Barry Pack, director of the Oregon Lottery, cleared the way for the state’s high-stakes leap into sports betting last week when he signed a controversial contract with gaming technology firm SBTech Malta Ltd.
Pack went ahead with the SBTech contract despite allegations by a competing bidder that the company operates in countries where gambling is illegal.
Lottery officials are keeping a tight lid on the contract. They released the document to The Oregonian/OregonLive only after giving SBTech the opportunity to redact it. SBTech blacked out entire pages, including any reference to how much Oregon will pay.
Lottery officials also refused to release an Oregon State Police background check of SBTech. Instead, the lottery distributed only a summary of detectives’ findings penned by Darin Goodwiler, assistant director of security at the lottery.
Goodwiler recommended lottery officials hire SBTech.
Finalizing the contract capped a wild couple weeks for lottery officials in Salem.
Sen. Chuck Riley, D-Hillsboro, nearly derailed the entire sports betting plan when he proposed to prohibit the lottery from getting involved in mobile betting. Lottery officials intend to launch sports betting with a mobile app months before incorporating it into its network of restaurants, bars and retailers.
Gov. Kate Brown then unexpectedly entered the fray proposing that sports betting proceeds help pay down Oregon’s huge PERS pension obligation.
A windfall for states
In fact, sports betting has proven an enormous hit in most of the states that allow it.
“We’ve had a spectacular year,” said Vernon Kirk, director of the Delaware State Lottery. Less than 12 months since the state started up sports betting, the total handle has topped $152 million. Profits have reached $25.2 million, with returns to the state totaling $12.5 million -- all well in excess of initial expectations.
Oregon, with four times the population of Delaware, is projecting total volume of $330 million the first year and hitting $680 million by the third.
But time is running short for lottery officials to assemble their team. It vows to start up its sports betting by the beginning of the NFL regular season in early September.
One of the attractions of SBTech is that it offers a turnkey package, including an app that allows for betting from mobile phones.
That has created another delicate issue for the lottery. Some of the retailers, restaurants and bars that have hosted lottery games for years fear being usurped by the mobile games offered by SBTech.
“Certainly, our retailers are concerned about mobile gaming,” said Greg Astley, of the Oregon Restaurant and Lodging Association “Our clients have brick-and-mortar establishments. If you can do it from your couch, that could be pretty devastating.”
A relative newcomer
SBTech is a relative newcomer to the U.S., doing most of its business in Europe and Asia. The company is based in the Isle of Man in the Irish Sea. Its subsidiary, which won the Oregon contract, is located 1,500 miles away on the island of Malta in the Mediterranean Sea.
Much of 1,000-employee company’s operations are apparently in Bulgaria. Oregon State Police detectives traveled to the Bulgarian cities of Sofia and Plovdiv in April to conduct interviews of company officials.
The lottery indicated on March 20 that it intended to select SBTech – six weeks before the due diligence was complete. Second-place bidder Scientific Gaming’s filed a formal protest claiming that SBTech should be disqualified because it was doing business in Turkey, Iran and other countries that had banned sports betting and other forms of gambling.
Scientific Gaming’s lawyers met with lottery and state police officials and offered additional evidence against SBTech, Lottery spokesman Matt Shelby confirmed.
It’s unclear to what extent Oregon State Police investigators followed up on those leads. The one country mentioned in Goodwiler’s investigative summary is China. He discounted any cause for concern, saying Chinese officials widely tolerated gambling despite the legal prohibition.
“During the course of the investigation an allegation was brought to our attention that SBTech was operating in a “black market”, specifically China,” Goodwiler wrote. “Despite the allegation that China is a ‘black market,’ it appears to be viewed by others as a ‘gray market,’ though I suggest that the Lottery continue to monitor that status.”
Two independent experts on Chinese gambling laws scoff at Oregon’s conclusions.
“That’s complete nonsense,” said Steve Dickinson, a Seattle lawyer who has concentrated his practice on China for the past 35 years. “Betting on any activity is not allowed. Period.”
That prohibition hasn’t stopped millions of Chinese from participating in illicit gambling. But the fact remains that it’s illegal.
Violators of China’s civil anti-gambling laws can be sentenced to two weeks of hard labor, said I. Nelson Rose, a California lawyer and law professor who has taught gambling law at the University of Macau near Hong Kong.
“Literally all gambling is illegal in Mainland China,” Rose said. “Even advertising gambling is illegal,” he added. “It’s hard for me to see China as a gray market.”
SBTech issued a categorical denial that it operates in any prohibited market, be it gray or black. “To be very clear, SBTech does not operate in any black markets,” the company said in a written statement. “If it did, it would not be licensed in the numerous jurisdictions it is currently licensed in. After a very comprehensive investigation (including investigation into the falsehoods and misinformation circulated by SBTech’s competitor), the Oregon State Police gave SBTech the seal of approval.”
An important partner
In his summary, Goodwiler also noted that three other states -- New Jersey, Mississippi and Pennsylvania -- have already given the nod to SBTech.
SBTech is of crucial importance to Oregon Lottery officials, who have chosen a different management strategy than most other states.
Nevada, New Jersey and several other states have chosen to delegate sports betting to the individual casinos and racetrack operators who have industry experience. Nevada has 197 sports books in the state, said Michael Lawton, of the Nevada Gaming Control Board.
Oregon, on the other hand, will manage the entire sports betting operation. It will rely on SBTech to furnish the technology and the all-important odds for every athletic contest on that day’s betting form.
Kirk, the lottery director in Delaware, said the accuracy of those odds is crucial. Unexpected results and the wrong betting line can sometimes push profits to losses.
“With slot machines, scratch-offs, that’s all mathematics,” Kirk said. “In sports betting, it’s a little more gray. There is risk, depending on what bettors do, what their skill levels are, what the odds are.”