Why Second Draft Of Sports Betting Regulations In Arizona Might Upset Sportsbooks

Posted By Derek Helling on July 7, 2021

The Arizona Department of Gaming has released an updated set of the Arizona sports betting rules. Some might not think they rule so much, though. They do answer a lot of questions about what sports betting in Arizona might look like.

Regulators will give potential naysayers one last chance to sway their minds on any matter in the proposed regulations. That means the finalization of the regs and the beginning of the licensing process could both happen soon.

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What might be the beef with the latest proposed Arizona sports betting rules?

In the earlier public comment period, potential sportsbook licensees were uniform on one point; a single online “skin” for each event wagering operator licensee. Among those expressing that preference was a representative for the PGA TOUR and TPC Scottsdale.

It seems that those pleas – at least for now – have fallen on deaf ears. Item C under Section R19-4-119 of the latest proposed regulations reads:

“Responsible parties may use more than one (1), and up to two (2), event wagering platforms. …”

This provision would allow each event wagering operator licensee or its designee to contract with two different management service providers. In clearer English, TPC Scottsdale is an example of a licensee while DraftKings Sportsbook, the golf course’s current sports betting partner, would be a service provider in this scenario.

The enabling statute is silent on this matter, so it’s completely up to the regulators. If this language makes it into the final version of the rules, there would be several ramifications. Whether those are negative or positive depends on your perspective.

Related: Is Sports Betting Legal In Arizona?

How a second skin could change the game

There are three important things to note at the beginning of this discussion:

  • None of these rules are final yet
  • A two-skin system currently exists quite successfully in several other US jurisdictions with legal sports betting
  • Just because the licensees could have a second skin wouldn’t mean they have to. They would still be free to choose to go with just one.

With that out of the way, there would be consequences for bettors, licensees, regulators, sportsbooks, and the state. Regulators could have more work to do. That could involve reviewing more license applications and inspecting more systems.

The state could collect more licensing fees. The rules have more to say about that and those fees could be what’s driving this choice. It’s difficult to say with certainty whether more skins would mean more tax revenue, however. It could be that bettors will put down basically the same amount of handle regardless of how many different app choices they have.

For licensees and sportsbooks, this is a loaded premise. On one hand, licensees could get more money upfront for a second skin. At the same time, that access might come cheaper due to such partnerships not being exclusive. This could allow more sportsbooks access into AZ but also provide each of them with more competition.

The potential licensees will get one last chance to have their say on this and any other matter Wednesday. The Dept. is hosting a final virtual meeting for interested parties to provide feedback from 9:00a to 11:30a PT on July 7.

For bettors, it’s hard to see a downside. That’s as long as regulators do their job in ensuring that the holders of these potential skins are qualified. The intensified competition could breed better and more frequent promotions. It also ensures that odds will be competitive.

Circling back to licensing fees, this new draft answers a lot of questions. It provides answers on tax rates, too. Those two items seem designed to offset each other in the state’s interest.

Potential license fee schedule, tax rates up for discussion

In the initial draft, the Dept. marked some of these items “TBD.” They have now done that determining.

In the new proposal, hopeful event wagering operators and their designees have to pay $100,000 to apply for a license then another $750,000 for the initial acquisition. The cost to renew that license every five years might be $150,000.

For management services providers, the pending schedule assesses a fee of $1,000 to apply for a license, $10,000 for the initial acquisition, and $5,000 for the renewals every two years. Those fees rank among the most costly in the nation.

However, the tax rates could act as a counterbalance. The potential standards could be 8% for retail revenue and 10% for online hold. If those figures hold, only Iowa and Nevada would assess lower privilege taxes on sports betting at 6.75%.

Opening up a second skin thus provides a path to more of those lucrative licensing fees, should the appropriate parties acquiesce. Given the sports fan base in the state and the attractive nature of being aligned with those very sports properties, it’s a strong possibility that gambling companies will vie for those second skins.

Again, these Arizona sports betting rules aren’t final. They do give a good indication of where things are headed, though. Barring some serious lobbying from interested parties, AZ bettors could have more choices than they originally thought.

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Derek Helling

Derek Helling is a freelance journalist who resides in Chicago. He is a 2013 graduate of the University of Iowa and covers the intersections of sports with business and the law.

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