The Maryland Lottery and Gaming Commission on Thursday unanimously approved its draft sports betting rules — rules that could raise some eyebrows among operators. The proposal appears to include the mandatory use of official league data even to settle bets on the outcome of the game, and imposes limits around promotional play following the first year of operation.
The rules must now be opened for a 30-day public comment period before they can be finalized. In most states, regulators amend the rules following the public comment period and before finalizing them. A spokesperson for the MLGC said timelines for the public comment period, final rule approval, and the opening of the application process would be available on its website in the near future.
Ahead of the meeting, the Maryland Lottery and Gaming Commission posted 228 pages of draft rules. According to the proposal, each sports betting licensee — and the law allows for up to 60 — will be entitled to one digital platform. The new law allows for retail wagering at existing casinos, racetracks, the state fair, and other facilities, in addition to statewide mobile wagering.
Two-part application approval
The rules include a substantial section about the application and licensing process, which will be a two-part process, including the Sports Wagering Application Review Commission, a seven-member committee mandated by the new law and the MLGC. According to page 54 of the draft rules:
The MLGC will (1) Determine whether the applicant meets qualification requirements as described in COMAR 36.10.03 including any license category specific requirements and qualifications; and
(2) Notify the SWARC of the Commission’s qualification determination.C. The SWARC may not award a license to an applicant that the Commission has found not qualified.
D. After the Commission notifies SWARC that it has determined an applicant is qualified, the SWARC shall:
(1) Evaluate an applicant for license award; and
(2) Notify the Commission of its license award decision.
For the first time, Maryland legalized an emerging industry — sports gambling — and focused on equitable participation by minority businesses from the start. I spoke with Black investors who see a big opportunity in sports betting:https://t.co/3djmbSqHxO
— Pamela Wood ☀️ (@pwoodreporter) July 8, 2021
The proposed rules further break down the different types of licenses that will be available, including:
Type A-1: Professional sports facilities, including those of the NFL Baltimore Ravens and Washington Football Team, Major League Baseball’s Baltimore Orioles, and any future pro teams. There is a $2 million application fee and a $6 million license bond.
Type A-2: Video lottery operators with less than 1,000 terminals and horse racetracks at Laurel Park and Pimlico Race Course, home of the Preakness Stakes. There is a $1 million application fee and a $3 million license bond.
Type B-1: Defined in the proposed regulations as applicants “not eligible for a Class B-2 facility license,” and includes the Maryland State Fairgrounds. There is a $250,000 application fee and $750,000 license bond.
Type B-2: Organizations with fewer than 25 employees and less than $3 million in “aggregate gross receipts,” and will include bingo halls and other small businesses. There is a $50,000 application fee and a $75,000 license bond.
The above licenses would allow a facility to offer in-person wagering, and any licensed sports wagering facilities can apply for a mobile wagering license. The application fee for that is an additional $500,000.
The licensing section also outlines geographic limitations as described in the law, which are designed to spread out sportsbooks and allow each the best chance to succeed in its area. In-person wagering will be allowed via kiosks and at teller windows.
Will fees stifle small business?
Maryland’s new sports betting law is the most inclusive in the nation, in terms of making the business of sports betting available to women- and minority-owned businesses. To that end, regulators included a chapter outlining the parameters and availability of licenses for minority- and women-owned businesses, including a discounted application fee. The statute calls for a fund to be set up from fees taken from bigger operators to help minority- and women-owned businesses with start-up or training costs.
That said, the apparent official league data requirement and the $500,000 application fee for a mobile sports betting license seem at odds with the goal of allowing mom-and-pop shops to offer sports wagering. Certainly, under the requirements set out by the law and in the draft regulations, smaller facilities will be able to offer in-person wagering. But while every legal wagering state that requires official league data to be available at a “commercially reasonable” price, that number, like a half-million-dollar application fee for digital wagering, is likely out of reach for businesses like Bingo World and Rod and Reel Bingo. Representatives from both establishments testified about their interest in offering sports betting during the legislative process.
1/2 New draft sports betting regulations in Maryland include detailed language about how news and information is used to settle wagers. Here is first portion — pic.twitter.com/v9suWyQxSX
— Ryan M. Rodenberg (@SportsLawProf) July 14, 2021
With regard to the official league data requirement, Maryland regulators appear to have made a major departure from the norm in defining official league data as “statistics, results, outcomes, and other data
relating to a sporting event obtained by a sports wagering licensee under an agreement with a
governing entity or an entity expressly authorized by a governing entity for determining the outcome of a wager placed.” By including the word “outcome” in that definition, it appears the MLGC will require the use of official league data for simple bets on game results. Other states with data requirements require the use of official data only for in-play wagering.
Maryland is now one of only a handful of states — including Illinois, Michigan, and Tennessee — that require the use of league-provided data.
Tax on promotional play a red flag?
Another issue that could catch potential operators’ attention is the promotional play section. The draft regulations allow for all promotional play not to be counted against “proceeds,” which essentially means operators won’t be taxed on promotional play during the first year of operation. But after the first year, operators will be taxed on at least some promos. According to the draft regs, free promotional play in any year after the first year “may not exceed” 20% of “sports wagering proceeds” from the previous year. From the draft regs:
(3) After the first fiscal year of sports wagering activity, the 20 percent cap specified under §F(2) of his regulation includes all revenues generated by casino sports wagering and gaming activities.
(4) An amount of money given away as free promotional play in a fiscal year exceeding the percentage defined in §F(2) of this regulation of the sports wagering licensee’s proceeds of the prior fiscal year shall be allocated as proceeds.
In general, most states do not tax promotional play. An exception is Louisiana, where all gaming promotional play is taxed, and lawmakers have tried to change that law. Newly legal sports betting states, including Colorado and Virginia, do not tax promotional play, which can, in turn, make it difficult for states to project tax revenue.
Though the MLGC did not update the go-live timeline at its meeting, stakeholders have been pointing to getting at least some retail locations open by football season. Should that happen, Maryland could become only the second state with live wagering at a professional sports venue. So far, the William Hill sportsbook at Washington, D.C.’s Capital One Arena is the only pro sports venue sportsbook in the nation. But Maryland will be in a race with Arizona, which also allows for in-stadium sportsbooks and is aiming for a Sept. 9 launch.
