Small businesses eligible to receive sports-betting licenses in Maryland will face high upfront costs, intrusive regulatory investigations and risk significant losses week-to-week, according to a panel of experts from larger operators.
On Friday (May 6), some 200 politicians, business owners, gaming executives and regulators gathered inside the Montgomery Park building in Baltimore to hear from two panels of experts on Maryland's unique approach to sports wagering that makes many licenses for retail and mobile sports wagering available to small and minority-owned businesses in the state.
“Sports betting is a terrifically exciting business to be in but there are risks involved,” cautioned Johnny Grooms, director of east coast retail sportsbook operations with BetMGM.
“An entrepreneur is someone who takes the risk of opening a business,” Grooms said. “When it comes to sports betting there is substantial risk … you have to realize that it is the gaming or gambling business and the potential to lose is there.”
Grooms warned potential licensees that there is a very small margin between winning and losing.
“It’s public knowledge that in the month of February … we had almost $8m in handle and we lost $3,800,” he said. “I don’t want to be the doom and gloom guy, but I want to make sure anyone entertaining the thought process of going into this business understands the risks involved.
“You can lose money,” he added.
Grooms, who oversees the sportsbooks at MGM National Harbor in Maryland and Nationals Park in Washington, D.C., said on the first National Football League Sunday following the opening of the sportsbook at National Harbor on December 9, the favorites went 14 and two against the spread.
“When the favorites are winning the sportsbooks aren’t doing well,” he said. “That Sunday, MGM National Harbor lost $300,000. So again, that risk does exist. However, the following week the empire struck back as it tends to do. We went the other direction the following week.”
Maryland's legislation enacted last year allows for retail sports betting at casinos and a handful of other named locations, with up to 30 additional retail and 60 mobile licenses to be awarded in part based on ensuring diversity in the state's sports-betting industry.
BetMGM's Grooms said he wants to welcome anyone who wants to get into the business, but he wanted to make sure they understood the risks involved and were realistic about their expectations.
Grooms was joined for the panel discussion on the costs of running a sportsbook by: Paul Hannon, senior vice president of corporate development with PointsBet; Tory Key, business development project leader at Elys; and West Virginia Democratic Delegate Shawn Fluharty.
Speaking about the appetite for risk, Hannon said there were more challenges Maryland businesses would face than just raising the start-up capital they need.
He told attendees that once they consider license fees, the cost of setting up surveillance, network infrastructure, year one of working capital plus any construction costs, that would amount to $750,000.
“That’s what you need year-one just to get started, and the business really takes eight to 12 months to ramp up as well,” Hannon said. “So it’s not plugging in a machine and making a whole bunch of money.”
Hannon urged small business owners in Maryland who want to be licensed to go into it with their eyes wide open.
“At PointsBet, we are very lucky to be in partnership with the Riverboat on the Potomac. We look at [them] as a potential starting point for something much larger in the state of Maryland,” he said, referencing an off-track betting operator named as an eligible sports wagering operator in the state's law.
He said PointsBet was a willing operator to help small and minority-owned businesses get into the sports-betting space. In time, Hannon said he expected the Riverboat to share its expertise with other businesses.
Currently, only retail-wagering is available at seven locations state-wide, while regulators continue to finalize the licensing rules governing mobile sports betting in Maryland.
Fluharty, who moderated the discussion, said in West Virginia there are currently no opportunities for additional retail sportsbook licenses beyond the state's five established casinos. He told VIXIO GamblingCompliance after the event that the issue of small businesses being able to offer sports betting should be discussed during next year’s legislative session.
“I can tell you I’m contacted regularly by entrepreneurs who want to be part of the sports wagering industry,” he said.
Fluharty asked if panelists had any advice for small business owners who want to be licensed in Maryland.
“Have your books and personal history in order,” Hannon responded. “Getting licensed in gaming is pretty heavy duty as far as due diligence and background checks. Depending on the state, they are going to go back ten years on personal history.”
Some of the documents that are required for licensure in Maryland include five years of state and federal tax returns, a birth certificate, high school diploma, social security card, partnership agreement, and every address the applicant has resided at since age 18.
Robert Ruben, a partner with Duane Morris in Baltimore who participated in the event’s second panel giving an overview of regulations, reminded attendees to pay their taxes because Maryland gaming investigators have no sympathy for those who are delinquent.
Ruben said other issues that will allow regulators to disqualify an applicant are being behind on child support, student loan payments, or have a pattern of driving under the influence.
He admitted that the state's license applications ask for “very personal information but these regulators have to ensure the integrity of gaming.”
“The gaming industry is very regulated. If you can’t stand the background check and scrutiny then this is not the business for you,” added Grooms of BetMGM.