DraftKings Strikes Connecticut Market Access Deal With Foxwoods, But Political Roadblocks Lie Ahead

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On Monday, DraftKings announced that it had struck a multichannel deal with the Mashantucket Pequot Tribal Nation in Connecticut. The partnership will, among other things, grant DraftKings access to the Connecticut sports betting market.

What’s unusual here is that the market in question doesn’t exist yet. In 2017, Connecticut passed a bill instructing the state’s Commissioner of Consumer Protection to draft regulations for sports betting. This was a speculative bit of legislation, however, as sports betting was still illegal under federal law at the time.

Connecticut lawmakers had correctly predicted that the Supreme Court would strike down that law, the Professional and Amateur Sports Protection Act (PASPA). Their intention was that another, more specific piece of legislation would follow after that decision. Unfortunately, disputes between the state government, tribes, and the private sector have so far thwarted such efforts. That knot will have to be untangled before anyone, including DraftKings, can actually begin to offer sports betting in the state.

The Mashantucket tribe owns Foxwoods, one of only two casinos in the state. When the time comes, DraftKings Sportsbook, and potentially its casino as well, will operate in partnership with Foxwoods.

“This is a landmark deal in collaboration with the Mashantucket Pequot Tribal Nation as well as a critical next step to bringing America’s top-rated sportsbook app to sports fans in Connecticut,” said Matt Kalish, co-founder and president of DraftKings North America. “The national expansion of regulated sports betting is among our top strategic priorities.”

What’s holding back sports betting in CT?

Fundamentally, the political standoff in Connecticut relates to tribal exclusivity over gambling. The state’s two official tribes each operate one of the two casinos, Foxwoods and Mohegan Sun. In accordance with the terms of the compacts, they hand over 25% of their slots revenue to the state. In return, the state agrees not to permit any other form of casino gambling.

One major part of the issue is that Gov. Ned Lamont and other elected officials want to authorize sports betting conducted by the state lottery and at off-track betting (OTB) facilities. The tribes feel this would be a violation of the compacts and have threatened to cease revenue sharing if this happens. Since sports betting wasn’t an option when the compacts were written, it’s ambiguous whether it fits within the scope of “casino gambling” or is a separate activity.

Compounding this is the fact that both the state and the tribes want to build new casinos. Authorization for one or more of these has been included in each attempted gambling expansion bill. However, the casinos would not be on tribal land, and MGM Resorts International feels this means they should be up for bidding, not awarded directly to the tribes.

The tribes will back out of their part of the compacts if they have to share sports betting, if they don’t get their new casinos, or if MGM is allowed to bid on them. MGM, however, will sue if it doesn’t get to bid. Meanwhile, Gov. Lamont has said he won’t sign any bill that either provokes a lawsuit or fails to allow the lottery and OTBs to offer betting.

The state is therefore locked in a stalemate until at least one party is willing to compromise.

Connecticut’s first official daily fantasy sports partnership

In the shorter term, Monday’s deal also covers daily fantasy sports (DFS). DraftKings will relaunch in partnership with Foxwoods on Dec. 13.

Like other DFS operators, it is already serving Connecticut customers. However, this is still essentially a gray market situation.

Connecticut committed to formally legalizing DFS at the same time as sports betting. The path it chose in that regard was to define DFS as “not gambling,” so as not to have to involve the tribes directly. However, it stopped short of actually implementing the law until the next time the tribal compacts are up for renegotiation. Ideally, the state would like the tribes to formally agree that DFS is not casino gambling, so it can collect taxes and license fees without risking them ceasing their slots payments.

That change has never been made. It’s unclear what it means that DraftKings will now offer its DFS product in partnership with Foxwoods. This could just mean a branding partnership but could equally be an attempt to put DFS on the table as a bargaining chip in the larger negotiations.

The DraftKings/Foxwoods deal brings a new piece onto the chessboard

DraftKings having lined up a partnership with the Mashantucket tribe will affect the dynamics of the negotiations. Specifically, it means the tribes now have a well-heeled ally in the fight. That said, it remains to be seen how much direct lobbying DraftKings is willing to do on their behalf.

After all, having secured its own access to the market, DraftKings now has an incentive to restrict others’ access as much as possible to minimize its competition. The situation could get even more complex if another online company such as PokerStars or FanDuel follows suit and strikes its own deal with the Mohegan Tribe. Connecticut would then have the potential to become another state where the online newcomers wind up in a feud with land-based gambling companies.

If that is the dynamic that develops, it could resemble Illinois. There, it’s the battle between Rush Street and the daily fantasy companies that has shaped the legislative landscape. MGM doesn’t have the same political clout in Connecticut that Rush Street does in Illinois. It does, however, have a lot of legal muscle.

Will online casino gaming come to Connecticut?

Previous attempts to solve the CT sports betting riddle have often included multiple competing bills at once. Some of these have included provisions for other types of gambling, like an online lottery or online casinos. The latter in particular is bound to appeal to the tribes, who suffered during the spring’s casino shutdown.

The good news on this front is that DraftKings has been aggressive in its entry into the online casino space. It’s made heavy investments in the DraftKings Casino product and will want to roll it out wherever it can. Its presence at the bargaining table should ensure that remains a topic of discussion.

The problem is that there are too many moving parts in the gambling expansion effort to begin with. Theoretically, if all parties were negotiating in good faith, this would mean that there was something for everyone. However, given how unwilling most parties have been to compromise, the additional complexity might become unmanageable and result in a more piecemeal approach.

That is more or less what happened in Illinois, after all. Despite the political will being there to pass an iGaming bill, it was only sports betting that made it through on the first try. However, the state may circle back to online casinos next year.

Connecticut online casinos will also come someday, that’s almost a certainty. When that happens is anyone’s guess.

What is sure is that the effort to get sports betting off the ground will continue next year. Online casinos will likely be a part of that conversation. Get some popcorn ready in the meantime, as it’ll be an interesting one to watch now that DraftKings is involved.