Study Suggests Minnesota Banning Live Betting Will Fuel Illegal Market

While proponents of legal sports wagering in Minnesota work to get bills through the Legislature this year, some are at odds with betting industry experts.

Sen. Matt Klein, a sponsor of Senate File 1949, which would give the state’s 11 tribes exclusivity over sports betting. During the bill’s recent passage through the Senate Committee on Commerce and Consumer Protection, lawmakers amended the bill to ban in-game betting. Klein and state Sen. Jordan Rasmusson assert that in-game wagering leads to gambling addiction.

However, a recent study prepared for the International Betting Integrity Association indicates that prohibiting specific types of bets, like in-game wagers, could lead to negative financial consequences for states and bettors.

Restrictions may drive bettors to illegal markets

If a bettor who enjoys in-game betting cannot engage in the activity, they may turn to illegal operators, according to a study titled The Availability of Sports Betting Products: An Economic and Integrity Analysis. The conclusion is based on data gathered from gaming associations and sports betting operators in several countries.

The study revealed a correlation between the accessibility of sports betting products and the percentage of consumers engaging in bets through regulated sports betting operators. Called the channeling rate, it establishes that sports betting markets that aren’t regulated are more vulnerable to fraud.

The study cited certain types of bets that disproportionately affect the channeling rate. Those types of wagers include in-game and prop-style bets.

Khalid Ali, CEO of the International Betting Integrity Association, said the study proves that limiting types of betting pushes players to unlicensed sportsbooks.

“Whilst politically attractive, this study confirms that bet restrictions are a blunt and counterproductive instrument. They don’t prevent betting, they just drive it into the unregulated market where most of the problems with sports integrity arise. The conclusions are clear: If you want to protect consumers and sports from corrupters, while maximizing tax revenues, then allowing a wide range of sports betting products is essential.”

In fact, the Minnesota Department of Public Safety’s warning about illegal betting underscores this point in cautioning citizens to avoid offshore, illegal operators.

“When you send money, you are giving your personal financial and banking information to unknown persons that are not licensed or regulated in handling it. If you do win, there is no recourse if they do not pay you.”

The study compared the consumer channeling rate in countries with a range of regulatory restrictions. Countries with a diverse array of betting products have significantly higher onshore consumer engagement compared to nations imposing restrictions on crucial betting markets.

Possible effects of restrictions in Minnesota

So, what does this mean for Minnesota if the amendment to SF 1949 succeeds? From a financial perspective, it would mean the state stands to forfeit millions in tax revenue.

According to Jeremy Kudon, president of the Sports Betting Alliance, the state would lose at least an estimated $30 million. Kudon testified to the Minnesota Senate that more than 50% of US sports betting market wagers come from in-game bets. That figure could swell to 70% by 2030, according to the SBA.

“Rather than bring in what we estimate to be $50-$75 million (in tax revenue) in Year 1, you’re talking about collecting maybe $20 million.”

The bill heads to the Senate Tax Committee, where it will likely have its final hearing. The committee will hear the bill on Thursday, March 14.

Given the results of the IBIA study and projections from the Minnesota Department of Revenue that sports betting could bring in $400 million in revenue within three years of legalization, senators will have to decide if a potential ban on in-game betting is financially sound and in the best interest of consumers.