For the District's Small Businesses, Is Sports Betting Too Big a Gamble?

It’s game night at Lou’s City Bar, with the Redskins’ crushing preseason defeat to the Cleveland Browns well underway.

But for operations manager John Groth, what matters more are the fans ordering food and drinks. He’s hoping the Columbia Heights restaurant can soon serve up another item: a chance to place bets on sports games.

He’s among the local bar and restaurant operators hoping the advent of D.C.’s sports-betting program will be a boon to their bottom line. But many small business owners tell the News4 I-Team the success of that venture — and whether they can afford to get in the game — depends on many still-unknown details.

“There are definitely a lot of questions,” Groth said. “But, you know, anything we can add to the bottom line helps. It’s a small margin business.”

DC Lottery officials say they’re still finalizing the rules and regulations and how they will apply to both large and small operators. A spokeswoman told News4 she expects the regulations to come out in the next few weeks, with license applications soon to follow.

The small bars and restaurants would fall under what's called a “Class B” license. There's also a more expensive “Class A” designation reserved for the four major venues that house D.C.'s professional sports teams: Audi Field, Capital One Arena, Nationals Park and the Entertainment and Sports Arena.

Potential “Class B” operators met with DC Lottery officials earlier this week, telling News4 they gained some clarity on issues including whether they can work together to develop a shared sports-betting app.

But Jeff Ifrah, an attorney who represents a group of small restaurateurs interested in offering sports betting, said they remain concerned about other aspects they fear could make sports betting not worth the investment.

Chief among them? Whether the app the District is developing with lottery contractor Intralot will operate within the “Class B” locations. In addition to developing the District’s app, Intralot will manage the District’s sports-betting kiosks.

DC Lottery officials told the I-Team the citywide app, which is expected to be released in January, will not work on federal property and will also be blocked from operating in the “Class A” professional sports venues and a two-block perimeter around them.

Ifrah said the small operators want the same advantage within their locations, saying allowing the District’s app to work alongside theirs would cut into their potential profits.

“You’re basically going to be driving traffic away from what the ‘Class Bs’ are paying for," he said.

A Lottery official told the I-Team this week there’s nothing in current statutes or regulations preventing a Class B licensee from “employing technology at its own cost” to block the Lottery app from working within its location.

Ifrah said it’s unclear how that would work, much less whether small businesses would be able to afford it.

Ifrah said they’re already facing a hefty price of entry into sports betting, with “Class B” licenses requiring an application fee of $100,000. That fee could be reduced to $25,000 if the operator partners with a certified business enterprise, or CBE, that also qualifies as a small business, a disadvantaged business or a D.C. resident-owned business. The licenses are issued for five-year terms and will be able to be renewed.

A “Class A” license, which is only available to the venues that house D.C.’s pro-sports teams, requires a non-refundable fee of $500,000. That fee could be slashed to $125,000 if a venue partners with a CBE.

The District will not grant a license to an entity solely in business for the purpose of sports wagering. A small business owner must purchase a license for each physical location they operate, even if the sports betting program is contained on a mobile device. Ifrah said that can be a burdensome cost for a restaurateur with more than one location.

“D.C. hasn't really dealt with the reality that these small businesses are small,” Ifrah said, adding that the smaller locations are also contemplating the cost of added security. "You're asking a small business to take a big risk.”

The questions come as D.C. attempts to stand up the nation’s first sports-betting program that could be available in small and large businesses alike.

So far, at least seven small businesses, including Lou’s, have applied for a change of use license with the District’s Alcohol Beverage Regulation Administration, an indication of interest in offering sports betting. They also include a yet-unopened business called Lyve and Wet Dog Tavern in Northwest; Duffy’s Irish Pub and Dirty Water on H Street NE; Bliss in Northeast; and The Brig in Southeast.

The owners of Duffy’s were among the first to apply for a change of use license. And even though Duffy’s already boasts “sports betting coming soon” on its website, co-owner Tom Bindley said he’s still weighing whether he can make enough money to warrant developing an app to compete with the District app.

"We hope we can set things up to take advantage of [sports betting] if it comes out favorably for a small business like ours,” Bindley said. "We don't really know what the final product or infrastructure will look like."

In a statement, DC Lottery said it’s "committed to establishing a solid regulatory framework that fosters public confidence and trust in the integrity of sports wagering operations" and is working to "ensure that the District puts forth a workable model for potential operators and businesses seeking licensure."

Sports betting has already faced delays after the D.C. Council approved a $215 million no-bid, emergency contract in July, tasking Intralot with developing a citywide sports-betting app and kiosks for retailers.

“A lot of the chaos that you're seeing is because we rushed to get this contract done,” said Councilwoman Elissa Silverman, who was among five members to vote against the sole-source contract.

She told News4 the council should have spent more time pondering how the program would benefit the smaller retailers.

“The question is how much the District will benefit and how much our small businesses will benefit,” she said. “And if they're not going to benefit, then the whole argument that this was really going to be a great revenue creator for the District and … benefit to our businesses, is not going to be true.”

Reported by Jodie Fleischer, produced by Katie Leslie, and shot and edited by Jeff Piper and Steve Jones.