John Taylor recently led a tour of the new $30 million hotel under construction at Twin River Casino in Lincoln, a project he said will meet patron requests for accommodations and help the casino remain competitive with Massachusetts, which has two resort casinos under construction.
He understands his market and the profile of the customer that visits the low-key, regional gambling halls his company, Twin River Management Group Inc., owns in Rhode Island, including Newport Grand. The latter is soon to be replaced by a new casino under construction in Tiverton.
Keeping up with the competition is crucial in the world of legalized gambling, both for casino operators and states such as Rhode Island whose budgets have become increasingly dependent on their share of gaming revenue.
That competition is heating up nationally over what could be the next big source of gambling revenue – legalized, commercial sports betting.
While Taylor is cautious in discussing publicly what could be a lucrative new source of revenue, Gov. Gina M. Raimondo has shown no such hesitation.
“Rhode Island needs to stay competitive,” Raimondo said through a spokesman, explaining her support. “States across the country are moving forward with plans to set up sports betting based on the consensus that the Supreme Court will likely rule in favor this year.”
Raimondo, in fact, is betting on it. Her fiscal 2019 budget includes $23.5 million from the activity.
“We have never seen an economic environment as uncertain as it is today … and this budget keeps Rhode Island on the right track,” Raimondo said, explaining her rush to count on what in Rhode Island is currently an illegal source of gambling revenue.
Twin River, the only casino operator in the state, could also stand to reap millions of dollars in additional revenue.
[caption id="attachment_199447" align="aligncenter" width="640"]
TOUR PREPARATION: John Taylor, chairman of Twin River Management Group Inc., which owns Twin River Casino in Lincoln and Newport Grand in Newport, talks with reporters prior to a tour of the construction site for a new hotel at Twin River. / PBN PHOTO/MICHAEL SALERNO[/caption]
Taylor, however, says it’s too soon to discuss any potential windfall for Twin River. The R.I. Senate bill authorizing sports-betting activity at Twin River’s two Rhode Island facilities does not specify a particular percentage of the revenue that would go to the casino operator. It now gets 28 percent of gross gaming revenue for video slot machines and 83 percent of table-game revenue.
Taylor, the management group’s chairman, says his initial feeling on the proposal is his customer base might change.
“The sports bettor is probably more akin to our table-game player than the slots player – younger, male,” he said.
“As the legislative process moves forward, all of the stakeholders will need to have discussions about how this is going to work,” Taylor added. “Right now, most of the due diligence we’re doing is better understanding the different models that exist in the states and understanding what we have from a physical plant perspective in terms of where it could go and what it would look like.”
LINING UP
Like many other states, Rhode Island is attempting to redirect illegal gambling on sports events to state-sanctioned, commercial gambling operations. It’s one of 16 states with pending legislation that would take advantage of a potential reversal of a federal ban on sports betting that exists for all but a handful of states. Other states, including Connecticut, already are prepared to move forward if the ban is lifted.
New Jersey initiated the rush to sports betting, by challenging in court the prohibition established in 1992. The U.S. Supreme Court is hearing that case, with a decision expected by summer.
Unlike other states cuing up legislation to legalize sports betting, Rhode Island’s budget figure assumes the state will take a whopping 61 percent of the gross gaming revenue, what’s left after all bettors are paid.
[caption id="attachment_199450" align="aligncenter" width="640"]
PLACING BETS The map below, based on an American Gaming Association illustration,
shows four states that have already approved sports gambling and
20 states that have pending or approved legislation exploring legalizing
sports gambling, should the U.S. Supreme Court allow it.[/caption]
That’s much more than other states, according to one gaming expert. An analysis prepared for the industry’s American Gaming Association indicates the assumed tax in most states will fall in the 7-15 percent range (the association looks at states’ take of revenue as a tax).
The Rhode Island legislation could still change dramatically and currently says little about the structure of the state tax, or who else outside of the state would benefit. By requiring sports bettors to place their wagers at the existing casinos, Rhode Island legislators say they can avoid the necessity of a voter referendum.
Under the bill introduced in January, sports betting would initially be available in Lincoln, and then offered in Tiverton once the casino is opened later this year.
Why is this something the state wants to pursue? Money is driving it, but also a sense that opposition to gambling forms has faded. The push is strong enough that the state wants to have the facilities operational by October, to capitalize on peak season for sports betting – fall into winter.
“No. 1, it’s a tremendous revenue source,” said the primary sponsor, Senate President Dominick J. Ruggerio, D-North Providence. “No. 2, we already have gaming in this state to some extent. No. 3, we don’t want to be an outlier.”
But an outlier in what, exactly?
While Taylor remains cautious, others worry the state is moving too fast and question whether it’s a good idea to tether its finances even tighter to gambling.
[caption id="attachment_199446" align="aligncenter" width="640"]
ON-SITE DEVELOPMENT: John Taylor, left, chairman of Twin River Management Group Inc., which owns Twin River Casino in Lincoln and Newport Grand in Newport, with project manager Mick Owen of AZ Corp. They are inside the swimming pool area of a new hotel being constructed at Twin River. / PBN PHOTO/MICHAEL SALERNO[/caption]
Gambling revenue, including the state-run lottery, already represents one of the five top sources of the state’s budget. The two facilities in Newport and Lincoln contributed $362.7 million to the state’s general fund in fiscal 2017, according to a report by the Rhode Island Lottery.
