Illinois passes betting bill with 18-month ‘penalty box' for online operators

Illinois yesterday passed a wide-ranging gambling expansion package bill that legalized online and mobile betting, but limited initial roll-out to local casinos, racetracks and big sports stadiums.

Online-only operators will face an 18-month wait after the official launch date to roll out their products.

Licenses will also cost $20m, with a maximum of three available via a competitive proves, and operators will be taxed 15% of gross gaming revenue (GGR).

The clause was proposed as a compromise for the local casinos’ lobbying efforts to enforce a three-year ‘penalty box’ for DraftKings and FanDuel, for allegedly operating their fantasy products illegally in the state.

Online operators could choose to partner and operate under the brand of existing casinos for the first 18 months.

“Online-only operators have an interesting choice to make,” noted analyst firm Regulus Partners. “Partner early and gain first-mover advantage and lower initial costs, or stump up US$20m in 18 months’ time and gain full control of the P&L once the market has bedded down somewhat.

“The recent history of US state expansion will suggest a mad scramble for the former. But given relatively poor operational execution so far, this might leave the way open for a very brave operator to bide its time for the latter. Much may depend upon what the DFS-led operators and bet365 choose to do”.

DraftKings CEO Jason Robins compared the clause to a ride-sharing bill that excluded Uber and Lyft from operating.

“Very disappointing that Illinois customers will not have the best options available to them for 18 months,” Robins added.

While it is good to see sports betting bills passed, excluding DraftKings and FanDuel is like passing a ride sharing bill that excludes Uber and Lyft. Very disappointing that Illinois customers will not have the best options available to them for 18 months.

— Jason Robins (@JasonDRobins) June 2, 2019

Make no mistake – this was not an accident. @PlaySugarHouse – aka Rivers Casino – was afraid to compete on a level playing field in Illinois and did everything possible to keep @DraftKings & @FanDuel out of the market thru unconstitutional legislation. #fail https://t.co/4f6AIDxsSf

— Jeremy Kudon (@JKudon) June 2, 2019

Retail incumbents will be able to launch as soon as regulations are in place, providing they pay a hefty fee for a so-called master sports betting license.

The fee is calculated on 5% of gross gaming revenue from the previous year for casinos, up to a maximum of $10m.

Local sports venues like Wrigley Field and Soldier Field will be able to apply for a license to offer betting within a five-block radius.

The bill includes a mandate for the use of official sports league data, but nothing on integrity fees is featured.

The bill was welcomed by Rush Street Interactive, which operates local casinos in Illinois.

RSI president Richard Schwartz said in a statement: “We are excited by the legalization of sports betting and the prospect of making history by bringing our innovative and award-winning mobile platform to Illinois. Only two years after entering the New Jersey online market in 2016, Rush Street Interactive was named “Mobile Operator of the Year” at the EGR North America Awards 2019.

“This prestigious recognition was earned due to the quality of the user experience delivered by Rush Street Interactive’s products andthe company’s focus on delivering what sports betting players want, a massive range of betting options, responsive customer service, and fast payouts…We look forward to bringing the same top quality, award-winning products and services to players in Illinois where we are headquartered.”

Stock updates: Most stocks responding to Illinois expansion bill as analysts expected in early trading. $CHDN, $IGT and $SGMS are up while $BYD, $CZR, $ERI and $PENN are down.

— Matthew Waters (@ByMatthewWaters) June 3, 2019