DraftKings, MGM play chicken, MGM wins; Highway robbery in N.Y.

As we’ve written elsewhere, this was supposed to be The Year of Sports Betting … before the Covid-19 Delta variant reared its ugly head (and that was before Coronavirus knocked us out of Global Gaming Expo). But sports betting could still grab the prize, even if sometimes for the wrong reasons.

Maybe this isn’t the wrong reason but today’s top story is that, faced with potential litigation from MGM Resorts International, among other issues, DraftKings has spiked its $22 billion takeover offer for Entain, half owner of BetMGM. “We are not surprised by this outcome, because we viewed this deal as just too complicated to close from the start given … the sizable amount of equity that would have been used by DKNG in a ~$22B deal with 78% of this in newly issued equity,” writes JP Morgan analyst Joseph Greff, predicting that DraftKings stock would react positively to this sudden onset of sanity from CEO Jason Robins. The proposed buyout had been a drag on share prices.

“What remains unanswered to us, at least, is why DKNG launched this in the first place knowing the complications associated with closing a deal. We wonder how ‘defensive’ this bid was in the first place–whether it is because of incremental competitive pressures, potential deficiencies in parts of DKNG’s current tech stack, etc.,” writes Greff, who expects answers at DraftKings’ Friday investor call. The company could still get back in the Entain game—if somebody else makes an offer for it and, gosh knows, there’s nothing that chums the M&A waters like a failed takeover bid. Otherwise it has to sit on its hands for six months. Don’t expect a competing offer from MGM: CEO Bill Hornbuckle says he wants to control 100% of BetMGM but has no other designs on Entain.

New York State continues to screw the pooch with regard to mobile sports wagering. Snuck out at the end of last week’s news cycle were the tax rates “for anyone unfortunate to win the right to operate online sports betting,” as I. Nelson Rose puts it. You thought it would be 50% or so, right? Ha! It’s 65%. Sports books will have to make their nut on 35% of revenue which, in today’s sports-betting climate, isn’t much. This will give gambling purveyors a clear-cut choice between greed (Is 35% better than 0%?) and financial responsibility, especially to shareholders. Rose finds multiple problems with Friday’s announcement, among them being that tax rates will be set by the Gaming Commission and the not-inconsiderable obstacle that bookmaking is unconstitutional except for parimutuel wagering (a nicety that New York politicians have so far tacitly agreed to ignore).

The Empire State finesses this by contending that sports betting = casino gambling (an issue that will also soon be aired in Florida). Rose predicts a lawsuit, one targeting the provision he describes as “the State Legislature can ignore the express Constitutional prohibition on book-making by simply declaring that so long as a computer server is in a casino, a sports bet placed by mobile phone 100 miles away is ‘casino gambling.'” As for the seven betting providers, not only will they be on the hook for $25 million to the state but at least $5 million a year to the host casino. At least Empire City Yonkers can cut a sweetheart deal with itself, er, BetMGM.

Adds Rose, “Any tax rate more than 50% is toxic. Gaming operators feel, quite rightly, that the government is the senior partner.” He notes that when convicted felon Gov. Rod Blagojevich (D) raised Illinois‘ top casino tax rate to 70% one operator (we’re betting it was MGM) vowed privately to never put another penny into the Land of Lincoln. Says Rose, “a top rate of 65% shows government is greedy and will try to get more if the sports betting is successful.” Amen. Factor in the federal excise tax and New York’s effective rate would be 71%. It’s financially insupportable and if Big Gaming isn’t howling with outrage … well, it should be.

If that weren’t enough of a problem for the Empire State, Gov. Kathy Hochul (D, above) has been ensnared in a controversy over the $120 million purchase by public corporation Suffolk OTB of Jake’s 58 betting parlor from Delaware North. Mr. Hochul just happens to be general counsel for Delaware North and Gov. Hochul gets to name the top state gaming regulators. That’s all too cozy for the comfort of Suffolk County Executive Steve Bellone (D), who says the agreement was made on the sly and is hinting at a juice job. “Now without the oversight and management of a professional casino operator, Jake’s 58 Hotel and Casino, where hundreds of millions are wagered through its doors each month, is poised to become one of the largest political patronage operations in the State, if not the country,” Bellone wrote to key lawmakers. “At minimum, these troublesome actions are a signal of fiscal impropriety–and perhaps much worse.” He calls Suffolk OTB a petri dish for “a culture of shameless nepotism among Suffolk OTB leadership.” Hochul can probably ride this out (although her hubby should probably find a new employer) but we thought Andrew Cuomo had job security too.

