Abstract

On August 9, 2017, Emerging Leaders of Gaming held a webinar to address the topic of sports betting.
For the domestic gaming industry, the eventual widespread legalization of sports betting presents a diverse set of opportunities. We are hoping to shed some light on these opportunities and provide a broad overview of the domestic sports betting market during this webinar. We have a set of questions to ask our panelists and we will also be accepting questions from the audience throughout the discussion. We will have time at the end of the webinar to allow our panelists to address audience questions.
Before I introduce the panelists, I will introduce myself. My name is Mike Vanaskie and I am a director with the Innovation Group's Denver office.
With that, we will introduce our panelists and have them tell us a little bit about themselves. Our first panelist is Will Green. Will is the senior director of research at the American Gaming Association [AGA].
So, our first question: what is the state of the sports betting industry within the U.S. and how does this compare with international jurisdictions? Dan Shapiro, we will start with you.
The other state with any sports betting of significance is Delaware, where parlay betting is offered on NFL [National Football League] games only, and it has to be parlays of three or more games; that was due to a court decision. Delaware sports betting relaunched in 2009 after the state passed a bill reauthorizing the sports lottery there. Currently sports betting is available at the three racetrack casinos in Delaware, and also at about a hundred or so lottery retailers throughout the state. These are bars, restaurants, liquor stores, and convenience stores.
What differs from many international markets, including the UK, is that in the U.S., at least in Nevada, the sports betting licenses are tied to land‐based casinos. In the UK, you have standalone betting shops and there are about 10,000 of those in the country where you can walk in and place a bet. There is no alcohol served in those venues.
In the UK, there is a full offering of online sports betting, so you can sign up for an account with a wide variety of operators, both with and without retail footprints, and bet throughout the country and throughout many countries in Europe. So, there are different models in the U.S. from Europe, but the important thing to remember is most of the sports betting in the U.S. is still going on illegally. Nevada is the only state with a full legal sports betting menu.
Specifically here in the U.S., about 38 percent of all the handle in Nevada is on football. About 31 percent is on basketball and about 23 percent is on baseball. And over the past five years, we are looking at the growth of sports betting through baseball, which has improved about 50 percent over the past five years, and basketball, which has improved 43 percent. So, the drivers of growth in Nevada are sitting with basketball and baseball.
In Nevada, for example, there are countless state regulations and state statutes that govern sports betting quite robustly, and they maintain impressive requirements for sportsbook operators to adhere to, as opposed to some sort of federalized scheme, which doesn't really exist. And like Dan said, there are certainly other product offering differences as well.
And yet, despite the structural and the product differences, if you look at the UK, you know, a market where sports betting is incredibly mature and has been around for a very long time and in many, many forms, you see consumer spend per capita on sports betting annually look a little bit in some instances like Nevada. Some of our data indicates that between $40 and $50 per local resident (as opposed to tourists) are spent on sports betting annually in Nevada. You look at some European markets and that number is higher; you look at other European markets and that number is lower. So, you do see U.S. consumers participating in terms of volume and consumer spend in an encouraging way in this market, and in a way, that's on par with other more established jurisdictions.
When you look at America and you ask what is the size of the domestic sports betting market, what that really means is Nevada, with the addition of Delaware's numbers from their parlay betting scheme. Those are the only two states that are currently running sports betting.
The 2016 handle in America here was a little over $4.5 billion. That figure was a year‐over‐year increase for the seventh straight year. Obviously we don't have 2017 figures yet, but those are projected to be a yet another year over year increase. GGR last year, I believe, clocked in around $220 million nationwide if you sprinkle in Delaware's revenues to that figure.
And then speaking to Dan's earlier point, then you have, of course, the illegal market. The AGA's estimate is that 97 percent of the entire sports betting handle in this country is facilitated by illegal operators. It is likely in the high tens or low hundreds of billions of dollars. You don't have to take our word for it. Look at the projections from Ernst & Young, H2 Gambling Capital, and Eilers & Krejcik. Whatever the number is, it is just an absolutely massive number, which I think underscores several things in terms of consumer demand for this product; demand for a legal, regulated and safe market.
