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Small businesses have concerns about the open DC market but operators are in favor.

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It wasn’t all praise or adoration at the first DC Council hearing for a new bill to create a competitive, open sports betting market. While there were some interesting insights, no vote was taken or any plan as to what would happen next.

The Business and Economic Development Committee held a hearing on Monday, 6 May. It lasted three hours.

BetMGM, Caesars Sportsbook DraftKings, and Fanatics Beting & Gambling all testified for the cause.

A number of small-business representatives also gave passionate testimony. McDuffie, along with DC Lottery Chief Frank Suarez, revisited a previous combative conversation about why the change took so long.

A new bill will increase tax rates for sportsbooks in retail and restore funding to initiatives that address problem gambling and promote responsible gaming. The bill would allow for seven teams and franchises in professional sports to create partnerships with sportsbooks, and get a “Type C licence”.

McDuffie said that Intralot – which ran the now failed GambetDC – was “holding the Office of Lottery and Gaming hostage”. He said the Lottery has also allowed Intralot to have significant leverage.

McDuffie admitted, “I’m not happy about it.” I think that the District of Columbia should be better off today than we are, as the capital of the United States. It is not fair to force us into a revenue-generating decision with a sports betting company who has been a failure in managing the operation. “I think that there is a good case for them not to be involved.”

GambetDC failure still remains a topic of discussion

As things stand, OLG and Intralot have a contract for both lottery and sports betting. This contract’s genesis is the core of the current discussion.

The DC Council has agreed in 2019 to an Intralot contract that is not subject to bidding. McDuffie was against this decision. Suarez claims that the deal between lottery and Intralot includes both betting and lottery, and it cannot be divided. Separate contracts could be mandated by legislation.

Intralot’s Sports Betting product GambetDC failed to generate meaningful revenues, provided substandard odds, and limited betting markets.

Intralot, the OLG and FanDuel have agreed this year to subcontract their sports betting business to FanDuel. This was also done in a non-bidding process. FanDuel’s payment of $5m to the City, which is now a subcontract, represents more revenue to the City than GambetDC generated in its four-year operation.

Suarez stated that FanDuel had $14.7m of handle in the first two weeks and gross gaming revenues of $2.8m.

McDuffie, however, wants even more. He is calling for an open DC marketplace. Four major operators were present and made good arguments for the opening of the market.

Brandt Iden, from Fanatics Beting & Gambling testified in court that “his company estimates a market penetration between 1% and 2% due to the lack of accessibility and options”. Brandt Iden also stated that Fanatics Maryland customers have attempted to login while they were in Washington, D.C. About 10% of Virginia Fanatics’ customers also attempted to log in.

The offshore gambling market is illegal and there are no regulations to protect the customers.

Business owners who are against small business

Others agreed, saying that the District has only one option.

Small business owners want an open DC Market as much as the operators do. DC is home to one of the most comprehensive programs for minority businesses in the US.

The major operators must contract with women and minority-owned companies. Many testifiers stated that opening up the market will kill these small businesses.

Okera Stewart, Potomac Supply Company’s thermal paper supplier for gambling machines and kiosks, has said that his business could suffer if this bill is passed.

In a mobile-competitive environment, he said that the consumer would choose mobile devices over kiosks. The company’s expansion would be impossible in this scenario. McDuffie argued that as new operators entered the market, there may be more kiosks available to serve.

Both DraftKings’ and Fanatics’ representatives said they would look into brick-and mortar opportunities, if permitted to enter the marketplace.

Barbara Lang, former CEO of the DC Chamber of Commerce and owner of a consultancy firm, said that small business would be hurt by a highly competitive market.

She testified that a mobile gaming system dominated by competition would eliminate retailers who want to make money from their in-person games.

The lottery can work with retailers, like convenience stores and bars. Lang’s testimonies aside, it is not clear whether a new legislation would prevent this.

Caesars concerns about tax changes

Taxes were another key topic of discussion. Initiallly, Intralot was taking a cut of 57%. FanDuel now pays 40% of its operating costs, as well. The tax rate in McDuffie’s bill would either be 30% or 20% depending on what scenario is played out.

This will reduce the profit of the city, according to lottery officials. Operators say that a more competitive market will increase player spending and volume.

A tax hike could have a dramatic impact on Caesars. Capital One Arena is home to a company that operates a sportsbook.

Dan Shapiro, a Caesars employee testified that the situation puts the future of retail sportsbooks in jeopardy. It would be fatal, if it weren’t devastating.

The new law must create more opportunities for companies to enter the marketplace while increasing revenue. The new law should not be a barrier to existing businesses and local investments.

Continued Jousting

McDuffie vs. Suarez faced off for a second time in a year after the public testimonies were completed. McDuffie questioned the timing of FanDuel’s new contract.

Suarez was also pressed by him about the slow progress of the lottery in a Request for Proposal. This RFP is a first step towards a DC open market.

Suarez, along with his staff, suggested during that conversation that GambetDC might be re-considered if McDuffie’s bill is passed and the tax on digital games drops to 20 percent.

OLG claimed that FanDuel would be able to walk away from the lottery contract if tax rates were lower. This would leave OLG with no vendor. One staffer said that in this scenario “we’d end up back with Gambet and that isn’t what we want”.

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