Proposed Puerto Rico Sports Betting Regs Unusual, Quirky

Proposed Puerto Rico Sports Betting Regs Unusual, Quirky

Known for its gambling culture and tourism, Puerto Rico is on the cusp of becoming the first U.S. territory to have operators go live with legal sports betting. But the proposed rules, which were rolled out in early August and are open for public comment, are causing stakeholders to pause.

From a macro view, Puerto Rico appears a desirable opportunity for potential operators, with the new law allowing for territory wide mobile sports betting with remote registration, retail betting at myriad locations, a 7% tax rate on gross revenue from brick-and-mortar bets and 12% on mobile/online. And the law does not call for so-called integrity fees or royalties to the professional sports leagues. The legal sports wagering age will be set at 18, and the regulator will be the Puerto Rico Gaming Commission.

But a deep dive into the proposed regulations brings up a host of questions. Developed by consulting firm GLI and generally in line with the new law, Puerto Rico is not only a unique locale with stunning beaches, it’s got a rich gambling history, including cock fighting and horse racing, and a reputation for political hijinks. In fact, one of the last papers that disgraced outgoing Gov. Ricardo Rosselló signed in 2019 was the law to legalize sports betting. That was the first of two key resignations relevant to gaming. In April 2020, Jaime Alex Irizarry, Puerto Rico’s head of gaming, also resigned.

But a deep dive into the proposed regulations, developed by consulting firm Gaming Labs International and generally in line with the new law, raise a host of questions and concerns. The 30-day public comment period opened earlier this month — the GLI report with the proposed regulations is dated Aug. 6 — but one industry source says that even with the public-comment period still open, the regs, written as is, will become permanent when the Gaming Commission meets on Wednesday.

Puerto Rico may not be attractive to all operators

For a little perspective, Puerto Rico has a population of about 3 million people, and welcomes about 4 million tourists per year, and the per capita income is about one-third of the U.S. average. In terms of population, the most comparable legal sports betting state is Iowa.

Prior to legalizing sports betting, three studies showed the territory could expect taxable revenue of between $14.9 million and $87 million annually in a mature market. In almost a year of legal sports betting (Aug. 2019-June 2020), Iowa sportsbooks have brought in $25.7 million in revenue, based on a 6.75% tax rate. Iowa does require customers to register in person for a mobile/online sports betting until 2021, and sports were virtually non-existent for a three-month period between March-June due to the COVID-19 crisis.

The proposed regulations currently allow for betting on professional, college, and Olympic sports, as well as e-Sports and virtual sports. The language also appears to leave open the door for peer-to-peer wagering as well as betting on non-sports events, such as the Academy Awards or elections. To date, the only states in the U.S. that allows for wagering on the Academy Awards is Indiana and New Jersey, and no states allow for election betting — though West Virginia thought it might for a hot minute.

Operators may have some concerns with regard to the licensing regulations, which include a provision to waive the sports betting licensure fees for the first 10 years for cock-fighting venues licensed by Dec. 31, 2018, and cut the fees by 50% for licensed horse-racing venues licensed by the same date. While this provision was likely included to help preserve both the cock fighting and horse racing industries in Puerto Rico, it gives proffer and advantage over U.S. and international gaming operators considering setting up shop.

The proposed regulations allow for some latitude in terms of licensing fees. According to Section 2.2, the licensing fees for a Principal Operator or internet wagering platform start at $50,000 and Satellite Licenses or Point of Sale Licenses start at $2,500, but “The Commission shall establish the fees for the granting or renewal or Operator licenses. However, the minimum license costs” shall be those noted above. That’s a pretty low start, relatively speaking, but could go up if the gaming commission wants to raise them.

For DFS sites, the minimum cost is $10,000 for an operator and $1,000 for a satellite location. In addition, there are licensing fees for certain employees, including $500 for key employees, who earn $50,000 or more per year. Some U.S. states have similar provisions, including Virginia, which also has proposed regulations out for public comment.

Another uncommon provision is that the proposed regulations would prohibit any professional athlete from placing a sports wager. In general, it’s accepted practice that professional athletes would not wager on their own teams or sports, but could wager on others. Though some professional leagues prohibit their athletes from betting, period, no U.S. legal sports betting state prohibits a pro athlete from betting on other sports. This requirement could also provide a headache for regulators and operators as it can be difficult to track professional athletes from around the world, and keep a current list.

Wagering limits, language, ad restrictions also concerning

In addition to the red flags stakeholders see, Puerto Rico has two official languages — Spanish and English, though English is not widely used. The legislature runs in Spanish and documents from governmental agencies are also often in Spanish. For stakeholders, communication has been a hurdle throughout, and once operators consider whether or not to enter the Puerto Rico market, they must also weigh — against the upside — if it’s worth creating and maintaining multiple apps in two languages.

The laundry list of oddities in the proposed Puerto Rico regulations is long and varied.:

  • Bets are capped at $2,000 per day per person, meaning well-financed bettors, so-called sharps, or anyone wanting to place a big wager will have to bet over that amount elsewhere — potentially pushing such bettors to the illegal market;
  • The advertising guidelines in the proposed regulations are among the most stringent in the U.S., and goes to great lengths to outline seven different ways to avoid advertising to minors, including not using “colorful and exaggerated animated characters common in children’s cartoons, such as animals, pirates or fairy tale characters” or “comics figures … such as superheroes,” or “adolescent, juvenile or loutish behavior.” The advertising section of the proposed regulations include 11 entries covering everything from not “exploiting cultural beliefs” to prohibiting the use of “celebrities that suggest that Sports Betting or Fantasy Contests can lead to social success or enhancement of personal qualities or attractiveness.”
  • For retail locations, the regulations appear to require a teller window, complete with a cashier’s drawer and “station,” which seems to mean that a retail sportsbook cannot consist only of kiosks;
  • There are limits for deposits, withdrawals and payouts on kiosks: maximum deposits and withdrawals are capped at $10,000; tickets with a potential payout of more than $10,000 cannot be processed at kiosks; vouchers worth more than $3,000 cannot be issued or redeemed at kiosks; and tickets worth more than $3,000 cannot be redeemed at kiosks. There is no clear definition of what the difference between a ticket and a voucher is;
  • Abandoned accounts must stay with operators for three years during which time the operator must advertise the names of abandoned accounts. If the accounts are not claimed after three years, the balances are then transferred to the gaming commission. Operators may deduct the cost of advertising from the balances of the accounts, but turning the money over to the gaming commission is a bit of a departure from how this situation is handled elsewhere in the U.S.. As an example, New Jersey regulators split the balances with operators.
  • The proposed regulations also include a section called the “Pandemic Reopening Plan,” which may be the first of its kind in sports betting regulations in the U.S.

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