$12 billion in handle? Why Pennsylvania sports betting could be huge

The South Philadelphia Turf Club is only blocks away from Lincoln Financial Field, home of the Eagles. TK

Final touches are being put on legal sportsbooks at casinos and off-track betting parlors around Philadelphia and Pittsburgh, two sports-crazed cities with storied bookmaking pasts.

The Pennsylvania Gaming Control Board has approved five applications for sports betting licenses. In the coming weeks and months, the state's largest casinos -- Parx, Hollywood, Harrah's, Sugarhouse and Rivers in Pittsburgh -- will begin taking sports bets over the counter and at the off-track betting facilities scattered around town. Online sports betting will follow in 2019. A new era of Pennsylvania sports betting is on tap.

The Commonwealth of Pennsylvania was ahead of the game when it came to sports betting legalization in the U.S.

Last October, Gov. Tom Wolfe signed legislation that authorized the state's gaming facilities to open sportsbooks, if permitted by federal law. Seven months later, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992 -- the federal statute that had restricted regulated sports betting to primarily Nevada -- and opened a path for other states to get into the bookmaking game.

Since the ruling, legal sportsbooks have opened in Delaware, Mississippi, New Jersey, New Mexico and West Virginia. Rhode Island reportedly could be up and running by the end of the month.

The big difference between The Keystone State and those others? Pennsylvania will be the first state with franchises in each of the four major professional sports leagues to offer legal betting.

"I would say both Philadelphia and Pittsburgh are very strong sports betting towns, with a lot of enthusiasts," Greg Carlin, CEO and co-founder of Rush Street Gaming, said with the chuckle of an eager bookmaker.

Rush Street Gaming operates SugarHouse Casino in downtown Philadelphia and Rivers Casino in Pittsburgh, which is located right down the street from Heinz Field, home to the Steelers.

"When the Steelers have home games, we sell a lot of beer on property," Carlin said.

Temporary sportsbooks at SugarHouse and Rivers are waiting on final approval of their internal controls and hope to launch Dec. 1.

At Parx Casino in Northeast Philadelphia, a circular lounge in the center of the gaming floor is being converted into a temporary sportsbook that's expected to be open next month. The main attraction -- a 10,000-square-foot, Las Vegas-style sportsbook with a 160-by-11-foot, wall-to-wall video screen -- is being built in the north corner of the casino, next to Liberty Bell Gastropub. It is slated to open sometime next year.

On Thursday, the sportsbook at Hollywood casino, located outside of Harrisburg, began a two-day test period and upon approval from regulators could be fully operational as early as this weekend.

The sportsbook at Harrah's is gearing up for a January opening, and at some point, the venerable South Philadelphia Turf Club will begin taking bets and could be the most popular of them all.

South Philadelphia Turf Club is just down the street, three blocks away, from Lincoln Financial Field and Wachovia Center, homes of the beloved Eagles, Sixers, Phillies and Flyers. In preparation for an expected increase in business, Parx, the parent company of the turf club, is sinking $1 million into the facility for upgrades.

"Interest seems to be growing by the day," Matthew Cullen, Parx senior vice president of iGaming and Sports, said.

The other reason for excitement for the gaming community? The potential size of the market.

Concerns from influential universities and professional sports leagues, a thriving black market and a gigantic tax rate never before applied to bookmakers before will all play a role in the creation of the legal Pennsylvania sports betting market. But once fully mature and with a robust online offering, it's expected to be one of the largest in the U.S., easily surpassing Nevada, according to experts. Research firm Eilers & Krejcik Gaming estimates $12 billion will be wagered annually in Pennsylvania. In comparison, Nevada sportsbooks took $4.8 billion in bets in 2017.

Not everyone is excited, though.

Concerns from colleges

Despite opposition, the Penn State Nittany Lions and Pittsburgh Panthers will be on the board when sports betting kicks off in Pennsylvania. So will Villanova and Temple.

Unlike in New Jersey, where betting on games involving Rutgers and other schools in the state is prohibited, Pennsylvania books won't have similar restrictions. Penn State and the University of Pittsburgh remain opposed.

In June, Penn State president Eric Barron and Pittsburgh director of athletic Heather Lyke each filed letters to the Pennsylvania Gaming Control Board (PGCB), asking for restrictions on betting on games involving instate schools.

"We believe strongly that wagering on collegiate sports must be limited by prohibiting sports wagering on sporting events involving varsity sports teams from college and universities domiciled in Pennsylvania for at least the two year period of the temporary regulations," Barron wrote to the board in June.

The PGCB declined to institute any moratorium on betting on games involving local Pennsylvania teams.

"We're not going down that path," Doug Harbach, PGCB director of communications, told ESPN. "The law did not specify that there be any ban on wagering on Pennsylvania colleges. Our board decided to follow what the law was, so our regulations do not include any kind of ban on that."

Penn State isn't done fighting, though, and plans to continue lobbying on the issue in the two years leading up to permanent sports betting regulations being put in place.

"As Pennsylvania's elected officials and the members of the Gaming Control Board implement Act 42 and consider changes to sports wagering in the future, Penn State will continue to communicate our belief that the law should recognize the difference between professional athletes and amateur athletes and should appropriately and uniformly address these differences in statute and regulation," Zack Moore, vice president for government and community relations at Penn State, told ESPN.