When you get to the second question, what will happen to the size of the market if this becomes legal, we actually worked with economists from Oxford Economics to commission a study that quantifies the economic impact of a future legal sports betting market. I will not go in depth in all the detail there, but among them were those two, handle and GGR.
The study estimates that if sports betting were offered in all 50 states at just brick‐and‐mortar and retail locations, not even involving the mobile or online component, it would generate a national handle somewhere between about $130 and $170 billion annually. That is not involving online; that would raise it much higher. Again, right now handle is about $4.5 billion.
I mean, that is a big, big market. It also estimates that such a scenario would generate about $5 billion in total taxes, state, federal, and local, direct and indirect, and you would be looking at about $10 to $11 billion in gross gaming revenues. In Nevada and Delaware now, that is about a quarter of a billion, not even.
Another example was getting online gambling legal in Pennsylvania. Again we still cannot get all the stakeholders aligned. But, I think that there is a little bit of enthusiasm about the federal repeal of PASPA. I think there are going to be some challenges rolling out inside some states. And that is going to be prevalent as we look at various other scenarios.
But, as Dan Kustelski said, right now it is banned. For those that do not know, PASPA stands for the Professional and Amateur Sports Protection Act. A lot of people have heard about it ad nauseam. I am not a lawyer so I am not going to get into the specifics of it, but it currently bans states from authorizing new forms of sports betting. The vast majority of states have not had sports betting, thus, states introducing anything would constitute introducing something new. So, I think the biggest political obstacle is that it is banned. So, as you talk about building that consensus, as you talk about getting those stakeholders in line like Dan said, something that we have seen through our polling is that laterally over time, opposition to this has really been weakening. The opposition that you saw maybe in the ’80s or ’90s, before technological innovations, before many issues over match fixing or game integrity were not necessarily addressed by robust data solutions, was greater than now.
Now? The opposition just isn't really there. I think building that consensus and gathering people around common points of agreement, the common idea that sports betting is normalized and not stigmatized, are what will help drive this forward. I think one of those points of agreement is that nearly seven in ten Americans view sports betting as a states' rights issue and believe that states should have the ability to decide for themselves whether or not they want to institute sports betting. This is exactly what PASPA precludes. That number has not been that high in the past, at least to my knowledge. That is a really key sticking point.
Just one other point. This last election that we had was one of the, I think, most polarizing political fights our country has ever seen. We are a nation that can't agree on anything. And yet, greater than 50% of Trump voters, greater than 50% of Hillary Clinton voters, greater than 50% of registered independents or people who did not vote for either candidate, all agree that states should have the opportunity to decide for themselves whether or not they want to institute sports betting. And this could really be one of the last issues that there is broad‐based, widespread support for or, at the very least, a lack of opposition towards.
Same thing goes for an expansion of the product in Delaware. They already have a sports betting law on the books. There is already infrastructure there. You could see full‐scale sports betting in Delaware sometime next summer. And there are many other states that have introduced legislation to position themselves ahead of any change to the federal law.
The last count I saw, there was a document the AGA put out, there were 13 states that introduced sports betting bills and I am sure there are going to be more before we hear from the Supreme Court. So, if states do have laws on their books prior to any sort of movement on PASPA or any decision that would make it unconstitutional, we could see sports betting in some states sometime next year, before football season 2018.
I think there is another sort of Northeast Corridor example of a state that is also preparing proactively for this. Their bill called for the establishment of regulations that would govern sports betting in the event that the federal ban is removed and in the event that Connecticut went ahead and affirmatively legalized it.
But it was just kind of another proactive step there as well. So, I agree with Dan wholeheartedly; I think you are going to see states be more proactive and aggressive on this. They are certainly laying the groundwork in an impressive way, and in a way that we did not really see last year or in past years.
This is such an evolution from where the NFL was not that long ago. Las Vegas could not even advertise during the Super Bowl, and now we have two major professional teams coming to Nevada. We are playing NFL games in London and Mexico, two countries with legal sports betting. So, certainly the views of the leagues have evolved, and there are many reasons for that.
