Oregon Lottery Commission director Barry Pack has warned that the state’s online sportsbook will incur a loss during its first fiscal year. State lottery officials launched the Scorecard app in October 2019 and a profit of $6.3 million off a handle of around $332.8 million in the first year of trading. However, they have now been forced to adjust that forecast.
The Lottery Commission is due to hold its monthly meeting on Friday and, in a memo prepared for the gathering, Pack said the lottery would suffer a loss of $5.3 million for fiscal 2020. Its financial year ends on June 30, so it covers around eight-and-a-half months of trading. “Original projections have been revised downward to reflect evolving estimates around black market capture rate, lack of NCAA wagering, tax withholding, intrastate competition, margin and product technical issues,” said lottery officials in a presentation slide.
The Lottery initially anticipated gross gaming revenue of $26.6 million during Year 1. It expected to spend $5.2 million on white label, hosting and data costs – SBTech is the sportsbook provider – and $15.1 million on other expenses, resulting in a profit of $6.3 million. Yet all has not gone to plan, and it throws into doubt projections for subsequent years.
Year 2 was forecast to see a handle of $555.9 million and a total profit of $13.9 million. Year 3, which ends on June 30, 2022, had a projected handle of $722.3 million, gross gaming revenue of $66.1 million and $23.4 million. That was supposed to leave a total profit of $43.7 million for the period between October 2019 and June 2022, which would have been 31% of the $141.2 million gross gaming revenue.
The Lottery Commission listed a number of reasons for the underwhelming performance, but black market capture rate is surely the most pressing. Offshore books have more attractive lines and offers than the app, while neighborhood bookies continue to flourish, which has caused a reluctance among Oregonians to switch to Scorecard. It highlights the issue with allowing a monopoly to run sports betting in a state.
Most states to legalize sports wagering since PASPA was axed in May 2018 have opened up a competitive marketplace. A number of big operators have moved in, and the ensuing competition has caused them to offer more attractive bonuses, sharper lines and so on. The biggest states with legal sports betting, Pennsylvania and New Jersey, are both making significant revenue on a monthly basis.
Iowa has a smaller population than Oregon, and it is also an immature market for legal sports betting, but competition has led to a larger handle, and $4 million in revenue during the first three months of trading. That does not take into account expenses, but it could well be making a net profit on that revenue. Oregon is not the only state to follow the monopoly model: William Hill helps run a monopoly in both Delaware and Rhode Island, while New Hampshire is also operating on a monopoly model and so will Montana and the District of Columbia.
The initial appeal is obvious to states. Operators compete to offer the most attractive terms, and the state chooses the one that promises to give it the largest slice of the action. New Hampshire chose its sports betting partner because it pledged to hand over 51% of the revenue. However, this can cause operators to offer unattractive odds in a bid to earn higher margins, safe in the knowledge that there is no legal competitor to undercut them.
Yet that in turn makes it much harder to bring in new customers from the black market. The states with monopolies do not appear as dynamic as those with competitive markets, and the early results from Oregon suggest that lotteries cannot always deliver what they promise if their offering is not appealing enough.