After a blowout loss to the Tennessee Titans, the Kansas City Chiefs are reeling (3-4)—and so are oddsmakers. True, the Chiefs could get well against patsies the New York Giants, and TheLines.com favors them by 9.5 points but they have fallen as Super Bowl favorites from +500 to +1,300 (or eighth place among the consensus of reputable sports books). In other prognostications, the Arizona Cardinals (+3.5) are expected to remain unbeaten over the Green Bay Packers, while the two wallopings are expected to be administered by the Los Angeles Rams (14.5) to the Houston Texans and the Buffalo Bills (13.5) to the wretched Miami Dolphins. The Indianapolis Colts are predicted to pull off a 1.5-point cliffhanger over the much-injured Titans while if you like shootouts, Dallas versus Minnesota (54.5-point over/under) is for you. The Las Vegas Raiders have a bye but you probably knew that already.

MGM is $109 million richer after auctioning 11 Pablo Picasso artworks at Bellagio. Original owner Steve Wynn was a no-show but MGM didn’t have any trouble scaring up bids that exceeded expectations, with a portrait of Picasso mistress Marie-Thérèse Walter (above) fetching $40.5 million alone. A sculpture snared $24.5 million and a still life $16.5 million. It’s a shame to see this concentration of Picassos dispersed to the four winds but MGM wants greater diversity in its collection (a Jim Murren legacy). The sale proceeds will be rolled into purchases of artworks by women, people of color and disabled artists.

Casino-enabled tribes are flexing their muscles in Illinois, choosing to go commercial. The last two bidders left standing for a south-Chicagoland casino are the Choctaw Nation of Oklahoma and Wind Creek Hospitality, offshoot of the Poarch Band of Creek Indians. The latter can point to its stewardship of massive Wind Creek Bethlehem in Pennsylvania while the former has almost 24 casinos in other states, so it’s too close to call. The Choctaw casino would cost $300 million and have a 123,000-square foot gambling floor. Wind Creek would spend as much but offer much less gaming (64,000 square feet). We’re glad we don’t have to make the choice.

Jottings: It’s hurry up and wait for Louisiana sports betting, whose regulation is handled by the state police. The launch is considered at least one month distant. The state cops are still dealing with the fallout from Hurricane Ida, making the sovereign Paragon Casino & Resort (tribal) the only game not just in town but the entire state … Alaska bluenoses are getting their panties in a bunch over the prospect of tribal gaming in the state. They fear legislation before Congress to benefit the Catawba Nation in North Carolina could be extrapolated to redefine ‘tribal lands’ near Anchorage, where one indigenous band has already pushed for a casino … Technical issues temporarily crippled the casino floor at Bally’s Evansville. The erstwhile Tropicana changed names a fortnight ago, part of an aggressive Bally’s Corp. rebranding campaign … Slot routes in Galesburg will now be taxed one cent per spin at the behest of the Illinois city, which hopes to realize $400K per year. “We just really feel it’s going to come out of our hides,” lamented pizzeria owner Diane Budde … Macon is the armpit of Georgia, so a casino at Macon Mall can only be an upgrade. Legislators are hoping to legalize four casinos and two horse tracks this session but we remain hopeful yet skeptical.

Quote of the Day: “We were told that in Las Vegas we wouldn’t see revenues return until 2024 or 2025, but here we are in the fall of 2021 and the market has blown wide open … when they opened the doors in Vegas it took about 30 minutes. Once they opened the doors up it just recovered, and it’s a gaming-based recovery, it’s not a convention and banquet-based recovery. That’s yet to come.”—Las Vegas Sands CEO Rob Goldstein, raising the question of why he was so precipitate to evacuate Sin City.