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Maryland General Assembly Faces Complex Issues In New Sports Gambling Quest

January 21, 2019
Potential action by the Maryland General Assembly in the current legislative regarding sports wagering is, frankly, amusing.

After previously failing to do what some other states had done in a prudent way -- craft effective legislation that anticipated a U.S. Supreme Court decision which allowed those states to add sports gambling to their portfolio of wagering options -- the Maryland legislature is now in fire drill mode.

Maryland's lawmakers are contemplating a legislative scheme that would amount to an end-run around the state's constitution to "fast track" sports gambling.

Here's the background:

Maryland's state constitution requires that a major expansion of commercial gaming must be decided by the voters in a statewide referendum.

That's the way it worked in 2008 when voters gave a thumbs up to slots and electronic gaming, and Maryland's casino industry was born.

That's the way it worked in 2012, when voters green-lighted table games and a sixth Maryland casino, which turned out to be the MGM National Harbor in Prince George's County.

So, it was widely assumed that another referendum would be needed whenever Maryland lawmakers considered the time right for the state's gaming industry to offer sports wagering.  

The next chance to do that is 2020.

Maryland missed an opportunity in 2018 because the legislature couldn't get a sports betting referendum bill passed and sent to Gov. Larry Hogan.

As the current General Assembly session opened in mid-January, news reports circulated that just maybe, a referendum won't be needed.

Instead -- the theory goes -- sports wagering would be placed under the purview of the Maryland Lottery and Gaming Control Agency and sports betting could then be treated as if it were just another new lottery game.

Abracadabra, no referendum needed.

Of course, there will be platoons of lawyers and perhaps even a lawsuit or two before the legality of the legislature's gimmick play is resolved. But even if there's a consensus on the legality of such a novel process, there's a host of issues to be considered. 

Here are a few that may slow down the fast track:

Where will sports gambling be permitted?

Among the reasons the sports wagering question did not wind up on the 2018 ballot was this very question. Last year, a proposal from the House of Delegates would have permitted sports gambling at casinos and race tracks. The senate version didn't give the racing business a place at the sports gambling table.

Officials for Maryland Live!, the casino in Hanover, Md., have been consistent in insisting that sports gambling be limited to the state's casinos.

The Maryland Jockey Club, the only player in the state's racing industry, has been diplomatically quiet on the issue.

The casino argument is that sports wagering is really a limited revenue-generator in itself and that its value resides in drawing more customers through the doors where they will spend money on other forms of gambling as well as food and beverage. Also, since the casinos supply a huge chunk of tax money to the state education trust fund and other beneficiaries (about $3.52 billion from inception through the end of 2018), it is counterproductive to dilute the sports wagering market.

The tax rate

This is a huge issue that deserves considerable thought. New Jersey taxes sports wagering revenue on two tiers. The rate for wagers made in the casinos and at the race tracks is 8.5 percent. The tax rate for revenue on bets made on the internet is 13 percent. The reason for the difference should be obvious; there's more expense in running a live sports book operation.

Meanwhile, in Pennsylvania, where sports betting just started, there's a tax rate of 36 percent and a $10 million licensing fee.

If that sounds a little high, you gave good hearing.

Nevada's tax rate is 6.75 percent. The West Virginia tax rate is 10 percent. Mississippi is 12 percent.

The expense of a high tax might be passed on the customers, and it remains to be seen whether Pennsylvania's sports books, laboring under a huge tax, can operate competitively. Philadelphia-area bettors might just decide to drive the 60 miles to Atlantic City if it becomes obvious they can get a better deal there. Serious gamblers might turn to black market offshore bookmakers where the odds are better and the vigorish (house commission) is lower. In other words, Pennsylvania's tax grab might work against it.

Getting back to Maryland, the General Assembly has to grapple with the issue of a tax rate on sports betting revenue. The Maryland casino model resembles Pennsylvania in that both states handed out casino licenses based on geographic monopolies. Both states levy extremely high tax rates on slots revenue.

So, will Maryland slap a big tax on sports wagering revenue, like Pennsylvania?

The question is certainly not the sort of thing that's easily decided in a "fast track" environment.

Internet gambling

In a nutshell, the real money to be made on sports gambling is over the internet.

New Jersey's example has been fairly conclusive.

Sports gambling has been operating in Jersey since the summer and in recent months, internet sports wagering handle has outstripped live wagering by about 2-to-1 or better. The ratio figures to get more lopsided in favor of internet gambling as the public adapts to it using mobile devices, and the concept of in-running gambling (betting on events within a game while the game is in progress) becomes more popular.

To clarify, you can bet on sports in New Jersey using, say, your cell phone or laptop, but only if you are physically within the state.

Whether internet sports betting can also be part of Maryland's lottery gambit is unclear. Quite possibly, that new wrinkle would have to go to a referendum.

Regardless, it is absolutely certain that digital wagering is the future of sports betting, and Maryland's legislature will have to deal it with it since that's the way most sports bettors are going to participate.

Conclusion

We are no longer in the 20th century, where it seems the General Assembly's notions about sports wagering are mired.

Operating a sports book in this century is a far more sophisticated challenge than merely having a service counter, some personnel to take the bets, and furnishing the room with big screen TVs and comfy chairs.

For the Maryland legislature, making decisions regarding a quickly evolving facet of the gambling landscape requires considerable discussion and thought. Make no mistake, sports gambling is coming to Maryland sooner or later.

It's no sure thing that the fast-tracking concept can even get serious traction, but here's hoping the General Assembly is mindful of the complexity of the challenge it takes on whenever it acts on sports wagering.

Photo Credit: Bill Ordine