Sports Betting In Maryland Could Be Risky For Small Businesses

Posted on May 19, 2022 - Last Updated on May 20, 2022

When HB940 was signed by Maryland Gov. Larry Hogan in May 2021 to legalize sports betting in the state, Raymond Morriss saw an opportunity.

“Our gut was that it would be a positive economic impact and that it could only help our city,” the mayor of Cumberland, a town of under 20,000 people near the border of West Virginia, told PlayMaryland. 

One of the reasons Morriss, and those in his town, feel this way is due to the fact that the nearest casino, Rocky Gap Casino in Flintstone, has no current intention to get involved in sports betting.

“It gives us an advantage,” Morriss said.

“Hopefully, we’ll draw some of the people that are at Rocky Gap into our downtown area or wherever the license may be granted. We sort of assumed it would probably be one of our local downtown businesses that would hopefully get one of the licenses. Hopefully, it would bring people into the city.”

Municipalities such as Cumberland can pave the way and the state has allowed for 30 small business licenses in the sector. But is it right for those businesses to go for the sports betting ride?

Ordinance change gets rid of Cumberland gap

Morriss said there were multiple local businesses interested in applying for a sports wagering license. One of those is Fore Axes, a bar/lounge that offers axe throwing and golf bays. Located in the downtown area on Baltimore Street, Fore Axes is the type of establishment that could make sense to usher sports betting into Cumberland.

Up until this point, folks in Cumberland who wanted to place a legal sports bet were forced to cross the border into West Virginia to do so. Morriss and other local lawmakers have since tweaked the town’s ordinances in order to allow sports wagering in the town.

“We really haven’t had any pushback at all,” Morriss said.

“Gaming was something that was always done in this area for many years in the private clubs. So, it’s something that actually fits into our culture without making a major change. I think that’s the reason we haven’t had any pushback. No negative comments whatsoever.”

To get involved or not: That is the sports betting question

The law is there. The interest is there. But should small businesses dive head first into the Maryland sports betting market? Well, that’s a complicated answer.

First, not every town in the state has the advantage that Cumberland does. With in-person sports betting available at the five other Maryland casinos, all boasting a big-name sportsbook, the competition can be fierce.

Second, sports wagering is a risky business. It’s one that can be very profitable, but it has to be done right. Just ask Johnny Grooms, the director of East Coast retail sportsbook operations at BetMGM.

“An entrepreneur is someone who assumes and operates and knows the risk of opening business,” Grooms said. “When it comes to sports betting, there’s a substantial risk.”

Grooms said as much at an educational summit in early May aimed to inform interested small businesses about the ins and outs of the industry.

He went on to point out that in February at MGM National Harbor, the casino brought in over $7.5 million in total handle. However, it lost money — albeit a small amount at a little over $3,800 — by month’s end.

Grooms continued:

“I don’t want to be a doom and gloom guy, but I want to make sure anyone entertaining the thought process of going into this business, there is risk involved. There really is risk involved. You can lose money.”

How to get started in Maryland sports betting business

So, if the BetMGMs and the FanDuels of the world stand to lose money, how does a small business compete? Where does one even start?

In order to be successful in this industry, Jimmy Rhee says there are three pillars to build upon. Those are core competency, understanding/access to capital, and an understanding of the competitive arena, according to the special secretary of small, minority, and women business affairs in Maryland.

Everything from “impeccable record-keeping” to being creative to stand out falls under these three pillars. Some of it can be daunting, but luckily, there are resources available to assist interested parties.

You’re likely going to need an experienced partner

One company that offers such resources is Elys Game Technology. Tory Key, the company’s business development project leader, spoke at the summit. He talked about how they have helped a number of businesses get going in the sports betting space, some as close as Washington D.C.

“We’re running the book from the back end,” Key said. “We don’t expect you all as people who have never done sports betting to handle moving point spread lines or making sure that you have responsible gambling policies in place, because you’ve never done this before.

“That’s really us taking on all that effort and taking it off your hands. All that we expect you to do as our business partner is to run the day-to-day operation with the staff that you’re providing.” 

