James E. Havel, Associate at Bryan Cave Leighton Paisner, details legal challenges the likes of GVC could face investing in the US market
MGM Resorts International (MGM), one of the US’ largest domestic gaming and casino operators, this year formed a joint venture with British gaming giant, GVC Holdings PLC (GVC), in an attempt to capture the newly expanding sports betting market in the US. GVC has been running sportsbooks across Europe for an extended period of time and expanded operations and expertise in that area through its March 2018 acquisition of Ladbrokes Coral.
The business opportunities for such joint ventures are numerous: non-US sports betting operators want access to the extremely large American sports betting market (an estimated $10bn was wagered on the NCAA’s March Madness college basketball tournament in March 2018 alone) and cannot acquire licenses to legally access it without incurring significant costs, due to the heavily regulated nature of the American gaming industry.
Outside Nevada, American gambling and sports betting operators lack the expertise in building sportsbooks and creating internet and other sports betting technology that non-US gaming operations have been perfecting for quite some time.
Jim Murren, MGM’s CEO, said the following about the joint venture during its early stages: “With MGM’s expertise and leading position in key markets across the US, this historic partnership will be positioned to become the instant leader in technology, market access, sports relationships and brands. We are excited to benefit from GVC’s proprietary, best-in-class technology, digital customer acquisition expertise.”
The details of the joint MGM-GVC joint venture include GVC receiving exclusive access to all of MGM’s US land-based and online sports betting operations. On its own, MGM has 13 properties across seven states. However, MGM and Boyd Gaming, another large US gaming operator, formed a partnership to “have the opportunity to offer online sports betting in jurisdictions where either Boyd Gaming or MGM Resorts operate physical casino resorts and online licenses are available.” This expands MGM’s and GVC’s joint venture to potentially operating in 15 states, with both operators receiving a straight 50/50 split of all takings.
The Supreme Court’s Murphy vs NCAA ruling affords states the opportunity to legalise and regulate sports betting at the state level. While the federal government has, and may seize, the opportunity to regulate the sports betting market on a federal level, Congress has not shown much inclination to take action with respect to such regulation at this time. In addition, states have traditionally regulated gambling without much federal intervention.
It is important to understand some of the key issues states are facing when it comes to sports betting, such as taxation frameworks and the ability to place mobile sports bets.
The joint venture will have to monitor the taxation framework in various states to determine whether it will be profitable to operate.
There is a widespread misconception in the US that sports betting will bring in potentially hundreds of millions of dollars to states in the form of increased revenue, due in no small part to the amount of money people wager on sports in a given year. Historically, and particularly relative to the amount wagered, sports betting has not resulted in overly significant tax revenues in Nevada (the one state that has been continuously running sports betting operations since 1949).
According to the Nevada Gaming Control Board, sports bettors wagered roughly $4.87bn in Nevada in 2017. Nevada, which taxes sports betting at a rate of 7% of the gross adjusted revenue, took in an estimated $16.8m in taxes in 2017.
Other states are contemplating different taxation frameworks to increase tax revenues, although higher taxation may inadvertently chill the sports betting market in any given state. West Virginia’s sports betting law requires sports betting operators to pay a weekly 10% tax on the adjusted gross sports betting receipts. Pennsylvania’s proposed law requires sports betting operators to pay a 36% tax on its daily gross sports betting revenue. Understanding varying tax treatment will have a profound impact on sports betting in the coming years.
To complicate matters, some professional sports leagues in the US have been lobbying various state legislatures for a portion of the handle (amount wagered) as a royalty for hosting the contests. In response, the American Gaming Association and its casino allies have been lobbying against the leagues’ proposals.
MOBILE SPORTS BETTING
While one of the stated goals of the MGM-GVC joint venture is to leverage GVC’s online/mobile sports betting technology, some states may not allow online/mobile sports betting. States will have to determine whether they allow mobile sports betting (phone apps and/or internet sports betting) or whether the states will mandate sports bettors must be physically present in a casino or sportsbook operating facility to place a bet. While states with struggling brick-and-mortar casino industries may prefer increased foot traffic at casinos, consumers presumably would prefer the flexibility of being able to place bets either at their local casino or via their phones and/or the internet. The state legislators will have to weigh these competing concerns.
Based on the above factors and the first few months since the Murphy decision, the timeline for mass regulation across the US may be slower than originally anticipated. Licensed gaming operators in the US, such as MGM, are preparing for authorisation in the various states through these joint ventures with experienced European sports betting operators. That means where the markets are now could be very different from where they are in three to five years.