Sign 'o’ the times

Illinois tax squeeze portents, Queens casino opposition, Swedish black market claims +More

May 30, 2024

Illinois’ tax increases might be a sign of things to come.
In +More: Supreme Court sets West Flagler appeal date.
Mets owner Cohen runs into Queens casino opposition.
Sweden’s tax rise will foster the black market, claims report.

If a night falls and a bomb falls, will anybody see the dawn?

Illinois ramifications

That sinking feeling: Sportsbooks are considering their future in Illinois after a new graduated tax system, which could take 40% from the biggest operators, was passed by the Illinois state House on Wednesday. The measures – part of the Illinois state budget – now head for the signature of Gov. JB Pritzker, with the new taxes coming into force on July 1.

DraftKings shares tanked 14% during trading on Tuesday and are down 17% in the week so far, while Flutter Entertainment, owner of FanDuel, is off by over 10% this week on news of the bombshell vote.

🤢 Investors in DraftKings and Flutter be IL-ing

Targeted: Based on LTM market share, analysts estimated the pair could wind up paying between them $146m more in taxes per year, as they are within the top band of operators whose annual GGR exceeds $200m.

Illinois’ new tiered system has operators with revenue below $30m paying 20%, up from the current 15% flat rate.
Only New York has a higher levy, with a rate of 51% for online operators.

No escapin’ this: The revenue bill containing the gambling tax rise eventually moved forward by 60-47, and is now expected to pass through the House of Representatives and be signed into law by Gov. Pritzker.

The Sports Betting Alliance, a powerful industry lobby group consisting of BetMGM, DraftKings, FanDuel and Fanatics, has said its members are “re-evaluating” their presence in the state. Industry voices have also said the move would force operators to cut spending and ultimately provide a poorer service to customers.

“The ripple effects of significant tax rate increases will only serve the offshore operators,” said Ryan Horodyski, sportsbook assistant general manager at Live! Casino & Hotel.
“To combat the higher tax rates, legal operators will be forced to cut promo and new customer acquisition spending… and offer worse prices to consumers.”
“Whether legislators realize it or not (they do), customers will gradually start to head to the unregulated operators that pay no taxes and major operators could potentially leave certain jurisdictions altogether,” Horodyski added.

He had it coming: The result wasn’t entirely unexpected, given noises from Gov. Pritzker earlier in the year, who floated a plan to hike the base rate from 15% to 35%. At the time, DraftKings CEO Jason Robins responded to the proposals by stating the business would likely cut marketing spend and reduce customer promotions.

“In the end, the cost has to get absorbed by the consumer if the government raises taxes,” Robins said.
“For DraftKings and FanDuel we believe the new progressive tax proposal is roughly in line with the governor’s previously proposed 35% flat rate in February,” said Bernie McTernan, analyst at Needham & Co., in a research note to clients.

He suggested the new proposal favored smaller operators such as Rush Street Interactive and Penn Entertainment. “Thinking through the long-term implications, we expect fears of higher tax rates broadly to be more of a concern for investors,” he said.

Warning signs: Recall, the team at Deutsche Bank warned earlier this week that tax rate increases were “one of the primary risks for the OSB operators.”

“With the recent decision to raise taxes in Ohio and now Illinois, we believe others are likely to follow,” the team added.
“We have felt, for some time, that the New York tax rate, and the taxes paid to the state, were a risk factor for the sector, and we believe that is proving true.”

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+More

Date with destiny: The Florida vs. West Flagler case will be reviewed by the US Supreme Court on June 13. The court will either deny West Flagler’s petition to review the decision by the state court in Florida, uphold the compact or immediately overturn the original decision.

Denmark’s gambling authority Spillemyndigheden is consulting on proposed changes to requirements for reporting game data, to be introduced from next year. Operators must report all sports bets as separate transactions, detailing individual selections in combination bets to provide further transparency.

Online poker operators must specify the types of poker games, such as tournaments and cash games, and provide test data for jackpots. Stakeholders have until June 10 to respond.

The old college try: Fanatics Sportsbook has been fined $10,000 by the Massachusetts Gaming Commission (MGC) for taking bets on a college football game. In December, the sportsbook took a wager on an in-state football game, which breached state betting laws.

Fanatics self-reported the violation and nulled the bet, refunding the customer.
It claimed a new employee had incorrectly turned on the feature to allow in-state wagering.
Along with the MGC, the Investigations and Enforcement Bureau recommended the $10k fine be implemented.

