Thoughts from GiGse 2018: Getting Sports Betting Right

Michael Pollock, Managing Director, Spectrum Gaming Group
Michael Pollock, Managing Director, Spectrum Gaming Group

By Michael Pollock

The US Supreme Court’s important decision in Murphy v. NCAA has prompted an unprecedented flurry of activities, but it has also prompted a flurry of metaphors. Some of them are commonplace, and I have used them myself on several occasions. How many of you have used – or have been the recipient of the expression in recent weeks comparing this situation to “drinking from a firehose”?

Since the burning issue has to do with sports, there has been no shortage of sports-related metaphors as well. This is the first inning. We are on the one-yard line, etc.

I am going to endeavor to present a different metaphor from a sport that I admittedly do not participate in: golf.

“There are no mulligans in gaming law.”

That slogan may not make it on to t-shirts or coffee mugs any time soon, but it is a slogan that bears repeating and, I respectfully suggest, is of monumental importance that transcends sports betting and involves virtually every aspect of gaming law.

I am wearing two hats in writing this, as managing director of Spectrum Gaming Group and as executive director of NCLGS, but I bear one singular message: Get it right the first time.

States that want to be first out of the starting gate – yes, that is another sports metaphor – should heed that advice. Whether the issue is the number of licenses, the tax rate or other measures, it requires care, thought and, most important, listening to the stakeholders in your state.

No two states are precisely alike in the structure of their gaming industries and, thus, no states should have precisely the same vision as to sports betting. Even if you examine a proven model such as Nevada’s, there will be a need to adapt, expand or otherwise modify it to your state’s vision.

The many voices and issues raised during this year’s GiGse conference in Miami may have sounded like a cacophony to the untrained ear, a dissonance of suggestions and issues raised by a wide variety of stakeholders, each seeking to advance their perceptions of how sports betting should evolve.

To my mind, however, I heard a pleasant symphony, a harmonic repetition of one melody: You don’t know what you don’t know.

While a number of states, tribes, operators and suppliers seek to be first to market, I am reminded that – whether your chosen metaphor is music or sports – the underlying lessons are the same. And they include:

  1. Sometimes, it is better to be second, third or even further down the line, to pay attention to what others have done, and avoid their mistakes.
  2. Legislators who want to solve this year’s – or next year’s – budget problems should not be seeking to quickly implement long-term fixes to solve short-term problems.
  3. Open your eyes to the widest possible vision. Rather than examine sports betting through the narrow prism of the amount wagered on sports, consider the broader impact of leveraging sports betting to attract a different demographic, and to market a variety of other gaming and non-gaming options to that customer base.
  4. Don’t be bedazzled by numbers.

The most eye-popping numbers that have emerged from the ongoing policy discussions in recent months are the range of estimates as to the size of the illegal gaming markets. I will not repeat that range of estimates here simply because doing so would again risk retinal damage as more eyes might pop. Rather than focus on the numbers, focus on these unassailable conclusions:

  1. Most of the numbers being bandied in the media and other forums focus on handle, rather than gross revenue. The latter number amounts to roughly 5 percent of the former, and that much smaller needs to be the denominator in much of the arithmetic calculations.
  2. Tax rates and other costs that are structured as a percentage of revenue estimates need to be realistic as well, and should not be developed or proposed for political purposes (a quixotic suggestion, to be sure) but for economic purposes.
  3. Most sports-betting models that will develop in the United States will largely evolve into marketing models, in the sense that (as noted earlier) the relatively small revenue to be realized from sports betting will be better suited as a marketing tool to generate the aforementioned other sources of revenue, which will in turn generate employment, capital investment, tourism promotion and similar policy goals.
  4. The illegal sports betting market is the basis for most estimates as to the potential size of the legal market, but it would be profoundly disingenuous to expect that legal sports betting will end the illegal market.

That latter point is worth exploring because it ties together all of the above points into one unassailable point: The higher the tax rate on legal sports betting, the smaller the impact on the illegal market.

Legal sports betting providers will doubtless have certain advantages over their illegal counterparts: known trusted brands, the confidence that accompanies a regulated market and, not insignificantly, the ability to offer player rewards that illegal operators could not hope to match.

The flip side of that is that the illegal operators will also have an inherent advantage: The ability to operate without a tax burden, or other regulatory costs, allows them to rebate money to their players in a way that legal operators could not match.

That point was made at GiGse by several speakers, most notably Joe Asher of William Hill US.

These various thoughts lead to an inevitable conclusion, which mirrors my opening thoughts: There are no mulligans in gaming law.

Getting it right is more important than getting there first.

 

Michael Pollock, Managing Director of Spectrum Gaming Group, also serves as Executive Director of NCLGS and recently founded the Spectrum Gaming Sports Group. During his long career, he has won 20 journalism awards and served on the faculty of New York University, Rutgers University and Stockton University.