The gaming industry will be on the ballot Tuesday as Americans go to the polls to decide not only just the control of Congress, but also gambling initiatives and state leaders who will decide gaming issues.
Truist Securities released a note to investors this week highlighting the election’s potential impact on the gaming industry, as discussed by gaming consultant Brendan Bussmann, managing partner of B Global.
In gaming this year, the “big enchilada,” as once proclaimed in national electoral politics by former President Richard Nixon, is California.
With nearly $500 million spent, the most expensive ballot measure in the history of electoral races, Truist analyst Barry Jonas said that polls are suggesting neither Prop 26 nor 27 will pass tomorrow. Prop 26 would legalize retail sports betting at tribal casinos and horse tracks. Prop 27 would permit mobile sports wagering operated by commercial gaming companies from outside the state.
“B Global noted that should both of these measures be voted down, it would take potentially a significant amount of time for voter sentiment to recover following the extremely negative tone of political advertisements during this campaign,” Jonas said.
Messaging from anti-Prop 27 advertisements has “presented highly damaging rhetoric on mobile gaming’s detrimental effect on consumers,” which B Global believes would likely require a coordinated effort between tribes and commercial operators to overcome in a subsequent attempt to get interactive measures passed in the state, Jonas said. “Mr. Bussmann believes that if the initiatives are both voted down, it could take until 2026 before another initiative would have a shot at succeeding.”
In Missouri, B Global noted that with Kansas sports betting off to a sound start, that state is reaping the benefits of Missouri not having sports betting, especially around the Kansas City metropolitan area.
While the debate for launching online sports betting has been ongoing in the Missouri Legislature since the repeal of PASPA in 2018, a simultaneous discussion on video gaming terminals has become part of the debate over the last two years. Bussman believes that Missouri state Senator Denny Hoskins has become the pivot point on both issues; Hoskins wants to see a resolution regarding video gaming terminals before any movement for online sports betting can occur.
In Oklahoma, B Global noted that the outcome of the governor’s race will be critical for future gaming prospects, as Governor Kevin Stitt fends off a challenger with polls indicating a close race. Bussmann highlighted that while Governor Stitt is a tribal member himself, he has previously sued state tribes over existing gaming compacts.
“The relatively antagonistic relationship between the tribes and Governor Stitt makes the governor’s race the most critical election for Oklahoma in the near term,” Jonas wrote. “The tribes would welcome a change in the governor’s office, which would also likely be a requirement for moving the needle on sports betting in Oklahoma. Additionally, look for some form of igaming to come from some of the tribes as things continue to modernize with gaming in Oklahoma.”
B Global noted that Minnesota is a “California warning shot.” The situation in the Land of 10,000 Lakes “somewhat mirrors the current California climate, albeit at a smaller scale.” Eleven Minnesota tribes consider themselves the stewards of gaming and there continues to be conversation on how best to proceed with sports betting, Jonas said.
“While California has 60+ tribes to get consensus, Minnesota’s situation becomes in theory easier, but outside stakeholders including the electronic pull tabs, want a piece of the pie,” Jonas said. “B Global believes that operators desiring market access would be best served waiting and working with the tribes, so as to not repeat the California conundrum.”
Bussmann noted Kentucky’s position as surrounded by states that have approved online sports betting, shifting local sports betting and other gaming revenue to its neighbors. With the state legislature passing and clarifying a law legalizing historical racing machines last session, Kentucky has become the undisputed king of pari-mutuel betting. Bussmann noted that following the success of the HHR machines, the next priority for the state should be sports betting. However, he cautioned that this is one of the few states where a bipartisan approach has not worked.
“While Kentucky has flirted with casino gaming in the past, there is significantly more they could be doing, although it is yet to be determined if they take that next step,” Jonas said.
In the District of Columbia, B Global noted that the disappointment with sports betting there continues; added pressure will come from Maryland online sports betting potentially launching before the end of the year. That’s causing the D.C. City Council to start looking at ways to reform the process. From the beginning, the D.C. Lottery has been the incumbent operator under a controversial process that included a study, a no-bid contract, and a resignation of the lottery’s executive director.
As for igaming, B Global noted that following COVID lockdowns, there was an expectation that state legislatures would rush through legalization for interactive gaming, particularly igaming, to relieve constrained budgets. The unexpected support from the federal government somewhat reduced the pressure on state budgets, mitigating some of the urgency to generate new revenue streams.
