Should Hawaii bet on online sports betting?

When the Kansas City chief’s offense suffered a catastrophic collapse in the final minutes of the AFC Championship game against the Cincinnati Bengals, it cost the team’s fans more than just a chance to win a Super Bowl title.

It also cost thousands of dollars across the United States betting money on the Chiefs, who were seven-point favorites heading into last week’s game. On the other hand, losing the Chiefs meant a huge payday for the minority putting money on the underdog Bengals.

Such is the risk that millions of Americans take each week in the 33 states that have a regulated form of sports betting. Now, Hawaiian lawmakers are considering joining those ranks and regulating betting in the islands.

Major proposals include bills to regulate sports betting on mobile devices and others to allow fantasy sports websites to operate in the state. Lawmakers have also put forward proposals for a casino in the state, but some see betting as more acceptable than other types of gambling.

“In some cases, the public sees sports betting as something far less taboo than casino games and other gambling products,” said Kahlil Philander, an economics professor at Washington State University who studies gambling. .

One of the main reasons Hawaiian legislators have considered gambling legislation in the past is to increase state revenue. Another reason is to reduce illegal bets. But experts warn that sports betting alone, or even combined with casinos, may not bring the expected tax windfall.

Billions of dollars can be wagered, but sportsbooks typically only keep 5% of all wagers as profits, according to Drake University law professor Keith Miller. State governments have to choose from this little pot of money.

“A state that’s looking to fix all the potholes or pay teachers a six-figure salary is going to be really disappointed,” said John Holden, a professor at Oklahoma State University who specializes in gambling laws. .

Fantasy Sports always a pipe dream

Lawmakers have introduced two types of bills aimed at legalizing sports betting in Hawaii. Some deal with traditional sports betting, where bettors bet on the expected winners and losers of a sports contest.

The other set of proposals would legalize the daily fantasy sports contest, which allows players to put money on certain player results or statistics such as yards gained for a football carrier or points scored by a fullback. shooting basketball. Proponents argue that these contests are skill-based and shouldn’t be considered gambling at all.

But since 2016, the state attorney general’s office has ruled that daily fantasy sports competitions are illegal under state law, which prohibits Hawaii residents from betting money on contests. by chance.

Because fantasy competitions always involve elements that could be beyond the bettors’ control – an athlete may be injured, bad weather or refereeing may disrupt play – the GA office felt that fantasy sports should always be considered games of chance.

The state AG’s office has ruled since 2016 that fantasy sports competitions should be illegal under Hawaiian law. Some lawmakers disagree. Screenshot/2022

Representative Angus McKelvey believes that fantasy sports bettors don’t risk their money on gambling, but instead look at a myriad of things such as how a team’s performance could be affected by injuries to key players and how the teams have faced each other in the past.

“It’s not anything like roulette,” McKelvey said. “It’s a very skill-based thing that takes into account a number of factors.”

McKelvey introduced the 2004 House Bill, which would legalize fantasy sports betting by exempting it from the state definition of gambling. The measure would be limited to operators of online fantasy sports websites like DraftKings or FanDuel.

Rep. Angus McKelvey Chairman of Consumer and Trade Protection.  Capitol.  February 22, 2017
Representative Angus McKelvey is pushing for a measure that would regulate everyday fantasy sports competitions. Cory Lum/Civil Beat/2017

HB 2004 would ban betting on high school or college sporting events. The measure would also require fantasy sports websites to register with the state and implement strict monitoring programs to ensure minors are not betting.

McKelvey said the websites would work directly with the state Department of Taxation to generate state revenue from fees and taxes on winnings, similar to how short-term professional hire companies do. Hawaii act as a tax collector between the consumer and the state.

Miller said Hawaii would need to find out-of-state experts with experience regulating gambling companies before embarking on legalizing sports betting.

On Friday, the House Economic Development Committee postponed HB 2004, meaning it’s likely dead for that year. Rep. Sean Quinlan, chair of the committee, said he wanted to work on the issue before the next legislative session.

“At some point, it’s something we absolutely should do,” Quinlan said. “It’s a huge market, and we’d be running out of tax revenue.”

Sports betting is not a cash cow

Sports betting laws expanded in the country after the United States Supreme Court ruled in 2018 that states should have the right to legalize sports betting in their own jurisdictions. Since then, states have seen mixed results on revenue from sports betting.

In the first three weeks that online sports betting was legal in New York this year, Empire State mobile betting sites brought in more than $91 million in gross gaming revenue, which will be taxed at a rate of 51%.

But not all states are equally profitable.

Virginia also recently launched online-only sports betting, similar to several proposals being considered by the Hawaii legislature. While books in Virginia brought in $3.2 billion in revenue in 2021, after payouts to bettors and other deductions, the companies ended up with $130 million in adjusted revenue. From this, Virginia got only $20 million.

Miller cautioned that states shouldn’t rely too heavily on sports betting to generate revenue. And they should exercise caution when considering measures that would expand the betting market, such as lowering the gambling age.

“Trying to fill a budget hole with any form of gaming product, that could be a form of addiction in itself,” he said.

Experts see mobile betting as a double-edged sword that could help control illegal betting, but could also increase the frequency of gambling problems. Cory Lum/Civil Beat/2020

House Bill 1973, introduced by Rep. Chris Todd, would allow companies that run mobile betting websites like Caesars Sportsbook or BetMGMG to operate in Hawaii. The measure would allow an unlimited number of licensees to operate in Hawaii. Applicants would have to pay a $50,000 fee to acquire a license and an additional $50,000 after each renewal. The licenses would be good for three years.

Companies would have to agree to pay 10% of their gross profits less earnings to the state.

Todd said the 10% tax rate is just a placeholder and he would like to consider other ranges if the bill is heard.

Rep. John Mizuno is proposing another sports betting measure through Bill 1815, which would tax companies at a rate of 55% on gross profits.

None of the measures would consider allowing traditional sports betting with a physical location where people can go and place bets.

Increasing access to online betting could help states eat away at the market for illegal reservations, according to Holden.

“If you have mobile sportsbooks, we could all do it from the couch,” Holden said, adding that some mainland sportsbooks could be an hour’s drive away.

Holden said states have many options when considering how to set up their tax and regulatory regimes. Those seeking to stamp out illegal activity may want to open up the regulated market by allowing an unlimited number of licensees and setting low barriers to entry, such as offering low application fees. Jurisdictions that want to maximize revenue could offer a limited number of licenses with high tax rates for operators.

But there are also fears that the ease of access is fueling gambling addictions.

A 2016 study by Australian and German researchers found that gamblers using mobile devices to place bets had higher rates of gambling problems than those who used computers or moved in person.

The three lawmakers who introduced sports betting measures, Mizuno, Todd and McKelvey, said they would like to divert some of the state’s sports betting tax revenue to drug treatment programs.

“I think mitigating any negative impact has to go hand in hand with any revenue generation,” Todd said.

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