I think the leagues recognize the fan engagement factor from legalized sports betting. They have got a taste of it from daily fantasy sports [DFS] betting in the last couple years and the kind of fan engagement that brings. They have been supportive of daily fantasy sports betting, which is fundamentally another form of sports betting.
And the other factor you have is the fragmentation of the TV audience. Traditionally, TV contracts with the leagues have been extremely valuable. Increasingly, people are getting their information from other sources, from the internet, from various other streaming providers. Legal sports betting is a way potentially to increase fan engagement and continue to monetize fans who are really interested in sports betting.
So, the views of the major sports leagues have evolved. We have seen the New York Times op‐ed piece by NBA [National Basketball Association] Commissioner Adam Silver. We have seen an evolving stance in the press from the Major League Baseball and even to some extent, the NFL with the Raiders coming to Vegas and some comments from the Commissioner saying, “It could be okay”—I am paraphrasing, “in a regulated environment in Nevada.”
So, you have a lot of different factors now contributing to the momentum behind legalized sports betting. Certainly, the leagues cannot influence a decision by the Supreme Court at this point, but they certainly could influence any sort of legislation that might be possible to get done before the Supreme Court decides the case, or afterward.
The NFL actually bought into Sportradar U.S. and you cannot help but look at the international markets and realize that there is a pretty close relationship between sponsorships and advertising dollars that are associated with the sports betting companies and their respective leagues. So, it will be a massive influence on their product but I think they are trying to figure out how they can monetize it and they are working through that as we speak.
The state has embraced technology in the last couple of years with the rollout of mobile apps allowing people to bet wherever they are in the state. Customers have to sign up at a brick‐and‐mortar casino. The customer must be physically present in the casino to sign up and they must present positive ID. We run checks so that we know our customers. It is a model that is working very well and could be replicated throughout the U.S.
Obviously, there are there a number of different models that could take effect in the U.S., from pure mobile models to standalone shops like you have in the UK. Pure online sports betting is tough to see over the next several years because you have got the Wire Act, so anything interstate is unlikely on the Internet. But certainly, the intrastate model with mobile is a good model, we think, to replicate throughout the U.S.
Amazon somehow knows exactly what book I am going to read if I pick these shoes and maybe that pair of jeans. And that is done by collecting massive amounts of data and analyzing it, putting that into algorithms and using machine learning to figure out what it is that everybody wants, and then being able to provide that very personalized service. If I only bet on the Tennessee Titans and the Nashville Predators, then just serve me that information.
And that is going to be the way of the future, certainly when we talk about the next three to five years. But the best practices that are happening in other industries can apply to the future of sports betting here in the U.S.
As it relates to gambling though, the social and the online gaming were a great precursor to seeing what will happen with sports betting as an alternative form of gambling. There has not been cannibalization. It is an additive product. It is providing a digital extension for land‐based casinos, and we know that the land‐based casinos and the racinos are the ones in the queue that are going to get the sports betting licenses as these states roll out.
So, it is really about extending it. And you can look at those great case studies about casinos like the Tropicana in New Jersey and how they have rolled out a digital form that enhances the experience of the casino. It ties into loyalty programs and it just makes the entire experience better.
I say that because 62 percent of Americans cannot accurately say whether or not sports betting is legal where they live. Think about that. If they guessed, they would do better at determining the legality of sports betting. So, I think a lot of the conversation around marketing gets back to consumer awareness of their local laws and products that are available and how operators could maybe play an additional role in that.
I also think information sharing and collaboration, especially at the operator level, is key. We think operators in Nevada on the sportsbook side have done a really, really good job of collaborating with other stakeholders in the space, and sharing information with regulators that they might need to know; viewing the regulatory board there in Nevada as a partner and somebody who they can work with to help ensure the integrity of games being bet, and vice versa.
I think that a self‐regulatory approach as a complement to the existing massive suite of just day‐to‐day regulations and statutes that they have to follow could be a very important and effective model for other states to follow because it shows that the industry is collaborating with itself and with regulatory bodies, as well. So, that can only help as we move forward with more and more states coming online with this product.