From an economic standpoint, how much sports betting will extract from local business in the form of routine spending is a concern, said House Minority Leader Patricia Morgan, R-West Warwick, a declared candidate for governor.
“At some point, there’s a saturation point. Is that the best we can do, go looking for more revenue from what we used to consider a sin tax?” Morgan said. “It’s not from industry. It’s not from commerce. It’s not from those kinds of jobs. I don’t think it bodes well for our state.”
When asked whether she had any concern about the state structuring an expansion of gambling that could direct new revenue to a single company, in this case Rhode Island-based Twin River Management Group, Morgan said the following:
“Too much in our state is just a continuation of a former contract, and it doesn’t go out to bid. It probably makes sense, because we already have gaming at those facilities, so how is it going to be negotiated?
“But we’re [talking about] $44 million or $45 million,” she said. “The state’s going to get about $27 million. The rest of the money goes to the parent company of Twin River.”
But Ruggerio says that’s not necessarily the case. His legislation is so vaguely written, it leaves open the possibility of some entity other than Twin River operating sports betting on behalf of the state at the company’s two casinos.
“The party or parties who would operate the sports-betting component on behalf of the state within the two [Rhode Island] facilities has not been determined,” Ruggerio said in a statement. “It is possible that another company or companies could operate sports betting within the two state facilities.”
Others have public-health concerns. Problem gambling is now considered an addiction disorder by medical professionals. Unlike Massachusetts, which required substantial studies of the impact of expanded gaming, Rhode Island has not made this a requirement. And at least so far, the new legislation makes no mention of funds being directed to problem gambling.
As a state, Rhode Island doesn’t provide much for it overall.
Twin River provides $100,000 for problem-gambling services annually. By comparison, the Massachusetts Commission on Compulsive Gambling reports that Bay State casino operators, through the state’s Department of Public Health, have provided $15 million to $20 million in recent years.
Before the state moves forward, Rhode Island needs to understand the implications of sports betting, cautioned Marlene Warner, executive director of the Massachusetts Council on Problem Gambling, and be ready to have intervention programs that can support people who will run into trouble. “At least get a baseline, and then put into play factors and language that will protect them in ways that we know will be effective,” she said.
In Massachusetts, a recent baseline study found 2.7 percent of Bay State residents have a gambling disorder, the most severe end of problem gambling. And as much as 7.3 percent of the state’s residents have experienced some problems with gambling.
“For some people, it means they’re spending more time gambling than they wish,” Warner said. For other people, it’s having a devastating impact on their interpersonal relationships, interrupting their job pursuits.”
‘GET OUT IN FRONT’
Competition from nearby states is one of the reasons Rhode Island is trying to move quickly.
“It’s important that we get out in front,” Ruggerio said.
Connecticut last year approved legislation that would allow a state agency to adopt regulations on sports betting, in anticipation of the Supreme Court ruling. The same law expands its off-track betting facilities to 24 sites, including in New London, Windham and Putnam. The latter is near the Rhode Island border, about 30 miles from Lincoln.
Massachusetts has not followed suit, but legislators have introduced a bill that would create a study commission to determine how to proceed should the Supreme Court find the sports-betting ban unconstitutional. The same bill would apply a 15 percent state tax to registered, online fantasy sports games.
Massachusetts has a new resort casino under construction in Everett, just north of Boston, and Plainridge Park Casino, which features slot machines, less than 20 miles from the Rhode Island border. The latter opened in mid-2015 and applied pressure on Rhode Island direct-gaming tax receipts.
For the fiscal year that ended June 30, 2017, table-game revenue increased by 11 percent in Rhode Island, but the slot-machine revenue fell by 1.3 percent. This was attributed to pressure from Plainridge Park but was also a smaller drop than originally feared.
House Speaker Nicholas A. Mattiello, D-Cranston, declined a request for an interview on the subject of sports betting, but he provided a statement through his spokesman that signals his support.
“Should the U.S. Supreme Court rule favorably on sports betting in New Jersey, I support legalizing it in Rhode Island as well. We will look carefully at how to best implement sports betting during this legislative session to be ready in anticipation of a favorable ruling.”
Raimondo, in a statement, said the state wants to be in a position to move quickly.
“We want to be able to implement right away,” she said. “Other states have already taken action and preauthorized sports betting. The Lottery Division has done extensive research into the four states that currently allow sports betting: Nevada, Delaware, Oregon and Montana. The division also looked at the legislation that pre-emptively passed sports betting contingent upon the Supreme Court’s decision in four other states: Connecticut, Mississippi, New Jersey and Pennsylvania.”
[caption id="attachment_199448" align="aligncenter" width="640"]
CEILING WORK: H. Carr drywall finisher Cory Viera works on one of the ceilings on the first floor of the new hotel being built at Twin River Casino in Lincoln. / PBN PHOTO/MICHAEL SALERNO[/caption]
WHO GETS WHAT?
