Today's News-Register editorial explains why the state of West Virginia's take on sports betting should be increased if the U.S. Supreme Court gives the go-ahead:
After buying some computer hardware and software, the casino’s costs would be minimal. Much of the operation would be virtually automatic.
No, it wouldn’t. Unlike slots in which the customer has no control of the machine and the casino simply grinds out profits, the sports bettor makes choices and sometimes he/she wins big; profits are not automatic. Take the recent Super Bowl:
Caesars Palace sports book reported a seven-figure win on the Eagles’ 41-33 upset of New England in Super Bowl LII and the Westgate sports book reported a small win. But William Hill sports book reported a multimillion-dollar loss, CG Technology sports books reported a mid six-figure loss and most other Las Vegas sports books also lost on Sunday’s game.
Unlike slots, profit is not automatic. The editorial continues:
Casinos would have to pay $100,000 each for licenses to handle sports wagering, with renewals at the same price every five years.
While they are raking in the cash from sports betting, the casinos would have to pay state government just 10 percent of adjusted gross receipts.
“Raking in the cash”? Most of what is written about sports books suggests just the opposite. As Sports Handle states:
But sports betting is a different beast, and is already a low-margin product at best — somewhere between four and ten percent of handle, if being run properly, in any given month.
Taxing the crap out of a product that casinos barely profit off of — at least in a direct way — is perhaps not the best way to go about things. (Sports betting functions best as a product that gets people in the doors and using other amenities/gaming at a casino.)
But the editorial wants to increase the 10% take. That won’t work as gaming industry consultant Gary Erlich states:
Sportsbooks are a high volume-low margin business. If the taxes are too high, the economics will not work.
Why? Somebody has to pay the extra tax. Passing it along to the consumer will not work. That’s because they will become painfully aware of what the higher rate does to his/her betting capital. (Contrast that with slot machines where the customer has no idea what the house take is.) For instance, the basic sports bet in Las Vegas (which taxes at 6.75%) is betting 11 units to win 10 units on an event that has a 50% chance of happening. (For example, adding or subtracting points to make the contest an even bet (“the spot”) or the coin flip at the Super Bowl.) In WV, with a higher proposed rate of 10%, it will probably require betting 11.5 or 12 units to win 10 and I would think that Pennsylvania’s 35% rate will make it much closer to 15 units to win 10. You don’t need to be a mathematician to see why gamblers in Pennsylvania, for instance, will either go broke or realize that they have no chance of winning and give up. And the editorial wants us to move closer to Pennsylvania’s take. (Note – a number of online sources seriously doubt that Pennsylvania sports wagering will survive with that high of a tax.)
I would also take issue with the front-page story on what sports betting would mean for West Virginia. Joselyn King writes that:
State lawmakers have received a report from the Eilers and Krejcik gaming research firm proposing that 699 full-time jobs could come to local tracks the next five years as a result of sports betting, with another 233 resulting elsewhere.
700 jobs connected to sports betting? Are you kidding me? That one doesn’t come close to passing the smell test. If you’ve ever been to a large Vegas sports book, you know that’s a total fabrication. (Even in the largest of the casinos, you’ll see a couple of workers out front and a couple in the back. That’s it.) According to The Bureau of Labor Statistics, Reno, Nevada has only 120 workers in this area and the greater Las Vegas area comes in at 1,090 but the consultants tell us that West Virginia is going to create 700? And we paid these people $160,000 to do this research. Sorry folks, we were ripped-off -- they were paid to tell the lottery commission what they wanted to hear.
One last note: despite all that I’ve written, I hope we get sports betting and the take out is reasonable – it won’t survive otherwise.