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2021 stands to be a good year for gambling expansion, as states race to make up for time that they lost to fighting COVID-19 last year. Already, five states have introduced bills which would legalize online casinos, online poker, or both.
Not all of these are equally likely to succeed. At one extreme, you have longshot efforts like this weeks omnibus gambling bill in Missouri. At the other, you have Illinois and Connecticut, which were already considered favorites before the year began. Now, we see concrete evidence that momentum is indeed building in the latter, as Gov. Ned Lamont has arrived at an agreement with one of the state’s two tribes.
The Mohegan Tribe, which owns and operates the Mohegan Sun Casino, has accepted the compromise offered by the Governor’s Office. Assuming all parties agree and a bill passes in the legislature, the deal would allow both tribes to offer sports betting and online casino games. In return, the state’s lottery would get to offer certain products online, as well as open its own sportsbooks.
This eagerness to meet in the middle is new this year. Before COVID-19, neither the tribes nor the Governor’s Office were willing to budge much, and Connecticut gambling expansion seemed like it could get bogged down indefinitely. However, the casino closures during the pandemic seem to have convinced all parties that having a legal online gambling option is sufficiently important to be worth bending a little.
Unfortunately, the state’s other tribe, the Mashantucket Pequot, has proven a somewhat tougher negotiator. The tribe, which owns and operates Foxwoods Casino, says it is extremely close to reaching a similar agreement. It’s unhappy with the proposed tax rate, a detail which could delay the whole process if it can’t be ironed out.
Connecticut’s past troubles with gambling expansion stem from a combination of the tribes’ desire to protect their current duopoly, and outdated compacts that failed to anticipate recent developments.
The status quo is that the compacts between the tribes and the state guarantee them exclusivity over casino gaming. In return, they pay 25% of their slots revenue to the state. This mutually beneficial arrangement has been in place since 1992, when the Mohegan obtained federally-recognized status.
Part of the trouble now is that sports betting was illegal under federal law until 2018. The compacts therefore failed to consider how it would fit in. Naturally, the tribes insisted that it counts as casino gaming and therefore should be exclusive to them. Gov. Lamont disagreed, as he wanted to allow the lottery, and possibly the state’s off-track betting facilities to open sportsbooks.
The tribes were willing to compromise if they got something in return. Gov. Lamont was initially opposed to the idea of online casinos, but offered to allow construction of one or more new retail casinos, to be jointly operated by the two tribes. However, MGM Resorts International decided to intervene, fearing cross-border competition for its casino in next door Springfield, Massachusetts.
Any new casino would be on state, not tribal land. MGM claimed that allowing the tribes to build such a casino without an open bidding process would violate fair competition laws. However, allowing it to bid would have violated tribal exclusivity. Thus, the state faced a legal battle either way, and the whole process stalled.
One silver lining to the pandemic is that it both made a new retail casino seem less urgent, and opened Gov. Lamont’s mind to the idea of legal iGaming. Offering that incentive instead takes MGM out of the equation, and makes negotiations much more workable.
Compromises tend to be complicated, so the agreement covers a lot of ground.
For sports betting, both sides will get what they want. The tribes will each get to open a sportsbook at their retail casino, to provide market access to online sports betting operators in return for a cut of revenue, and potentially to launch their own online brands. The state will get to have up to 15 retail sportsbooks, operated by the lottery. Some of these locations can be licensed to Sportech, the company operates the state’s off-track betting parlors (OTBs). This should avert any potential opposition from that side.
Online casino gambling would go solely to the tribes, preserving their exclusivity over those sorts of games. In exchange, the state will get to launch a partial online lottery. This will include draw ticket sales and online Keno as the only instant option. The deal omits other sorts of instant games, presumably because many of these bear too close a resemblance to slots.
There’s been no specific mention of online poker yet. However, it’s probably safe to assume that both the tribes and state see this as falling under online casino gambling.
The tribes and OTBs would pay a tax rate of 13.75% on sports betting, while the online casinos would pay 20%. Both of these are a little on the high side compared to most other states with the full slate of modern gambling options, but not extortionate.
Once the deal comes into effect, it will be good for a minimum of ten years. It also includes the option to extend it for another five.
The problem at the moment is that all three parties have to agree to the deal for it to be valid.
Mashantucket Chairman Rodney Butler seemed surprised to hear the announcement. Speaking at the same legislative hearing, he tried to take it in stride, explaining that his tribe was likewise very close to reaching an agreement. “On the one-inch line,” is how he put it.
Speaking to reporters about the issue later, however, it seemed his feathers had been ruffled. He called it “disrespectful” to his tribe for Lamont and Mohegan Chairman James Gessner Jr. to reveal their agreement while the Mashantucket were still in negotiations. Both the state government and the Mohegan tribe were quick to clarify that nothing can move forward until both tribes agree.
It wasn’t immediately apparent what the issue was for the Mashantucket. However the tribe subsequently revealed it was the tax rate for online casino gaming. Butler would like to see this lowered to 18%. He claims that such a reduction would amount to a “rounding error” for the state’s revenues, but would make a significant difference to the tribe’s finances.
This minor bit of stubbornness might or might not pay off for Foxwoods and the Mashantucket. It’s unlikely that either the tribe or the state is willing to scuttle the deal over a 2% difference in tax on one vertical. It will therefore come down to who blinks first. However, the tribes’ chances would have looked better had the two stood together.
Compared to these negotiations, the legislative process should be easy. Sports betting has been something most Connecticut lawmakers and the general public have wanted for some time. We’ve seen in the past that there are no sure things in gambling expansion, but Connecticut’s odds this year are looking very good