Secretary of the Interior Deb Haaland has jumped the shark. Her department has wisely-washily neither confirmed nor denied the controversial Seminole Tribe compact with the state of Florida, one that gives the Seminoles control over sports betting in the state. As a result, it goes into effect Oct. 15. What this means, practically speaking, is that we could drive across the Florida state line, park at the nearest rest stop, place a mobile wager from the restroom and have it be classified as ‘tribal gaming’ because all such bets are routed through servers on Seminole sovereign land. Yes, a toilet stall on the interstate could qualify as a ‘tribal gaming’ location under the terms of the compact. Haaland must have known this would be a hot potato, as the Interior Department snuck the decision out under cover of darkness (“quietly and passively,” as one newspaper put it). Or rather, they dumped it on the proverbial curb on Friday, the end of the news cycle when nobody would be looking. A court challenge is inevitable and, we hope, successful.
Deutsche Bank analyst Carlo Santarelli showed some skepticism of his own. He wrote, “While the initiative is likely to be legally challenged by numerous parties, and while [DraftKings] and FanDuel have partnered to get a petition signed to get on the November 2022 ballot, the way things currently stand, online mobile wagering in Florida is a monopoly, something we believed was likely to be the case, despite optimism around the skin partners. We believe that optimism should have faded once the DKNG/FanDuel effort to seek a different path got underway, as it essentially implied that both operators recognized that the hub and spoke OSB model via the Seminole Tribe wouldn’t work.”
Noting that Florida represents 7% of the U.S. population, Santarelli opined that the compact would be tied up for years in litigation and that the Seminoles would probably launch in mid-October anyway, leaving other operators out in the cold. Meanwhile, the tribe also gets to offer craps and roulette, as well they should. Santarelli added that, “given the importance of the Compact to both the Seminole tribe and the State of Florida, and considering the ~$500 mm of annual payments to the state that will recommence, after being withheld for several years, the prospects for a robust multi-operator OSB market in Florida appear dim, and we believe the investment community should begin to recognize some of the challenges in tribal- dominated states, as we don’t believe California (12% of the U.S. adult population) is likely to be much different.”
Haaland’s underlings whistled past the graveyards of previous compacts, writing that “evolving technology should not be an impediment to tribes participating in the gaming industry” and the Indian Gaming Regulatory Act “would be served through the improvement of tribal-state cooperation in the regulation of mobile wagering.” This is great news for tribes in California, who had feared IGRA too much to push for online sports betting. Maybe they should rethink their 2022 ballot initiative in light of this latest regulatory curveball. “Multiple states have enacted laws that deem a bet to have occurred at the location of the servers, regardless of where the player is physically located in the state,’’ Interior stated. “The Compact reflects this modem [sic] understanding of how to regulate online gaming.”
There were a couple of Haaland qualms appended to the otherwise supine letter. One was that Interior “does not endorse” a stipulation that tribes have to contract with ‘qualified parimutuel operators’ to market Indian sports betting, an obvious sop to the private sector and one that hopefully will be stricken. The other federal reservation (pardon the pun) was a provision whereby lawsuits in tribal court have one year in which to be resolved, whereupon they devolve to the state courts. “Compacts are not the appropriate vehicle to shift patron dispute and tort claim jurisdiction to the states,’’ said the feds, calling “an impermissible compact provision under IGRA and is likely unenforceable.” The Interior (in)decision also slurped the Seminoles for “an incredible success story,” in gushy verbiage that almost brought our lunch back for a return visit.
No Casinos Director John Sowinski was quick to pounce, saying, “The 2018 constitutional mandate of 72 percent of Florida voters could not be clearer. Only Florida voters, not politicians in Tallahassee or Washington, have the power to expand gambling in Florida. This issue will have its day in both State and Federal Courts, where we are confident that this compact will be overturned.” Considering that Amendment 3 was heavily underwritten by the Seminoles, they will have to argue in court that they’re now in favor of the legislative intervention they previously—and loudly—opposed. In essence, they’ll have to say they really didn’t mean it when they pushed Amendment 3.
