Not So Fast, Intralot: DC Sports Betting Contract Faces Questions

If you're wondering why officials in the District of Columbia are so eager to award a nine-figure gaming contract to Intralot, you're not alone.

The DC Council Committee of the Whole held a public roundtable Wednesday to discuss the proposed $215 million deal with the struggling operator based in Greece.

Procurement would cover lottery sales and sports betting for five years after members previously voted to approve the sole-source framework pushed by Councilmember Jack Evans.

The motives of Evans and other city officials have come under scrutiny, though, spawning accusations of political favoritism and impropriety.

Members of the council must now decide whether to move forward with Intralot or delay implementation. That would leave DC sports betting solely to the district's four approved sports venues at initial launch.

Speaking out against DC sports betting contract

Testifying as a member of the public, Councilmember John Ray provided the strongest pushback. As he sees it, the sports betting component was nothing more than a “generous tip to the sole-source winner” of the lottery contract.

Ray poked holes in a few aspects of the proposed partnership, including the financial stability of Intralot. All three major credit bureaus downgraded the company's rating multiple times over the past year.

“How much money is it costing the district to finance this very weak financial company?… If you learned the retirement board was investing your money in Intralot, would you be happy?” Would you buy Intralot shares? If the answer to that is no, why would you ask the District taxpayers to invest their money in Intralot? Mister Chairman, you need to take a serious look at this contract.”

An American Gaming Association executive took an expected neutral position on the proposal, while trade group iDEA Growth issued a public statement in opposition.

“History demonstrates that competition through a consumer-choice business model brings revenue and creates a robust industry,” wrote iDEA founder Jeff Ifrah.

DC Lottery testifies on behalf of Intralot

Chairman Phil Mendelson limited public witnesses to five minutes apiece, but lottery officials spent the better part of 90 minutes at the table.

Lottery Executive Director Beth Bresnahan argued that the expedited contract would put DC in line for a “rapid return on investment.” The adopted budget from Mayor Muriel Bowser includes more than $15 million in associated revenue for the upcoming fiscal year.

While calling the agreement an example of “fair and competitive pricing,” Bresnahan presented arguments that seem to indicate otherwise.

The contract appears to stipulate that Intralot needs to achieve $2.6 billion in total lottery and sports betting sales over the five-year period to reach its $215 million cap, which would amount to more than 8.25% of gross receipts.

That's higher than the typical range, per the director's testimony, and substantially more than the 2.5999% rate the city currently pays. Bresnahan cited legal sports betting as the major difference.

City officials hold that a competitive bidding process would delay the launch for 18 to 24 months, while Intralot could purportedly have DC sports betting up and running by the first of the year. That timeline ruffled a few feathers on the council, as testimony prior to passage initially projected a September launch.

Predatory ‘no-risk' DC sports betting

There's no doubt we're talking about a sports lottery product rather than something akin to a sportsbook.

Bresnahan noted that the city has a no-risk clause which guarantees it a percentage of the total amount “sold,” as it does for other lottery games. Her follow-up comments further clarified that the citywide platform will not be a traditional sports betting product:

“We are setting a payout threshold, likely to start in the 75-80% payout [range]… Because we are setting a no-risk model with a set payout, anything that is not managed correctly by Intralot, they’re on the hook for paying. So we would have a steady revenue stream.”

With most established sportsbooks holding a historical average of 5%, Intralot's product cannot possibly be competitive while still being profitable. In other words, it likely can't be fair to bettors.

The model also reflects the regulator, as lottery officials tend to think in terms of fixed prize matrices. This is not the sort of detail lawmakers would likely recognize as detrimental to sports betting — and Intralot has done its best to ensure that — but it will limit the industry's ceiling far more than any decision on the supplier(s).

Evans' motives in doubt

Evans is the figurehead of the DC sports betting debacle. Given what has materialized, nobody would call him a champion for the industry. A November 2018 piece from District Dig, for instance, laid out a compelling line of inquiry regarding Evans' troubling ties to vendors.

Contrary to Evans' actions pushing for Intralot, New Jersey provides prime evidence that a competitive marketplace is the best way to maximize sports betting revenue. More than $3 billion has flowed through the NJ sports betting industry since regulation began a year ago.

Councilmember Elissa Silverman has been a vocal critic of the process leading to a single-operator system in DC, including during Wednesday's proceedings. Silverman holds reservations about the players in the game, previously noting “the most well-connected businesspeople with ties to City Hall are all involved” in the contract.

Evans did seed the bill with concessions to private entities, including billionaire Ted Leonsis. The owner of two sports teams in the city was among those who fought for a zone of exclusivity around its stadiums and arenas, which the council granted.

The sponsor even tried to sneak in an integrity fee for the sports leagues at one point, though a committee unanimously rejected that proposal.

Investigation raises biggest questions

Doubts about Evans' ethicas came to a head last week when federal agents raided his home in Georgetown.

Questions into his suitability as a lawmaker also focus on his alleged use of his position on the Metro Board for personal gain.

Evans remains a member of the committee and was on the dais for the hearing, even amid proceedings to remove him from office. He still holds one of the most powerful positions in the council as the Chairman of Finance and Revenue.

During her testimony, Bresnahan indicated that the Office of Lottery had not received any inquiries from US law enforcement regarding Evans. The existing relationship between the city and Intralot already spawned a federal investigation in recent years.

DC sports betting backstory

Evans began pushing for DC sports betting back in September 2018, citing a desire to make the nation's capital “the leader in a fast-growing industry.” The primary, oft-repeated goal of expediting procurement was to ensure launch ahead of competition from Maryland and Virginia.

While neither of the surrounding states ended up passing a bill, the sense of urgency permeated the discussion until the end.

Evans initially proposed an open, competitive model before pivoting to the sole-source system in the professed interest of expedience. Councilmembers rushed an emergency bill through alongside the primary bill, then another allowing the city to bypass the bidding process.

A deeper look makes it obvious

Given Intralot's established operations in DC, there was never a doubt which company would land the gig.

A few too many links between city officials and the involved contractors, however, raised eyebrows. Public concern escalated when the proposed contract included an amount well above competitive rates, swelling further with the revelation of plans to reallocate a portion of the anticipated revenue.

“If everything falls into place,” Evans told LSR back in October, “sports betting will be live by [MLB] Opening Day next year.”

That target long since passed, and nothing related to DC sports betting has fallen into place yet.

The post Not So Fast, Intralot: DC Sports Betting Contract Faces Questions appeared first on Legal Sports Report.

Original source: https://www.legalsportsreport.com/33969/dc-sports-betting-intralot-hearing/

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