Symposium: Sports Betting Not 'Golden Goose' for Racing

At any conference, symposium, or gathering of executives in any industry, certain terms, jargon, and buzzwords can permeate the topics discussed.

The word the morning of Dec. 5 at the University of Arizona's Global Symposium on Racing in Tucson, Ariz., was "golden goose."

The term referred to the potential impact of legalized sports wagering on the horse racing industry, and the panel of speakers in a discussion titled "Sports Betting: Coming to a Jurisdiction Near You?" largely dispelled that notion. There was even a mention of the goose getting killed.

The consensus from a trio of experts on the topic—Chris Krafcik, managing director (political and regulatory markets) for Eilers & Krejcik Gaming; Kate Lowenhar-Fisher, a gaming lawyer in Nevada; and Richard McGuire, executive director at Sportech—said sports wagering is in fact not a "golden goose" and warned of the double-edged sword it might wield on the racing industry.

"Be aware of the opportunity and threats to your business," McGuire said. "Unless you grasp that threat, and engage with it, you'll run into a lot of problems, quite frankly. ... Sports betting, as we all know, is here. I believe it's the single greatest opportunity for many of you in this room, but it's also the single greatest threat to your business going forward."

Unlike pari-mutuel wagering and slots, where takeout is all but guaranteed, sports wagering is not a guaranteed money earner on any day, in any month, or in any year.

"The term 'golden goose' and the pie-in-the-sky kind of discussion about sports betting in the United States—the economics of a sports book are not a mystery," Lowenhar-Fisher said. "They have a lot of history and evidence about how a sports book can earn money in a regulated marketplace and how a sports book can be murdered because of unreasonable taxes, fees, and so forth.

"In Nevada the sports books are an amenity to our patrons. They're not a money maker—never have been. And I'd argue a lot of sports books in the United States are pretty efficiently run."

If efficiency is key to running a profitable sports book, those on the panel stressed the importance of tax rates and fees that do not cut too far into slim profit margins.

"There are basic things that kill profitability in the sports book arena, because it is a slim-margin business that requires a lot of art and not a lot of science," Lowenhar-Fisher said. "If you have taxes and fees that exceed the Nevada model, you might be in trouble. If you have taxes and fees that are levied on handle rather than revenue or win, you're likely to have a problem."

McGuire went on to say that excessive taxes on sports betting would eventually lead customers to illegal betting, which in this scenario would have less vigorish (takeout from winning sports wagers).

"As soon as you overtax, you lose your market share, and it's very easy to tax so many people, but a tax on turnover clearly affects the odds," McGuire said. "The mass market participants will either bet less or, more likely, will head to the illegal markets."

While the perils of sports wagering for racetracks may come from a potential for lack of profitability, the good news for track operators, according to Krafcik, is that they are uniquely positioned—along with other already lawful gambling establishments—to bring in new customers to their facilities.

"Without exception, land-based incumbents, such as casinos or racetracks, are being given exclusivity for sports betting operations, making them the newly regulated industry's de facto gatekeepers," Krafcik said.

Krafcik also talked about potential "friction" based on revenue sharing between racing and sports betting in certain jurisdictions, most notably California.

"In many states there will be friction between sports betting operators and racing on the question of revenue sharing," Krafcik said. "We further anticipate friction, particularly in states like California, where racing enjoys special political clout. That could slow or even stall the development of sports betting."

Krafcik wasn't the only speaker to bring up challenges in California. In a later panel titled "Sports Betting: A Friend or Foe in the New Era of Sports and Gaming Competition?" Scott Daruty, an executive with The Stronach Group, identified Maryland (where The Stronach Group owns three racetracks) as a state that could work well for sports wagering, but did not express the same confidence in states like Florida and California. He labeled them "question marks."

"California is a very difficult state to handicap, because there are a lot of conflicting and competing interests," Daruty said in reference to gambling institutions like racetracks, tribal casinos, card clubs, and the state lottery.

With so much yet to be decided in so many different states, whether racing will ultimately benefit from the widespread legalization of sports wagering remains unknown.

"There is no consensus yet about whether racing will widely or more narrowly benefit from sports betting revenue sharing," Krafcik said. "Some states, such as Delaware, require revenue sharing from sports betting to tracks, and some states don't."