill

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Monday, June 10, 2019  |  Article  |  By Christopher Palmeri, Elizabeth Campbell, and Mario Parker - Bloomberg

Gambling, Gaming , Governor (44) Harris III, Napoleon--State Senate, 15
DraftKings CEO Jason Robins typically reserves his Twitter feed for commentary about last night’s game or a shout-out to someone he’s met in his travels. On Sunday, he had an entirely different message.

“While it is good to see sports betting bills passed, excluding DraftKings and FanDuel is like passing a ride sharing bill that excludes Uber and Lyft,” he wrote. “Very disappointing that Illinois customers will not have the best options available to them for 18 months.”

The target of Robins’s wrath was a bill that massively expands gambling in Illinois, especially in heavily populated Chicago, where residents are passionate about politics and sports in equal measure. Passed by the Democratic-controlled legislature last weekend, the package also gives a nearly two-year head start to local casinos and horse tracks in the emerging business of sports betting.

The legislation is a triumph for rookie Democratic Governor J.B. Pritzker -- and for special-interest lobbying that yielded protections and opportunities for current gaming investors such as Neil Bluhm, a billionaire Chicago real-estate mogul and major donor to Democrats. He benefited along with casino operators, racetracks, professional sports leagues, stadium owners and even the proprietors of truck stops, who will be allowed to add more slot machines.

At the same time, the measure promises to transform the fan experience at the city’s iconic sports venues, including the Chicago Cubs’ Wrigley Field.

Also tucked into the 816-page bill is a provision that chilled good-government advocates in a state renowned for public corruption: It exempts some sessions of the Illinois Gaming Board, which will police six new casinos and the expansion of existing ones, from the Open Meetings Act.

After initially saying he didn’t realize the provision was in the bill until after it passed, Illinois Senate President John Cullerton said through a spokesman that it was meant to encourage the board “do more in open session by reminding/spelling out the only reasons it could go to closed session.”

Revenue Payoff

Lawmakers estimate that the expansion will give the perennially cash-strapped state an extra $200 million a year from video-gaming terminals, $150 million from casinos and $60 million from sports betting. But some observers said the legislature was betting on too big of a payoff.

“Demand is not as endless as the legislature would like to believe,” Instinet analyst Harry Curtis wrote in a research note, calling the Chicago market already “saturated.”

In an interview with Bloomberg News on Tuesday, Pritzker rejected suggestions that the expansion could worsen the state’s corruption problem. And, he noted, no one is forcing people to gamble. “We’re not imposing a confiscatory tax on people when we do this,” he said. “This is something people choose to do.”

At Wrigley Field on Wednesday night, the reception to the bill was decidedly mixed. Brandon Schmitt, 35, a crane operator from Erie, Pennsylvania, who was attending his first game at the storied park, said sports betting might boost attendance at some venues. “Any kind of options to get people to the stadium is a good thing,’’ he said.

Standing in Wrigley’s concourse, David Fullerton, a cardiac surgeon from Denver, declared the prospect of sports betting “terrible,’’ as he watched the Rockies lose by one run.

“I’ve got to believe that all the bad things about gambling will leach into the sports world,” said Fullerton, 66.

Dueling Interests

Controversy isn’t limited to the fans. The bill prompted a battle between Bluhm and DraftKings and FanDuel, the two leaders in daily fantasy sports that have been expanding into traditional sports betting. Bluhm, an investor in the Rivers Casino in the Chicago suburb of Des Plaines, pushed to keep the daily fantasy sports operators out of the market because they’d operated for years while barred by Illinois law.

One of the bill’s sponsors, Senator Napoleon Harris, a former NFL linebacker, defended the delayed entry for DraftKings and FanDuel as punishment for just that reason.

The battle got so intense that the governor had to ask DraftKings and FanDuel to stop running an ad campaign critical of Bluhm’s efforts.

Sports betting has exploded in the 13 months since the U.S. Supreme Court allowed states to legalize it. More than a dozen, including New Jersey, Mississippi and West Virginia, have done so. In most cases, casino and racetrack owners have become the gatekeepers, with politicians requiring anybody who wants to be in the business to partner with a land-based operator.

That’s usually been enough for DraftKings, a privately held business based in Boston, and FanDuel, a division of Irish gambling giant Flutter Entertainment Plc. In New Jersey, FanDuel operates under a license granted to the Meadowlands Racetrack, while DraftKings partnered with Atlantic City’s Resorts Casino. Thanks to mobile betting and their established base of daily fantasy customers, the two claimed almost 80 percent of the sports-betting revenue in New Jersey in April.

The Illinois sports betting law has several unusual features. Online sports-betting operators won’t be able to apply for the three available licenses until 540 days after the casinos get their approvals. And a $20 million fee for the online licenses is at least twice what the casinos must pay.

Favored Casinos

The state’s casinos are allowed to partner with other operators to offer sports betting, but only the casino brand can be advertised. If another brand is used, the casino has to own 80% of the business, a benefit for Bluhm’s Rush Street Gaming as well as Churchill Downs Inc., which both have mobile-betting subsidiaries.

“It clearly favors the existing operators and makes it difficult for people like us who want access and want to use our brands,” said Scott Butera, who heads sports betting for MGM Resorts International, the Las Vegas casino company, which doesn’t own a property in Illinois.

Greg Carlin, the CEO of Rush Street Gaming, said he thought the legislation should’ve been tougher on the daily fantasy companies who operated in the state without permission. “We welcome fair competition, wherever it comes from, and the sports-betting framework provides for a robust market for Illinois sports fans and gamers,” Carlin said.

Owners of stadiums with more than 17,000 seats will be able to offer sports betting within a five-block radius of their properties. Betting operators are also required to use official data from the sports leagues, a nod to organizations like the NBA, which have been pressing for a piece of the action.

Now the question in some people’s minds is whether other states will follow Illinois’s lead and grant windows of opportunity to the incumbents or go in the opposite direction and let online operators into the sports-betting business without any local partners.

James Kilsby, who follows the industry for Gambling Compliance, a research firm in Washington, said the Illinois legislation illustrates several trends. Tennessee recently approved sports betting with the requirement that operators use data from the leagues. The District of Columbia allows stadium owners to offer betting, and New York added a similar component to its pending legislation.

It’s no secret where DraftKings’s Robins stands.

“Imagine if your entire competitive strategy was to lobby to keep the best products out of the market,” he wrote on Twitter. “How bad must you think your own product is?”