The National Football League season begins Thursday without Maryland’s mobile sports betting industry close to launching, leaving the state to miss out on the most lucrative part of the sports gambling calendar.
“We all would have loved to see this happen sooner rather than later, but at the end of the day, however long it takes, we need to get it right,” said Del. Darryl Barnes (D-Prince George’s), the chair of the Legislative Black Caucus.
Maryland has already had one of the nation’s slowest launches into what last year was a $4 billion mobile sports betting industry. Roughly $15 million to $25 million in state revenue is at stake, little compared to Maryland’s casinos, which generated $76.1 million for the state in July alone.
The tension over how and how quickly to award mobile betting licenses had regulators balancing eager customer demand with trying to push the state’s vision of inclusivity through a bureaucratic labyrinth.
When Maryland’s first legal sports bets were cast at casinos in December, Lottery and Gaming Director John Martin was confident that by football season this fall, those wagers could be placed from the comfort of your living room.
“Shows you how much clout I have, huh?” Martin said last week. “That didn’t go very far.”
The state’s requirement that licenses go to a racially diverse set of owners, both men and women, proved tricky to execute.
And Maryland policymakers refused to let the industry fully launch until they figured out how to ensure sports betting licenses went to that diverse set of owners.
“I’ve heard ‘Why is everybody blowing right by us? What’s wrong with Maryland?’ ” Martin said. “There’s not anything wrong with Maryland. It’s more comprehensive.”
Compared with traditional casinos, sports betting is far less lucrative. But it still requires very deep pockets to compete, which is among the reasons the industry is dominated by national firms like DraftKings and FanDuel.
“This is a high-volume, but low-margin business. It’s ultracompetitive as you start moving to online,” said Barry Jonas, managing director and senior gaming research analyst at Truist Securities.
“Operators will look at this like a land grab, where they’re just going to try to gain as many customers out of the gate because they see first-customer advantage as critical,” Jonas said of Maryland’s industry.
On average, companies will spend $300 for each mobile customer they acquire, and Jonas said that in the aggregate, mobile gaming operations will lose hundreds of millions of dollars before they turn a profit in two to three years. Unlike traditional casinos where the house always wins, sports betting has a lower return.
And with consumers dramatically preferring online betting — roughly 80 to 90 percent of wagers are placed that way in other states with big mobile markets — plus high regulatory and technology costs, a successful mobile sports betting outfit needs to have a lot of wagers placed to begin to make money.
“It’s very challenging for a small, mom-and-pop company, even if they’re well capitalized, to operate on that scale with companies that are operating in multiple states,” he said.
Maryland, by law, has committed itself to letting those smaller companies try to compete and looked for ways to make the industry as inclusive as possible.
The first set of sports betting licenses, which require in-person betting at a facility, were already awarded to the state’s existing casinos at the end of last year, as well as a few smaller brick-and-mortar locations.
But the next round of retail licenses — 30 of them — along with another 60 licenses to create the mobile betting industry, were designated in state law to be awarded only after the state conducted a disparity study that reviewed whether minority- and women-owned firms faced discrimination in sports gambling.
Maryland has long attempted to bridge deeply rooted inequity in business, with mixed results.
The state established its first minority business enterprise program in 1978 to steer a percentage of state contracts to disadvantaged firms, but state agencies don’t always meet those goals.
Lawmakers attempted to promote equity when they created a medical marijuana industry in 2014; the new marijuana regulatory agency decided not to consider race when awarding licenses and ending up with no Black executives leading any of the 15 companies picked to grow marijuana, even though the state is more than 30 percent Black. Lawmakers created a second wave of licenses to ensure minority-owned companies would be considered.
If the sports betting analysis found that minority- and women-owned firms have faced discrimination in the industry, regulators were supposed to remediate that and come up with criteria to award licenses that took race and gender into account.
It was one of several ways the law spelled out an inclusive process. Anyone who sought a license also had to demonstrate they sought women or minority investors in their businesses.
It took until mid-August to complete that study.
State officials interpreted the findings to say the industry was too new to determine if those businesses historically faced a disadvantage. That meant the state cannot legally award licenses that take gender or race into account, and it needed to come up with a new, race-neutral method to award licenses.
The group overseeing the application process — the Sports Wagering Application Review Commission — proposed requiring all entities applying for a license to have someone with a net worth of $1.8 million or less own 5 percent or more of the company. The workaround made it statistically more likely that women and minority investors could get a piece of the industry.
On Friday, that commission went a step further as they sought to appease lawmakers who have withheld approval of their application plan. The commission also voted to require that every applicant have a diversity plan spelling out how they would seek an inclusive business climate. State lawmakers with oversight on the process greenlit the proposal late Friday.
The commission can finally start accepting applications for mobile sports betting licenses this week.
“There will be a bounce in everyone’s step,” said Martin, the lottery director whose agency will ultimately issue the licenses.
As for when bettors can gamble on their phones in Maryland, Martin said “by Super Bowl is extremely realistic. End of the calendar year is a good bet.”
But he also cautioned: “It’s probably going to be next football season before we’re fully operational.”