Today was the deadline for applications for being New York State‘s OSB provider, a big enchilada if ever there was one. “From [state] documents, we believe the likely outcome is that two consortiums will be chosen, with each consortium having several OSB operators, likely 4 or more,” wrote Santarelli. “our sense is that there will be a minimum of 8, and potentially more, OSB operators. We expect the consortiums to partner with existing tribes in the state, but we do not believe the lottery operators will play a role.” He predicted the eventual tax rate would be steep but not as exorbitant as the 60%+ that Gov. Andrew Cuomo (D) is trying to extort. “While profitability is likely to take time, the size of the market, which we estimate to be ~$1.1 bn at maturity, will ultimately be what determines whether some operators can earn a reasonable return.” It will be interesting to see how many OSB operators are willing to whore themselves out to Cuomo for the bragging rights to be in the Empire State. Don’t expect a final embrace until September.
Tilman Fertitta just got rich(er). He’s selling Golden Nugget Online to DraftKings in a $1.5 billion deal. If consummated, the sale will allow DraftKings to capture sizable market share on the East Coast without having to compete for it, particularly in New Jersey where it must chap the company’s Boston-based ass that FanDuel reigns supreme (and in Pennsylvania too). DraftKings arguably overpaid Tilman, rewarding him with a 53% premium ($18.83/share) on GNOG stock prices. The Texas billionaire also gets a seat on the DraftKings board. With a larger database—5.5 million customers—at its fingertips, DraftKings expects to realize $300 million in synergies through the combined operations, as well as by cutting jobs and getting reduced access fees at brick-and-mortar Golden Nugget properties. DraftKings also gets into live-dealer Internet gambling via GNOG. “In addition, while GNOG has lagged in the OSB arena, the brand has done fairly well in New Jersey in the iCasino vertical,” Santarelli observed.
Putting today’s news in the context of Penn National Gaming‘s acquisition of TheScore, analyst Joseph Greff of JP Morgan discerned a trend of M&As in the sports betting sphere, “a trend that likely isn’t over, in our view.” He furthermore observed that DraftKings made parallel agreements with Fertitta’s Houston Rockets, his Landry’s restaurant empire and with Fertitta Entertainment (hence the size of the database). “This will give DKNG access to more customer lists and more efficient market access rights.” It’s been a good year for Fertitta, who let Las Vegas Sands do all the heavy lifting in the Texas Lege, allowing his name to be dropped but not moving a finger nor spending a penny to help. If Sands had prevailed, Fertitta would have benefited for free and if they lost (which they did), his political capital remained intact. Wethinks Tilman knew it was a losing proposition and wisely stayed his hand.
Jottings: Shaquille O’Neal will be the friendly face of WynnBet, as both a brand ambassador and strategic consultant. Predicted Shaq, “Mobile sports betting is having a major moment, and I believe that WynnBET will be a powerful force in the industry.” Part of the new deal involves a free game, ShaqPot, that will be carried on the WynnBet platform. However, O’Neal will have to relinquish his share of Sacramento Kings. Guess it was worth it … BetMGM, meanwhile, has landed in Arizona, the sports-betting partner of the Arizona Cardinals and the Gila River Hotels & Casinos chain. The deal entails three walk-up sports books at Gila River casinos, one at State Farm Stadium, and an online presence, naturally … MGM Resorts International is negotiating with the Culinary Union to give vaccinated employees precedence for working major events. Really, MGM should issue a vaccination mandate for its workforce but this is a good first step … Speaking of Coronavirus, MGM is resorting to Andromeda Strain scare tactics in its newest video news release. And that’s a good thing:
Governor DeSantis is the GUV from Blazing Saddles, offering trinkets to the Native Americans to further his schemes… The GUV thinks life is like a playground handball game where the loudest voice gets to make up the rules. The Seminole’s played this bad, they should have resisted this power grab and backed out, there was at one point some high ground to stake. I have a hard time believing the courts will let this fly, it smells like poo poo. Expanding gambling is simply expanding gambling. I realize the modern “thinking” dictates that lies become the truth if you say them enough, the courts need to step up and do their job… Santarelli is 100% correct that California is also going to experience some wacky goofy sports betting tap dancing designed to monopolize and protect this looming cash cow…