Bulgaria has received a positive report from Moneyval, Europe’s key AML oversight body, which found the country has improved its measures for tackling money laundering and combating the financing of terrorism since a disparaging mutual evaluation report was published in 2022.

Indonesia’s ISPs have been threatened with the loss of their licenses should they fail to comply with the state’s efforts to curb illegal online gambling, reported Asia Gaming Brief. The measure was announced by the Indonesian Ministry of Communication and Informatics.

Minister Budi Arie Setiadi emphasized the necessity for ISPs to automatically synchronize with updates to the list of negative content in the Trust Positif Kominfo domain name system.
The list contains entries related to illegal gambling that need to be blocked.

What we’re reading

I’ve come home, I’m so cold: The ex-CEO of the Malta Gaming Authority Heathcliff Farrugia has been convicted for leaking secrets to the alleged mastermind of an investigative journalist’s murder.

Cohen casino plan blow

Fool for the Citi: New York Mets owner Steve Cohen has run into major opposition for his plan to build an $8bn casino near Citi Field ballpark in the form of a state senator from Queens. Democrat Jessica Ramos has said she doesn’t want it in her district and she would not approve laws that would allow Cohen’s vision to move forward.

“I will not introduce legislation to alienate parkland in Corona for the purposes of a casino. Whether people rallied for or against Metropolitan Park, I heard the same dreams for Corona,” Ramos said.
“We want investment and opportunity, we are desperate for green space and recreation for the whole family. We disagree on the premise that we have to accept a casino in our backyard as the trade-off,” she said.
“I resent the conditions and the generations of neglect that have made many of us so desperate that we would be willing to settle.”

We got this: A spokesperson for Cohen’s project said in a statement following Ramos’ announcement that the development “enjoys overwhelming support from elected officials, unions and the local community.”

“Our team remains committed to bringing Metropolitan Park to life, with gaming as the only viable economic engine to make the 23,000 jobs, $8bn investment and substantial community benefits possible,” they added.

Adams-ant: New York City Mayor Eric Adams, on the other hand, suggested a casino could be good for the area. “We want a casino here. It brings in union jobs. It’s great economic development,” he said. “Jessica has to represent her senatorial district and the electors in that area. We’re not putting our finger on the scale in one place or another. I just want casinos here.”

The Empire State is expected to approve up to three casino licenses in the next year, as the complex state-approval process continues.
Eight locations are bidding.

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Swedish tax analysis

Unintended consequences: The proposed tax increase in Sweden has come under fire from the trade association of Swedish operators, which claimed the hike from 18% to 22% would lead to further leakage to the black market.

A report from Copenhagen Economics commissioned by the Swedish Trade Association for Online Gambling (BOS) has calculated that the rise in taxes would see the rate of channelization fall by between 1.2% and 2.5%.

The report claimed this would lead to more individuals developing problem gambling issues due to the lack of consumer protections offered by unlicensed operators.

Missing the target: The authors also estimated the state would fail to realize the expected revenue gains from the tax rise. The government has said it hoped to raise an extra SEK539m annually ($50m) but Copenhagen Economics suggested the amount raised would be a fraction of that or between SEK214m and SEK399m.

Creating problems: “At the price of a modest net addition to the treasury, the tax increase creates around one thousand new cases of people with gambling problems,” said Gustaf Hoffstedt, secretary general, BOS.

“Thus, gambling problems that would never have occurred without the increase in the gambling tax.”
He added that the government should “completely overhaul” its gambling policy and instead “protect and strengthen the legal gambling market.”

Swedish fines

The Swedish gambling regulator Spelinspektionen has fined two iGaming developers around SEK2.6m for supplying content to illegal operators. Hacksaw Studios and Panda Bluemoon were reprimanded by Spelinspektionen, which said it found the pair supplying software to unregulated companies.

Zimply put: In separate news, the Swedish Administrative Court has ruled against Spelinspektionen over the threat it issued against payments provider Zimpler for what the authority claimed was the facilitation of service to unlicensed operators.

Zimpler appealed the SEK25m fine, arguing it should be able to mediate payments to EU-licensed companies as long as they are not targeting the Swedish market.
The court said the regulator lacked the grounds for its order.

Better news for Spelinspektionen came with the partial upholding on the part of the Administrative Court of fines levied against five operators for breaching bonus conditions and duty of care provisions.

Back in 2021, the authority issued the fines against four ComeOn brands and XC Gaming, which operates two brands in Sweden.

Calendar

Jun 6: Gaming in Holland, Amsterdam
Jun 18-20: Canadian Gaming Summit
Jul 17-20: National Council of Legislators from Gaming States, Pittsburgh

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