Allegations of misinterpreted data
Leading officials at the American Gaming Association (AGA) have claimed that the projections made by Rhode Island Governor Gina Raimondo’s administration were flawed. The AGA says Rhode Island misinterpreted its research figures and did not use the correct data provided from a study about sports betting revenue projections.
According to the AGA’s director of media relations, Caroline Ponseti, as reported by GoLocal: “Our research?presented several possible combinations of tax rates and sports betting availability. Under the scenario closest to what Rhode Island implemented, we estimated that Rhode Island would generate $6.4m in sports betting gaming tax revenue, $17.1m less than the state projected.”
She added that the AGA’s projections were based on a market that was fully stable, had a tax rate of 15% (in comparison with RI’s 51%) and a framework that did not prohibit college sports bets on in-state games. This is why the revenues are far lower than AGA’s projections.
Experts say that a sports betting market would take three to five years to mature. The AGA commissioned a report from Oxford Economics initially on the issue. The research was predicated on the adult population in 2021. However, Rhode Island officials used it for 2018 projections.
The AGA said because it does not lobby, It did not attempt to correct the assumptions of the Rhode Island administration. AGA officials do not know why the two operating sportsbooks did not notice these flaws.
The administration’s response
Officials from the Rhode Island administration say they were dependent on data from Oxford Economics, which was given to them by the AGA. Paul Grimaldi from the state’s department of revenue told GoLocal in an email: “OMB used the study’s ‘limited availability’ scenario with betting only at current casinos. Other assumptions that went into the revenue estimate:
- Study estimated annual RI sports betting handle (total bets) between $654.6m and $972.5m; used midpoint ($818.6m) to generate estimate
- Assumed hold (% left after winnings) of 5.5%
- Data from Nevada indicates that 86% of betting occurs between October and June; used this to pro-rate an October 1 start date
- Assumed similar state share as video lottery terminals (VLTs)”
Sports betting in Rhode Island
Rhode Island was the first state in New England to offer legal sports betting, on July 20, 2018. It will shortly be able to offer online sports betting in addition to the retail offerings.
The initial date to open the first sportsbook was set for October. However, after a few delays, the first sportsbook opened on November 26, at the Twin Rivers Casino in Lincoln. Shortly after that, the Twin River Casino in Tiverton began operating a sportsbook.
The Rhode Island State Lottery is the regulator for the sports betting sector. It was also the body responsible for choosing the sportsbook partners.
The regulator went with William Hill to look after the operations and risk management of the sportsbooks. Then it chose International Game Technology (IGT) to provide the back end of the sportsbooks.
The sportsbooks are now offering self-serving sports betting kiosks at their facilities.
Performance to date
The performance of the sports betting sector in Rhode Island has been underwhelming to date. It has the highest tax rate for sports betting revenues of anywhere in the country at 51%.
During the first month of operations, there was $13m worth of sports bets and the casinos made a profit of about $950,000. In the second month, profits were only $160,000.
This is far below the initial estimates. Industry experts say that Rhode Island’s sports betting market is underperforming by about 90%. The AGA says that the state’s projections were wrong from the beginning.
The shortfall means there is a significant hole in budgets for the current and next fiscal years. The miscalculation could be as much as $40m in total.
Some say that mobile sports betting will help matters. In New Jersey, for example, over 80% of sports bets are through mobile sportsbooks.