“Mr. Bussmann notes that once budget reports and projections for revenues start to come in as states begin the budget process in 2023, there may be opportunities in those states that spent their entire federal-government allotment in one year,” Jonas said.
Bussmann also noted that experienced and qualified operators were the better stewards of igaming, thanks to their ability to better understand the marketplace and create synergies between the land and mobile platforms. B Global emphasized that states need to appreciate that tax rates matter and low-tax states could provide a better return on investment and innovation, as a counterpoint to the recent New York online sports betting launch (with its 51 percent rate), where some operators claim it could take a decade or more to recoup their initial investment. B Global noted that these lessons need to be learned by politicians to drive more thoughtful regulatory and tax paradigms, as new states look to potentially launch.
Other states that may be on the horizon for igaming in 2023 include Indiana and Iowa, Jonas said.
B Global highlighted next week’s election in Georgia as an important setup for installing the right legislature to pass future pro-gaming measures, as well as a supportive governor. Current polls indicate that voter support for casino gaming sits at around 60% and sports-betting support in the 45% range; thus, the question of merging the two onto one ballot initiative remains open.
Bussmann said that the presidential election in 2024 would be the better route anyway, as voter turnout will be greatly increased from moderates. With gaming seen as more of a centrist than a partisan issue, B Global believes this could increase the likelihood of a ballot initiative going through.
B Global notes that Texas Governor Greg Abbott has shown some openness to discussing gaming in 2023. However, similar to Georgia, numerous stakeholders in Texas include operators, sports teams, Native tribes, race tracks, and other groups that make it difficult to reach consensus on a proposal.
With the Texas Legislature meeting only during odd years, the next proposal will have to get done in 2023 or it will be delayed another two years. B Global noted that by separating sports betting and gaming issues, one or both would have a better chance at making it through.
Bussmann also highlighted the serious efforts by some gaming operators in Texas, employing a significant team of lobbyists for lawmakers to move things forward.
In Florida, B Global reported that the best course of action is to see what the courts decide about an existing case as it relates to the tribal compact approved in 2021. The Seminoles have a near monopoly on Florida gaming, so outsiders to the market “will likely try to figure out other ways to take this to the voters as we saw with the two initiatives that attempted to get on the ballot this year,” Jonas said. “Mr. Bussman noted that the Seminoles will fight any measures that could jeopardize their position and that it seems unlikely a happy compromise for everyone could be found, given the Seminoles’ current dominant position in the state.”
In New York, B Global highlighted that the opportunity for the downstate casino licenses will be contingent on several items, but it is more favorable from a tax perspective than the online sports betting landscape. The bill has a starting point of a 25% tax on slot revenues and 10% on tables, though the prices are likely to go up from there. “Hopefully, that does not create a floor based off of scoring in the upcoming request for application,” Jonas said.
Bussmann noted that the $500 million licensing fee is also problematic, as it would merely increase the cost of doing business in New York and does not create any specific jobs or investment directly into the project.
While incumbent operators in Genting’s Resorts World and MGM Resorts’ Empire City seem to be in a strong position for two of the licenses, the third license already has numerous potential applicants, including Caesars Entertainment’s Times Square proposal, Wynn’s Hudson Yards, Hard Rock at Citi Field, and a yet-to-be-named operator at Coney Island.
B Global noted that while there are significant visitation advantages to having an urban-center casino, the overall approval process is made more onerous by the number of stakeholders.
In Virginia, B Global noted that skill-based-machines (SBM) are currently in limbo. SBM became legal for a year in 2020 following COVID relief efforts, but a ban was implemented immediately following the reprieve. Now, numerous lawsuits from store owners are attempting to overturn the ban to continue the highly lucrative enterprise. Bussmann highlighted that SBM continue to pose consumer-protection and regulatory issues and exist in an unclear legal environment while the courts wade through the issue.
Virginia is also making progress on its state-licensed casinos, with four currently under construction and a Richmond or Petersburg location filling out the fifth license.
Virginia’s legislative research arm, JLARC, recently released a feasibility study that outlined potential outcomes from having one or two of the casinos constructed, noting that a Richmond-only casino could generate $300 million in gaming revenue by 2028.