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Delaware Voice
Monday, June 23, 2008


Why a sports lottery is a bad bet for Delaware

By William R. Eadington, William Latham and James Butkiewicz
delawareonline.com

Backers of legislation that would authorize a sports betting lottery in Delaware are trying to sell Delaware voters and legislators a bill of goods. They are trying to convince the state legislature that legalizing sports gambling would be the answer to Delaware’s $150 million budget deficit with baseless projections of $71 million in revenue to the state’s coffers.

We beg to differ. Our two studies, released yesterday, show that proposed sports lottery betting in Delaware will – at best – bring in $3 million in state gaming tax revenues. That difference is too large to ignore in this time of financial crisis facing the state – and its taxpayers.

House Bill 190’s supporters are basing their assumptions on a report prepared by the gaming industry and their three intended beneficiaries: Delaware Park, Dover Downs, and Harrington Raceway. As professional economists, we vehemently disagree with the assumptions and findings of the gaming industry report.

We have reviewed their report, and we conclude that the bulk of the assumptions made in this report cannot be substantiated. Consequently the conclusions of the study cannot be supported.

Common sense, and the experience of similar sports betting markets elsewhere show that the report’s projections have no chance of being accurate, or even in the ballpark.

Even “The Governor’s Task Force on Sports Betting” concludes that revenue gains to the State from this form of sports betting would be modest, in the vicinity of $3.5 million per year. Our analysis shows even that amount is optimistic.

An essential flaw with these reports is the implicit assumption that sports betting would be a major draw in and of itself, leading to more players at the slots machines and a carry-over increased benefit to other non-gaming activities.

Indeed, most of the increased state gaming tax revenues projected in both reports would come from increased slots revenues generated by bettors who are assumed to also wager on sports. They are not projected to come from sports betting itself.

All existing evidence from Nevada and from professional studies by economists indicate that there will be little to no crossover betting. In short, very few sports bettors would be interested in playing slots and vice-versa.
There’s no denying that sports betting is popular. It is arguably the largest type of illegal gambling in the United States. But sports lotteries, such as the one proposed for Delaware, have had a very poor track record.

Analyzing Nevada’s experience with sports betting provides some insights into what Delaware can expect should it go forward with a legal sports lottery product.

If H.B. 190 passes, sports betting will be offered in three Delaware venues. Nevada has more than 180 gaming locations where sports betting is offered, yet the total amount of revenue generated by all sports betting in Nevada represents only 1.3 percent of gross gaming revenues in the state.
Thus, even in Nevada, where traditional head to head sports betting is allowed, this market generates only limited revenues.

But 80 percent of Nevada sports betting is made on head-to-head contests. Only a small portion of all sports wagers in Nevada are made on lottery-style sports wagers. Indeed, such wagers make up only 0.2 percent of all of Nevada’s gaming revenues.

Finally, the survey on which the gaming industry report’s revenue estimates are based failed to account for several logistical problems that will be encountered by potential sports bettors in Delaware, such as the rising price of gasoline and the fact that sporting events that attract the interest of potential bettors do not happen every day. Visits by potential sports bettors would occur before important games and tournaments, and would not be evenly spread over the calendar.

If Delaware’s primary objective is to raise significant additional revenues from gaming, the only viable option would be to increase the tax rate on the existing video gaming devices at the racinos.

Permitting legal sports betting, even under the best of circumstances, will do very little to generate general fund revenues. The legislature should focus their attention on ideas that will work rather than taking a bad bet that could not benefit Delaware’s financial future.

- - Professors James L. Butkiewicz and William R. Latham are former chairmen of the University of Delaware’s economics department. William R. Eadington, Ph.D., is a professor of economics and director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.