In the Penn State president's letter to the board, Barron noted the university's interest in an "integrity fee" paid to the schools to help offset any added educational and compliance costs. This fall, Penn State has enhanced its educational messaging around sports betting, emphasizing the rules during staff-wide meetings and even posting reminders of the risks of gambling that scroll across television boards in the university's academic center.

Pittsburgh initially also was looking at proceeds from sports betting operations, but director of athletics Heather Lyke told ESPN that the school's position has changed on any fee. She remains concerned about the impact of legalization and the marketing of it will have on collegiate sports.

"I recognize the reason why they're doing this is because there's an economic impact," Lyke said. "I think it's difficult to not be a proponent of gaming and at the same time ask for resources as a result of it."

A storied gambling history

Maybe it's a little overplayed, an overly broad stereotype of Italian Americans from the northeast, but there's certainly an element in Philadelphia that's been around the sports betting block.

Dr. Sean Patrick Griffin, a former Philadelphia police officer and now a professor of criminal justice at The Citadel, says the city's relationship with sports betting is often misunderstood.

"I think everyone always assumed it was organized crime-related gambling rings [in Philadelphia and South New Jersey area]. That really hasn't been the case for a long time, certainly for not the last 20 or 30 years," said Griffin, who also wrote the preeminent book on the NBA betting scandal involving former referee Tim Donaghy, "Gaming the Game: The Story Behind the NBA Betting Scandal and the Gambler Who Made It Happen."

"Philadelphia has a rich tradition of local bookmakers who had nothing to do with organized crime," Griffin added. "I think that's partly why people felt so comfortable betting, and why there's such a thriving sports betting market throughout Philadelphia and South Jersey. Everybody, with some degree of separation, could find someone to bet with, without fear of having their legs broken or families threatened."

Philly bettors and bookmakers have shared brotherly love for decades. Some are more notorious than others:

• The main characters in the Donaghy scandal all hailed from the Philadelphia area. Donaghy served time in federal prison after pleading guilty to charges of conspiracy to commit wire fraud and that he passed along non-public information about the NBA to gamblers during multiple NBA seasons. According to the federal judge who oversaw the case, Donaghy also placed bets on games he officiated.

• In 2013, authorities found $1.1 million in cash stashed in PVC pipes buried in the backyard of well-known Philadelphia bookmaker, the late Joseph Vito Mastronardo. Commonly known as Joe Vito, Mastronardo was well-connected and revered in the sports betting community for his professional approach to underground bookmaking. He was married to the daughter of the late Frank L. Rizzo, a former mayor and police commissioner of Philadelphia. Federal prosecutors alleged Mastronardo's bookmaking operation had over 1,000 bettors and was generating millions of dollars in betting activity in a year. He passed away in 2015 while serving a 20-month prison sentence stemming from a conviction on gambling charges.

"I don't think people in the Philadelphia region understood how big Joe Vito was on the international stage," Griffin said.

• The city's bookmaking reputation even made the movies, with Robert De Niro playing a small-time bookie in the 2012 picture "Silver Linings Playbook," based in Philadelphia.

Now, as bookmaking in Pennsylvania becomes a regulated industry, local sports bettors will have a few more options.

Opportunities for all four pro sports leagues

While the NBA and NHL have jumped headfirst into the sports betting business, the NFL has been more cautious during its first season with legal bookmakers popping up near stadiums around the northeast.

The NBA and NHL each have partnered with American bookmaking giant MGM as an official gaming partner and eventually will begin fueling in-game betting with official league data. Major League Baseball is considering its options, as well.

The NHL's New Jersey Devils have done multiple deals with gaming operators, including Caesars, William Hill and others.

Some NFL franchises have dipped a toe in the water. The New York Jets, for example, announced a partnership with MGM and have begun promoting 888 Casino, an international internet-based casino that operates an online sportsbook in New Jersey, for home games at the Meadowlands -- which, by the way, has a sportsbook on the property at the adjacent racetrack.

At the league level, though, the NFL has been mostly quiet in the business and legislative fronts. The league did, however, express publicly concern about Pennsylvania sports betting, specifically the state's ability to compete with black market.

"Finally, we would like to share our concerns that the statutory operator licensing fees of $10 million and the 34 percent tax rate on gaming revenue may render legal market participants unable to effectively compete with those in the illegal market," NFL senior vice president Jocelyn Moore, the league's point person on sports betting, wrote in a letter to the PGCB in June. "As the Board works with state policymakers, we respectfully ask that you reconsider laws and regulations that could have unintended consequences of advancing illegal sports betting."

Pennsylvania has not budged on its $10 million licensing fee or the 34 percent tax rate, which is roughly three times higher than New Jersey's tax structure and nearly six times higher than Nevada's. For now, four companies -- Caesars Entertainment (Harrah's), Parx, Penn National (Hollywood), Rush Street (Rivers Pittsburgh and Sugarhouse -- have forked over the $10 million licensing fee for the right to have 36 percent of their win taxed.

"It's not going to be a big moneymaker," Carlin, the Rush Street CEO, said. "But I do think it'll drive people to the casino."

"If you don't reduce the proposed tax, people will be flocking to New Jersey," Pennsylvania resident Chris Stewart wrote to the gaming control board in the public comment period. "As a resident I want to keep that money in Pennsylvania. Make the tax rate competitive or you're going to be losing a lot of potential revenue. Pennsylvania has made a lot of progress in the previous years, chipping away at New Jersey's cut of the gambling revenue. Don't waste this opportunity."