Will New Hampshire Sports Betting Succeed or Fail? A Unique System Brings Unique Risks

The first legal sports bets in New Hampshire should be placed in time for March Madness next year. When Governor Chris Sununu signed the H480 bill into law in July he stated that he wanted things to start even earlier, before the end of the NFL season. That looks unlikely, but New Hampshire sports betting is close — very close. However, New Hampshire is not like most of the other states that have launched legal sports betting. It is launching with a very different model to all other states. New Hampshire doesn’t have any licensed casinos. In other states, the introduction of sports betting has been easier because there was already a gambling infrastructure in place. Without licensed casinos, New Hampshire has thrown the whole shebang over to the state lottery commission. This model brings risks, and even though some elements of the legislation and plans look like a recipe for success, there are bear traps ahead.

A sports betting monopoly that isn’t a monopoly

New Hampshire’s new sports betting law permits licences for up to 10 retail locations and five online/mobile sports betting operators. All will be under the regulatory oversight of a new Division of Sports Wagering which reports to the Lottery Commission. In other states such as Oregon, where the lottery is in charge, the politicians have legislated for a monopoly. New Hampshire has taken a half-way house approach—monopoly oversight but with the possibility of market competition. To get a licence, operators bid for their authorization by committing a percentage of their revenues to the state. The amount can be different for mobile or retail sports betting. There are no sports betting taxes, so the state gambling revenues are dependent on finding a balance between the operators that will succeed in creating the most revenues and those that will contribute the highest proportion of those revenues to the state.

DraftKings won the first New Hampshire sports betting auction

New Hampshire set up an auction system where lottery and sports betting operators could bid for the responsibility to provide services. DraftKings won the first auction hands down. It promised to pay 51 percent of its mobile sports betting revenue and 40 percent of its retail revenues. A generous pitch, but it came with conditions:

• The 51 percent figure for mobile only applies if DraftKings is the only operator in the market.
• If there are two or three mobile sports betting licences issued the percentage drops to 21 percent.
• If there are four or five brands (the maximum allowed by law) then the percentage falls further to 16 percent.
• Note the retail sports betting percentage is fixed at 40 percent regardless.

DraftKings has put in a very clever bid. As can be seen, the state has a powerful incentive to give it a monopoly. The value of that monopoly is also there in the numbers. One extra licence for mobile sports betting and DraftKings thinks it will make a lot less money. For context, the second placed bidder was ROAR. The new, and newly named, joint venture between GVC and MGM offered only 20 percent. So even before we have really got going, the New Hampshire Lottery Commission is in a tricky position. Should it go with a monopoly provider of mobile sports betting, or let competition enter the market? There isn’t much time to make up their minds. The sports betting launch timetable means decisions must be made in January so that further auctions can take place.

Retail sports betting is the poor cousin

Before we move on to look at mobile sports betting, it’s worth pointing out that the retail sports betting locations are not going to be anything like as profitable as casinos in other states. Casinos in Las Vegas and Atlantic City have set a standard for full service luxury. Revenues from banks of slot machines and casino games fund lavish surroundings. A trip to the casino is an entertainment high spot, often involving dinner and a show. New Hampshire’s retail sports betting outlets are likely to be comfortable, stylish and high tech. But they aren’t going to compare with the full luxury casino experience. And it will take time to set up retail sports betting. The law demands that cities hold a vote before authorizing a new sports betting location. Berlin, Claremont, Franklin, Laconia, Manchester and Somersworth voted in favor of sportsbook locations during city elections earlier this fall, but that still leaves a lot of vacant spaces. This all boils down to the fact that from the sport betting industry perspective, the mobile and online market is the real prize. Retail is the icing on the cake, but mobile is three layers of wedding cake full of cream.

Will New Hampshire choose to have a mobile sports betting monopoly?

In Nevada and New Jersey, mobile now accounts for over 80 percent of all sports betting. That data alone justifies the bold move by DraftKings. New Hampshire has a population of under 1.4 million. As a consequence, a monopoly may be justifiable. Oregon and the District of Columbia have both opted for a lottery controlled monopoly. DC may have a tiny population of just 633,000, but Oregon is home to 4.2 million. If Oregon can do it, New Hampshire has a precedent. After all, the lottery itself is a monopoly, and New Hampshire was the first state to have one back in 1964 On the other hand, monopolies are notoriously poor at providing the best service to customers. It may be six of one and half a dozen of the other from the regulator’s point of view.

Competing with the offshore market

One factor worth taking into account is that sports betting is already happening. It is underground or offshore, but one purpose of legal sports betting is to bring bettors back to the safety of a regulated environment. In the jargon this is known as channeling. Existing sports bettors in the black market need to be encouraged to return to the legal market. Multiple sports betting operators create the conditions for more of these people to return to safety. In a limited market it makes commercial sense to target offshore bettors. These are experienced sports bettors currently sending their losing wagers offshore to who knows where. State regulated sports betting sites can offer a much better experience to attract them back. Modern technology, including real time data feeds allow sports betting operators to offer sophisticated in-play betting products. Offshore operators don’t have access to official data so can’t do this real time calculation on anything like the scale of the licensed operators. The incentive to return is there, but, and it is a big but, if the odds offered in the legal market are not competitive, the incentive is reduced. A monopoly operator handing over 51 percent of revenues has to take an ax to costs and maximize revenues. Without competition there is an incentive to shade the odds just that little bit more in the bookies’ favor.

More problems for New Hampshire

New Jersey is pretty much the gold standard for US online gambling regulation. Nevada has a fantastic regulator, but the laws are too restrictive. The key difference between these two states is that New Jersey allows online casino games. Not only will New Hampshire not offer online casino, it won’t offer online poker. It is true that gamblers tend to stick to their main game, but there is a substantial amount of cross-selling. Poker players enjoy placing sports bets and sports bettors occasionally want to play roulette. A regulatory system like New Jersey’s offers a full range of online gambling options. This makes the legal offer at least as attractive as the offshore competition. With laws only allowing sports betting, there is a portion of the market that will not shift its sports betting back to the legal sites. Online poker and casino players who enjoy sports betting will find it easier to stay at their full-service offshore provider than switch to part legal part illegal gaming. This problem has plagued French online gaming for years. France only allows online gambling for games of skill such as poker and horse racing. It doesn’t allow casino games and so suffers from a large proportion of the population continuing to play at offshore sites. The UK does the opposite. And it estimates that more than 90 percent of online gaming is now conducted in the state licensed and regulated sector. Of course, New Hampshire can change its laws to allow more online gambling. But will it?

Success or failure; what will it be for New Hampshire sports betting?

Measures of success are subjective when it comes to evaluating sports betting legislation. There are many fronts on which success can be sought. Some will look at increased state revenues others at the incidence of problem gambling. From the sports bettor’s vantage point, success is simpler. Do I have online and mobile access to a trusted sports betting platform which offers a wide rage of sports and competitive odds? In other words can I make the bets I want to make at the prices I can afford? At the moment it’s difficult to predict whether that will be the case. Will the monopoly position hold sway and if so will it matter? DraftKings is a leading sports betting operator in several markets now, it certainly doesn’t want to get a reputation for exploiting a monopoly market. New Hampshire has created a system that could work well. A system limited by its restrictions on other forms of gambling, but supportive of both consumers and industry. Now it has to execute its plan, and that’s a tough one to get right.