The regulatory failures documented by the report places into stark relief the first years of legal sports betting in the state.
“During the first year of regulating sports betting, the Division of Gaming, within the Department of Revenue, did not have an effective process to investigate sports betting operations for temporary licensure, or to collect sufficient documentation to determine if sports betting operations’ monthly tax filings were accurate,” the report states.
The audit found the commission issued the majority of operators only temporary licences. With these licences, the operators receive the same privileges as permanent licences but with far less stringent background check procedures.
“As of March 2022, 35 out of the 39 licensed retail and internet sports betting operators held temporary licenses, which the Colorado Limited Gaming Control Commission issued on the basis of limited background investigations the Division conducted.”
“While a temporary licence allows operators the same privileges as a permanent licence, the Division’s background investigations may not have provided assurance that the operators were suitable for licensure.”
The report goes on: “The Division did not complete minimum background investigative procedures for the five licenced operators we sampled, and the procedures that were completed may not have provided relevant information needed to fully inform the Division’s licensing recommendations to the Commission.”
There are also concerns of what appears to be financial irregularity on the part of the operators that the Division failed to investigate: “We sampled 22 sports betting tax filings from May 2020 through April 2021 and found wide variation between the amount of wagering activity (i.e., bets, free bets, and payments to players) that operations reported after each gaming day compared to the totals they reported in their monthly tax filings.”
“While some variation is expected since wagers may be altered, voided, or canceled after they are placed, operations do not always submit supporting documentation to substantiate changes to their reported net sports betting proceeds. As a result, the Division could not demonstrate if or how it verified that the tax filings were based on accurate data.”
The report comes out in the context of a period of explosive growth for Colorado sports betting, jumping 68% year-on-year in March.