DC Lottery Needs Changes To Boost Sports-Betting Revenue

September 10, 2021
The DC Lottery’s sports-betting product is performing poorly, and the city should consider increasing the tax rate on private operators, as well as other structural changes, to assist the struggling program, according to a new report from D.C.’s independent monitor.


The DC Lottery’s sports-betting product is performing poorly and the city should consider increasing the tax rate on private operators, as well as other structural changes, to assist the struggling program, according to a new report from D.C.’s independent monitor.

The analysis, released Thursday (September 9), confirmed that sports-betting revenues have fallen short of projections primarily due to delays in releasing GambetDC, the lottery’s mobile betting app, as well as delays in establishing retail locations.

Auditor Kathy Patterson also found that issues with the city’s regulatory structure were to blame for the revenue shortfall.

She noted that it was difficult to make judgements on GambetDC’s performance due to the “unforeseen circumstances attributed to the coronavirus pandemic.”

But based on William Hill’s strong retail experience at Capital One Arena, auditors did find that delays in establishing the lottery's own retail locations have adversely affected the lottery's own financial performance as a sports-betting operator.

In addition to the Caesars-owned William Hill sportsbook, GambetDC also competes with relative newcomer BetMGM, which offers mobile betting strictly within a two-block radius of Nationals Park baseball stadium.

The auditor's report urged the Office of Lottery and Gaming (OLG), which oversees the DC Lottery, to increase its emphasis on establishing a GambetDC retail network to increase revenues to the district.

Last month, the DC Lottery-run sportsbook platform introduced self-service, cash-only kiosks at four sports bars in different areas of the city. A location gets 5 percent of the handle where the wager is made and 1 percent of gross gaming revenue (GGR) from the winning ticket when cashed.

In a response to the audit, OLG executive director Frank Suarez said the lottery authority had begun addressing some of the concerns identified by Patterson and auditors.

Suarez said the city’s recent launch of GambetDC kiosks in bars and restaurants should generate new revenue. He said more kiosks will be installed in traditional lottery retailers, including convenience stores.

“Despite the initial negative impact of the COVID-19 pandemic on professional sporting events and the number of commuters and tourists that visit the district, significant progress has been made since launching sports wagering,” Suarez wrote in a letter dated September 3 in response to the audit.

“We are excited about the future and developing a robust and lucrative sports-betting business that supports the economic vitality of the district,” Suarez said.

He added that the addition of physical sportsbooks operated by BetMGM and FanDuel at Audi Field, home to D.C. United of Major League Soccer, should increase overall revenues.

Auditors suggested that regulators grant licenses to additional private sportsbook operators.

Under a 2019 law, retail and limited mobile betting can be offered at the city's four major sports arenas, as well as within bars and restaurants. So far, only Caesars/William Hill and BetMGM have been licensed for in-stadium sports betting and Elys Game Technologies for a sports wagering operation at a bar in the Adams Morgan neighborhood. FanDuel submitted a license application to operate sports betting at Audi Field in June, according to OLG records.

Revenue projections that forecast the lottery's app and website would generate $17m in annual revenue have so far fallen short.

In July, the sportsbooks operated by William Hill and BetMGM posted more than $10.65m in betting handle and $1.36m in revenue, compared with $2.15m in handle and $432,726 in revenue for the lottery platform.

Auditors found that D.C. accepted $30.6m in wagers between the launch of GambetDC on May 28, 2020, and the end of March 2021 but paid out $26.2m in winnings.

But of the $4.27m in gross revenue, the city kept only $444,400 after paying technology partner Intralot about $3.93m to manage GambetDC.

The city is required to turn over about 42.5 percent of gross revenue to Intralot, which the auditors found was a lower percentage than other states they studied.

The DC Lottery also paid Intralot an additional $1.58m to offset the company’s operating costs, such as bonuses, promotions and marketing activities.

The audit compared D.C. with five states — Colorado, Illinois, Montana, New Hampshire and Rhode Island — that offer online sports betting.

Patterson noted in her report that similar lottery-operated sports-betting platforms in New Hampshire and Montana do not cover the primary technology provider or operator’s marketing and bonus costs.

“All the direct costs contained in the contract are necessary for the successful operation of a sportsbook,” Suarez wrote in response.

“The OLG is reviewing the contract to determine if those costs should be added to the percentage of GGR paid to the contractor or if the services covered under the direct costs (e.g., advertising) should be transferred to a separate contract.”

However, Suarez said, because these are required services, incorporating the costs of these services into the percentage of GGR paid to the contractor or moving them to a different contract will not likely increase revenue to the city.

Auditors also found the 10 percent tax rate on privately-operated sportsbooks mirrors the rate enacted by Colorado, while Illinois has a 15 percent tax on GGR. The report suggested D.C. could explore whether increasing its tax rate would increase revenue.

Suarez reminded auditors that the 10 percent tax rate is set by law.

“The OLG is aware of the tax rates set in other jurisdictions and will provide such information to the Council and mayor for their consideration of potential changes to the law that would be beneficial to the district,” he wrote.

The report also suggests that the district may benefit from improving betting odds. Auditors noted that although D.C. would retain a smaller share of revenue, improved odds may lead to an increase in bets.

“Improving the GambetDC app’s functionality and technical issues experienced by users could also assist in attracting additional betters to GambetDC,” they wrote.

In response, Suarez wrote that lottery officials and Intralot “continuously review payouts and will make adjustments as required in order to be competitive in the marketplace and to maximize revenue for the district.”

Suarez also said GambetDC is continuously being improved to meet the needs of its customers, including the release of a pre-determined parlay wagers section to promote easy parlays and daily promotions to incentivize play.

Overall, Patterson wrote, “the future success of GambetDC will be tied not just to the strength of the district’s recovery from the pandemic but also the steps the OLG takes to increase sports wagering revenue.”

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