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State of the Union: US Sports Betting Update – Washington D.C. Draws Backlash Over $215m Intralot Contract

Greek gaming firm Intralot has been at the heart of furious debate within the emerging US sports betting industry this week. The beleaguered company recorded a net loss after tax of €25.6m in 2018 and its chief executive resigned after it lost a 10-year concession to operate sports wagering in Turkey. It is banking on the U.S. to boost its fortunes and it secured a massive victory in the nation’s capital this week.

The Washington D.C. City Council voted 7-5 in favour of upholding a proposed arrangement that will see Intralot receive $215 million to run its sports betting industry for the next five years. The contract is mired in controversy, as many council members believe it amounts to a bailout for a struggling company that might not be solvent by the end of the deal. There was also an ethics scandal, as council member Jack Evans – the sponsor of the district’s sports betting bill – has a private business relationship with William Jarvis, a lobbyist associated with Intralot.

Evans claims his role in Jarvis’ firm, NSE Consulting, was limited to helping him with paperwork when setting up the business. But the Washington Post found he has negotiated contracts on the company’s behalf. He is poised to be removed as chair of the council’s finance committee amid an FBI probe and an investigation that found he has committed multiple ethics violations. Three council members said he should recuse himself from voting on the Intralot contract, but he was among the seven that voted in favour.

Financial Performance in the Spotlight

Others focused more on Intralot’s financial woes. “How much money is it costing the district to finance this very weak financial company?” said council member John Ray at a recent public roundtable event. “If you learned the retirement board was investing your money in Intralot, would you be happy? Would you buy Intralot shares? If the answer to that is no, why would you ask the district taxpayers to invest their money in Intralot?”

But in the end Intralot prevailed by a narrow margin as council members were scared of losing revenue during a lengthy bid process. They worry that neighbouring Maryland and Virginia will soon roll out legal sports wagering industries, and they do not want to see people leaving the district and spending their hard earned money elsewhere.

“If we turn this down, there will be another two years, some have said three years, before we have a contract in place,” said council chairman Phil Mendelson. “We just know there will be a protest, there will be a lot of controversy, a lot of dispute, and a lot of delay. And there is a significant cost to a delay of a couple of years.”

They were also pleased to see Intralot pledging to hold as much as 30% of all wagers, which would see it bring in more tax. Yet industry insiders say these claims are flawed, particularly as it would require odds that are far less attractive than those offered by illegal, offshore operators, meaning it is likely to be trounced by the black market. 

Opposition Vents Fury at Decision

“This stinks,” said council member Elissa Silverman, one of five to oppose it. “Given all the ethics clouds over this building and this contract, we need to hit pause. We need to restore the public’s trust, but with the approval of this contract, we will continue to erode it.”

Another member, Mary Cheh, told the meeting that Virginia and Maryland have not yet begun to adopt sports betting, and there was no immediate danger of losing millions to them. She added that the estimated revenue figures continue to decline, making sports betting less of a pressing matter. Early estimations had Washington D.C. pilling in $35 million during the first year, but that has recently been reduced to $20 million.

Other critics denounced the council for awarding a monopoly to Intralot without allowing other firms to bid. It represented a blow for FanDuel and DraftKings, the market leaders in New Jersey, which just overtook Nevada as the biggest sports betting market in the country. The duo wrote a stinging op-ed in the Washington Post this week, calling the monopoly model “fundamentally flawed”.

“The sports betting experience across the country has clearly shown an open, competitive market of licensed sports betting operators is the path to netting the most revenue and eliminating the illegal market,” they wrote. “If the council is serious about eliminating the illegal market, protecting consumers and maximizing revenue for the District, then an open, competitive online sports betting market is the only model and the no-bid, monopoly contract should be voted down.”

Battle Lines Drawn in Montana

Despite the various objections, the contract was passed and Intralot should have sports betting ready to go at stadiums in the city this year, before a mobile app is rolled out in early 2020. Two thousand miles west, a similar debate is gripping Montana. Earlier this year, Gov. Steve Bullock was presented with two sports betting bills, one providing for an open market and the other handing a monopoly to Intralot. He opted to veto the former and sign the latter. It provided a massive shot in the arm for the Greek company, which was left reeling after it suffered contract losses in Ohio and South Carolina last year. But now industry forces are threatening to sue over the decision to award Intralot the deal without allowing a bidding process.

“You’re awarding a contract that’s worth $4.5 million to $6.1 million over the next four years, each year, to a company on a no-bid contract,” said Neil Peterson of the Gaming Industry Association of Montana. “I’m hearing rumblings within the industry that should the Commission go ahead and do a no-bid contract, that you could have some litigation over that.”

Intralot signed a seven-year deal with the state’s Lottery Commission in 2015. It runs until 2022 and also includes sports betting. At a Commission meeting this week, staff presented 18 pages of draft rules on sports betting, defining such issues as the licensing of betting sites. The state has shown no signs of ditching Intralot, but gaming industry lobbyists are not giving up the fight. “These companies have more experience in the United States sports betting market than Intralot does, and we feel that in order to obtain the best provider for Montana, the lottery needs to go through the full bid process,” said Ronda Wiggers of the Montana Coin Machine Operators Association.

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