The $23.5 million included by Raimondo in her 2019 budget proposal assumes that the state will keep 61 percent of the gross gaming revenue. The figure is expected to increase to $27.3 million by fiscal 2020, when presumably sports betting would be in place for a full year.
That figure assumes the current split in effect at the state’s two casinos for video lottery terminals. In addition to the 61 percent of gross gaming revenue that now goes directly to the state, 28 percent is directed to facility owner Twin River at each casino location, according to a worksheet released by the R.I. Department of Revenue.
Another 7 percent goes to vendors, 2.5 percent to International Game Technology PLC, which provides the operating machines, and the host communities of Lincoln and Newport receive 1.45 percent and 1 percent, respectively. The Narragansett Indian Tribe receives 0.17 percent.
Overall, the state anticipates that sports betting at the two casinos could generate between $655 million and $973 million of total revenue by attracting new players and redirecting the illegal sports betting now taking place.
What will happen to the split of revenue if sports gambling is added to the mix?
It has yet to be worked out, Ruggerio said.
“There is no fixed percentage at this point,” Ruggerio said. “That’s something that’s going to have to be addressed in the legislation itself. This is kind of a shell, and we’ll move things into it as we go along and sit down with the regulators and Twin River and everyone else involved and try to hammer out an agreement.”
At this point, the Senate bill also includes no language that would provide funds or a percentage of gross gaming revenue to the sports leagues, such as the National Football League or National Basketball Association, whose games could conceivably become betting events.
The NBA in January requested an “integrity fee,” a 1 percent share of the total amount spent on sports betting, or the handle, to cover its expenses in maintaining the integrity of the games.
The NBA, in a statement made to the New York state Senate, called for a coordinated federal approach to sports betting that would regulate the activity across the states and across leagues. At a minimum, the professional athletic leagues should have greater control of how wagering is conducted, according to a statement made by Dan Spillane, senior vice president and assistant general counsel for the NBA.
Ruggerio said he’s asked the Senate’s legal adviser to examine whether such a fee is required. At first blush, he’s not sure it is.
“I want to see what Las Vegas does,” he said. “Because I don’t believe Las Vegas provides them with anything.”
Other players in the sports-betting arena are lining up as well.
Daily fantasy sports companies Fanduel Limited and DraftKings Inc. are represented in Rhode Island by lobbyist Advocacy Solutions, of Providence.
The NBA and Major League Baseball are represented in the issue by lobbyist Stephen Alves, a former state senator.
Towns that have derived a percentage of the gaming revenue from casinos in Rhode Island also have started to take positions.
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UNDER CONSTRUCTION: Contractors work on the $140 million Tiverton casino, which includes a hotel, and is expected to open in the fall of 2018. The casino will replace Newport Grand when completed. / PBN PHOTO/RUPERT WHITELEY[/caption]
Members of the Tiverton Town Council, in a public meeting in February, questioned the legality of the state’s expansion of gambling at the Tiverton casino to include sports betting, according to the Newport Daily News.
If it happens, the town should get a percentage from the increased revenue, members said, according to the Feb. 13 article.
Oxford Economics found legalized sports betting wouldn’t poach customers from casino operations, but instead would attract new ones, including by drawing people now engaging in illegal betting.
Another gaming-industry consultant, The Innovation Group, found in a survey that 41 percent of U.S. adults would make at least one wager a year if sports gambling was legalized. The activity tends to attract a younger and more male demographic than the patrons of existing casinos, but it also found that half of all potential sports betters are women.
Regardless of its appeal, the decision to include the $23.5 million in sports-betting revenue in the budget has critics.
Leonard Lardaro, an economist and a professor at the University of Rhode Island, said the amount being counted on is a reach. Rhode Island has a long history of overestimating revenue, and underestimating the impact of competing states, he said.
“It’s not unique to us,” he said of sports betting.
“The real problem for Rhode Island’s budget is we’re doing the best we have in years and we still have very large projected deficits,” he said. “Sports betting is something that maybe will help a little, but it’s not the answer. We need to fundamentally redo the way we do things.”
Ruggerio, who is bullish on the proposal, nevertheless conceded it is a risk.
“You anticipate the best,” he said. “If it doesn’t happen, obviously we’re going to have to look for [$23] million somewhere else.”
Patrick Kelly, an accounting professor at Providence College, is among those who believe the state is already too tethered to gambling revenue.
Half of the patrons at the Twin River facility in Lincoln are from Massachusetts, he says. Where will they go when the two resort casinos open in that state?
“This whole situation is fraught with questions. You have a number of people … going to Twin River,” he said. “How many of those folks are going to switch to sports betting, and if they do, how much of that is going to potentially hurt the slot revenue?”
Given all that, to include revenue from the activity in the budget seems premature, Kelly said.
For the states, the temptation is there, he said, because casinos provide tax dollars that otherwise would come from residents.
“The recession of 2008 changed everything,” he said. “Many of the states were very concerned about employment and … about tax revenue. If you can get revenue from casinos, lotteries, that’s tax revenue you don’t have to have taxpayers paying, with the side benefit that it could benefit employment in the state.”
