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Why legalizing sports betting (still) faces such long odds at the Legislature this year

A Senate bill to partially legalize sports books in Minnesota narrowly passed out of its first committee Thursday, but the Senate majority leader isn’t keen on the idea, and the state’s 11 Native American tribes are opposed. 

Senate Taxes Committee panel
Speaking before the Senate Taxes Committee on Thursday, from left: John McCarthy, executive director, Minnesota Indian Gaming Association; state Sen. Roger Chamberlain; and Jake Grassel, executive director, Citizens Against Gambling Expansion.
MinnPost photo by Peter Callaghan

Legal sports betting may be coming to Minnesota. But it doesn’t seem to be in much of a hurry.

Consider that the Senate bill that would partially legalize sports books in Minnesota narrowly slipped out of its first committee Thursday (and faces an uncertain response at its next stop). The majority leader of the Senate isn’t keen on the idea. The state’s 11 Native American tribes are opposed. Anti-gambling and several religious organizations are opposed.

And, oh yeah, it doesn’t raise much money.

There’s also this: the House bill on the same topic hasn’t been set for a hearing, lacks support from DFL leadership, and faces many of the same liabilities as the Senate bill.

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Other than that, it’s a sure thing.

Introduced by Senate Taxes Committee Chair Roger Chamberlain, R-Lino Lakes, the Senate’s sports betting bill, SF 1894, does have sponsorship from both Republican and DFL senators. And it made its first official appearance before Chamberlain’s own committee Thursday. “This is a business, it’s a profession, it’s entertainment,” Chamberlain said. “People do make a living off of this … and they also have a lot of fun.”

And even though it isn’t legal in Minnesota, there are many people who gamble illegally or through offshore mobile or online sites. Chamberlain thinks by legalizing and regulating it, the state could bring to the surface what is now underground.

But sports gambling is a low profit business for casinos; much of what is wagered is returned to players as winnings, which means the part that would be subject to state taxation, “the hold,” is relatively small. Chamberlain’s bill would tax that amount  — the amount of all wagers minus winnings — at 6.75 percent.

State Sen. Roger Chamberlain
MinnPost photo by Peter Callaghan
State Sen. Roger Chamberlain
“Many states think it is a money-maker for them and it may be,” Chamberlain said. “But we’re not in this to raise a whole lot of revenue. We want people to take part in the business and have some fun doing it.” Casinos and race tracks could benefit by using sports betting as a way to bring more people into their casinos, he said.

The bill says that if the state’s tribes want to offer sports betting, they would need to request a new compact with the state, something required by federal law. The state is obligated to bargain in good faith and that includes agreeing to any form of gambling already permitted off reservation.

But the executive director of the Minnesota Indian Gaming Association, John McCarthy, said Thursday that the tribes have many concerns about both the House and Senate bills, and are in no hurry to add sports betting to their operations.

McCarthy said the tribes have invested billions of dollars in gambling facilities and use them to raise money to pay for “human services, schools, clinics, housing, nutrition programs, wastewater treatment facilities, law enforcement and emergency services, and other services.”

“Because these operations are essential to the ability of tribal governments to meet the needs of their people, MIGA has had a longstanding position opposing the expansion of off-reservation gambling in Minnesota,” McCarthy said. The mobile aspects of the bill, he said, would “create the largest expansion of gambling in Minnesota in more than a quarter-century, and therefore MIGA must respectfully oppose SF1894.”

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He said the tribes were especially worried about mobile gambling and how it could lead to even more online gambling, “which represents an even more significant threat to all types of bricks-and-mortar facilities that currently offer gaming: tribal casinos, race tracks, lottery outlets, and bars with charitable gambling.”

Also opposed was an anti-gambling expansion group and a religious social justice organization. Ann Krisnik, executive director of the Joint Religious Legislative Coalition, cited the state fiscal note that said the revenue impacts of the bill were unknown.

“It’s unknown not only in terms of revenue, but it’s unknown also in terms of the ultimate costs this creates for the state,” Krisnik said, citing social costs of more gambling.

Jake Grassel, the executive director of Citizens Against Gambling Expansion, said the bill was a bad deal for the state. “The arguments in favor of legalizing sports betting may seem meritorious at first blush — that is, bringing an unregulated form of gambling out of the shadows,” Grassel said. “Upon further reflection and consideration, the costs are too high and the benefits are too little.”

A way to ‘begin conversations with the tribes’

The Senate bill ultimately passed the Taxes Committee with five yes votes, two no votes and one “pass.” Two other members were absent. It now goes to the Senate Government Operations Committee.

After the taxes committee vote, Chamberlain said he considers this a way to begin conversations with the tribes. Even if the bill passes, it doesn’t take effect until September of 2020. And compacts would have to be negotiated to clear the way for on-reservation sports betting.

“We are hopeful that they will come on board,” Chamberlain said of the tribes. “Their business model will not last forever. Young people do not go to casinos. I go to them occasionally with my spouse and others and often I’m the youngest one there and I’m in my mid-50s. We believe it is a business enhancer.

“I understand their caution but we’re right there with them and when they get more comfortable and more people know more about it, I’m confident we will proceed,” he said.

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Later in the day, Senate Majority Leader Paul Gazelka said the GOP caucus hasn’t met to talk about the issue and he isn’t in a hurry. He said the mobile betting aspects are of special concerns to him and he is personally opposed.

“I do know that it needs more time and that is the one thing I’m gonna ask of that bill,” Gazelka said. “It’s come forward around the country and we’re gonna have to deal with it like any other issue. But it’s not a partisan issue.”

Some thorny legal questions

All of this became possible when the U.S. Supreme Court ruled last spring that Congress had exceeded its authority when it declared that sports betting was illegal (except in Nevada, where it was already operating at the time). New Jersey had sued to clear the way for sports books at its struggling Atlantic City casinos.

The decision quickly led states across the country considering whether to legalize and regulate sports betting. Eight already have, and polls suggest legalizing sports betting has wide popular support.

The issue for the nation’s gambling tribes is whether they would make enough from the new gaming option to compensate for the potentially massive expansion of it off-reservation. There’s also no clear answer to whether tribes could do much with mobile gambling, since the federal Indian Gaming Regulatory Act that created the economic boost of casino gambling allows gambling only on reservations. While some states have declared that having the computer servers that process bets on reservations is sufficient to comply with the law, the issue has yet to be litigated.

Both the House and Senate bills also raise a thorny legal and political issue because they apply state taxes to tribal gambling, something the federal Indian Gaming Regulatory Commission has ruled is not allowed. While tribes in other states have agreed to share gambling revenue with states, it has come with valuable concession — such as tribal exclusivity over gambling.

While the House bill gives the tribes a monopoly for now, the Senate version cuts the state’s two horse racing tracks in on the action. A 2018 analysis of the issue for the Minnesota Racing Commission calls sports betting a “momentous threat” to racing, but notes that all the states but one that have legalized sports betting have allowed it to be offered at race tracks. As reported by the commission, the Thoroughbred Idea Foundation has concluded that “he most obvious means of minimizing the potential negative impacts of legalized sports betting on the racing industry is to allow sports betting at racetracks and to direct net revenues to the support of racing and breeding in the state. “

The Senate bill allows a type of mobile betting but requires the use of geofencing to assure that the bettor is within state boundaries and requires them to have an account that has been created in person at the casino or race track. It also creates a Minnesota Sports Wagering Commission, which would make rules including what types of bets would be allowed and regulate the games.