Arkansas Mobile Sports-Betting Rules Include Restrictive Revenue-Share Provision

November 19, 2021
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Arkansas regulators voted Thursday to take the first step toward permitting mobile sports betting in the state, but potential operators expressed concern about a provision that would keep a majority of mobile revenues in the hands of Arkansas casinos.

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Arkansas regulators voted Thursday to take the first step toward permitting mobile sports betting in the state, but potential operators expressed concern about a provision that would keep a majority of mobile revenues in the hands of Arkansas casinos.

The Arkansas Racing Commission (ARC) voted unanimously to publish new casino gaming rules that would permit the state’s casinos and racinos to offer mobile sports betting. Currently, land-based sports wagering is permitted at the state’s three active commercial gaming properties.

Sports betting will also be permitted at a fourth casino property in Pope County that has yet to open but is now on track to do so after the commission voted last week to award a license to Cherokee Nation Business.

The commission will publish the rules and consider final approval at a December 30 meeting following a 30-day public comment period, but two issues have already arisen, one surrounding the number of skins each casino can operate and the other surrounding each party’s share of revenue.

Commission staff recommended publishing two versions of the rules: one that would give each casino two sports-betting skins; and one that would grant each licensee one skin, but allow the commission to grant a second skin with a showing of “noble cause.”

However, some commission members argued that any agreement between a casino operator and a sports-betting provider would require some form of good cause, making the distinction somewhat redundant.

The other glaring issue that rose to the surface during Thursday’s discussion was a proposed rule that would require casinos to keep a majority of net gaming revenue in any market-access agreement with a third-party operator.

That differs dramatically from any other state with a similar setup with operators tethered to casinos, said Sean Ostrow, a lobbyist representing FanDuel, DraftKings, BetMGM, Bally’s and Fanatics.

Ostrow said that an average market-access skin agreement provides the casino partner with a 5 to 15 percent gross-revenue share and a minimum guaranteed amount to assure that the casino is not harmed as part of the deal.

“If this were to be adopted, it would have the effect of making it nearly impossible for sports-betting operators to enter the market,” Ostrow said. “The rule would require them to relinquish the majority of the revenue, even though the operator’s role is the most labor and cost intensive.”

“That’s something that’s been very important to the casinos and that’s why it’s in the rule,” added John Burris, another lobbyist representing the sports-betting operators.

“Our issue with that, simply put, is we don’t believe it’s the state’s role to dictate business-to-business arrangements on a revenue-share agreement; we think it’s something that should be negotiated between the parties with your approval,” Burris said.

Byron Freeland, counsel for the seven-member commission, said that state law could prevent a more traditional market-access agreement whereby the third-party operator retains most of the revenue.

“If you allow a vendor or third party to take more than 50 percent of the proceeds, there’s an argument that you’re allowing someone who is not licensed by the state … to operate as a casino gaming entity,” said Freeland. “I think that’s a valid legal interpretation and I can guarantee you there’d be a lawsuit challenge over that.”

“Our position is that a revenue-share agreement does not dictate operational control,” Burris said in response.

“Every casino would have to sign a contract that [the commission] would have to approve, everything’s co-branded.[The casinos are] the ones dictating the terms, they’re just hiring what could be called a turnkey operator that brings a fan-base to the table, but the casino is the one doing the operating.”

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