What companies like Elys can do is “provide a turnkey solution that allows you to have your own look and feel and branded sportsbook.” Key went on to say that they can assist from start to finish, from the application process to provide the necessary hardware and software. 

One of Elys’s clients is Grand Central Sportsbook in D.C. It is the first Class B sports wagering licensee in the area. It was able to create a brand with the help of Key and company.

In the fiscal year 2022, the sportsbook saw $3.35 million in total handle. The gross gaming revenue sits at $437,848.93 while the tax revenue is $43,784.70.

What businesses can get into sports betting? Not just bars

Being a bar/restaurant, Grand Central is the type of establishment most think of when considering sports betting for a smaller business. However, as Key pointed out at the summit, many of their clients overseas are coffee shops.

“Most of your bettors are going to be the quick-churn bettors,” he said. “They’re going to want to go in and leave pretty quickly. About 10% of those individuals might actually stay and have a beverage or food or something like that.”

This can open the door to a number of businesses that maybe wouldn’t have considered the option before. However, out of the 90 estimated attendees at the summit earlier this month, only five or six of them fit the small business category.

Sports Wagering Application Review Commission chairman Tom Brandt said this could be a potential red flag, “a significant hurdle for us in attracting quality applicants … given the constraints articulated at the seminar.”

Despite that, officials are still optimistic these are simply growing pains in a new space. With time, the hope is those small business owners will be intrigued enough to get involved.

“I fundamentally believe that the situation in Maryland and the goal in Maryland, it’s a challenge. It’s difficult,” said Michael Pollock, managing director of Spectrum Gaming Group. “It’s going to require a lot of homework and a lot of realistic expectations.

“But I fundamentally believe with all the people working on this who are committed to that goal, that it can be achieved.”

Breaking down the small business license

Before anything else, interested parties first need to acquire a license. Here is a breakdown of the levels of license within the state.

LicenseFeesEligible License-holders
Class A-1$2 million license fee,
$500,000 renewal fee every five years
Casinos with 1,000 or more machines, horse racetracks and major professional sports facilities
Class A-2$1 million license fee, $300,000 renewal fee every five yearsCasinos with less than 1,000 machines
Class B-1$250,000 license fee, $50,000 renewal fee every five yearsThose who fit this license but are not small enough businesses for B-2
Class B-2$50,000 license fee, $10,000 renewal fee every five yearsEntities with fewer than 25 employees and $3 million in gross receipts
Mobile$500,000 license fee, $100,000 renewal fee every five yearsAnyone

For small businesses, you can skip down to the Class B section. More specifically, the Class B-2.

This license class is for the yet-unnamed 30 licenses set aside for small businesses. So, through these licenses, bars, restaurants, and other small retail venues will be able to host their own sportsbooks, albeit small ones.

These licenses will be subject to a competitive bidding process. The SWARC is tasked with establishing this process and the criteria with which it will award licenses. After awarding the selected businesses, SWARC’s role in the process ceases.

From there, it’s up to the Maryland Lottery and Gaming Control Commission to thoroughly vet all the licenses. If all checks out during this process, a license will be issued. The MLGAC is also responsible for regulating day-to-day operations at an entity.

Where things stand currently

At the educational summit, Kimberly Copp of the law firm Taft Stettinius & Hollister said SWARC is currently working on establishing regulations for the competitive bidding for both the Class B and mobile licenses. Those applications aren’t available yet and won’t be anytime soon, it was said in SWARC’s meeting on Wednesday.

However, the vetting background applications created by MLGAC are available on its website for interested parties.

The next SWARC meeting is scheduled for Thursday, June 16. Follow along with PlayMaryland as we monitor the latest Maryland launch updates and developments.

Photo by Shutterstock
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Griffin Adams

Griffin Adams is the managing editor for PlayMaryland, where he oversees news coverage on the site. His previous work has appeared in publications such as The Athletic, USA Today, Sports Illustrated and MLB.com, among others. Outside of work, Adams can be found on the golf course, playing pick-up basketball or trusting the process as a loyal Philadelphia 76ers fan.

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