And there is a process in place with the Gaming Control Board for reporting suspicious activity. A similar process could be replicated in other states where sports betting might be legal. But there are a lot of regulation and compliance measures in Nevada that are really strong and that should be replicated throughout the U.S. Computerized betting systems allow us to track transactions and data in real time. There is video surveillance of all the transactions. And that is even without getting into all the Title 31 requirements at the federal level, anti‐money laundering, KYC [know your customer], all those types of things. So, these sorts of practices that we live every day in Nevada, we think can certainly be applied to a national sports betting market.
That is a lot of money per customer and if you multiply that by how many exist here in the United States, that is a massive number. So, putting the customer at the core and then working on all of the really good products and features such as, product breadth—having lots of markets, having lots of sports—is going to be critical, including offering it on mobile.
If you put your customer at the center of the universe, then you figure out pretty quickly what drives those customers and their habits, and then you work around that. That is a process that the Europeans do and it is certainly something that is going to happen here in the United States when more operators come online, if it is nationally legislated.
So, it is not just sort of the vanilla offering: major sports, point spreads, money lines, totals; we are talking about an in‐depth product with lots of props and futures that are fairly priced. We are talking about in‐play betting, which is now for us about 25 percent of our wagering overall in Nevada. In Europe, for some operators it is well over 50 percent. All these types of products are what customers are demanding and what they are finding with their other illegal options.
So, it is important that operators consider that illegal operators will continue to be the competition and you have to have a product that is competitive with their offerings. And it is not easy to offer. It takes a lot of staff to be able to offer such a breadth of product. When you are talking about in‐play wagering, when you are talking about international sports, those types of offerings, you really need a good core of bookmakers and data provisions so that you can offer this wide range of betting options
The other thing I will touch on goes back to the customer's convenience. If you do not have mobile, customers are likely going to access illegal ways to bet through mobile or offshore websites, so convenience is important. Payments are another big consideration. The easier it is to get money into the accounts, the more customers are going to move toward legal methods of betting because payments and settlements are an issue in the illegal markets. So, if I had to leave you with two things that operators should really keep in mind, it is product and convenience. Those are the two big factors.
Then there is the offshore market. For those who might not know, what we mean by that are websites that are based in Caribbean countries. These websites, by and large, are licensed in their jurisdiction—although several others aren't licensed at all—and they will poach U.S. customers. A guy sitting on a couch in Ohio who wants to bet on sports, for example, who can't do it legally there.
This is a related but distinct conversation, that really speaks to one of the points that Dan Shapiro brought up, I think, which was competitive odds and pricing. So, for example, if I am able to sit on my couch and bet $100 on the New England Patriots to cover the spread, and I do that through an offshore website, there is a decent chance that I might get a higher payout, higher pay. The money coming back to me could be a little bit greater than if I put that same amount of money down at an onshore casino, you know, at a Vegas book. Maybe I win $93 or $94 back instead of $91, if I win the bet. That is largely because the offshore books have fewer compliance costs, can have less overhead, have a higher margin because they're paying low or no taxes. So, they can afford to give a little more back to the consumer. Offering competitive pricing and competitive odds like that, I think, is one thing that will be essential for domestic books to do going forward.
And we talk a lot about this illegal market. We are commissioning a study right now, it is not released yet. I mentioned H2 Gambling Capital as one of the vendors earlier on this call, and we are doing a study with them that sort of establishes a size and scope of the entire illegal market.
And one of the facets of that is the U.S.‐generated business for these websites that are based in Antigua, Curacao, the Dominican Republic, Costa Rica, etc., etc. We are looking at annual handle just from U.S. users alone—and these sites operate almost worldwide—we are looking at just a U.S.‐generated handle alone on those sites of about $20 billion annually.
Again, that is like four to five times the size of Nevada, right, or the entire U.S. So, I think that is a testament to the fact that, like it or not, sometimes offshore operators are offering a product that has convenience and that has good pricing, and I think in terms of a domestic operator, combating that in several ways is going to be key.
This is all driven by data and data analysis and that is something we focus on quite a bit. It is a sophisticated way of looking at the customer and really understanding their behaviors, what they are betting, when they are betting it, and how much they are betting.
Will was talking about, I think it was, $10 billion in GGR. That is a massive opportunity, and bringing that into the casinos will be a game changer. But also, maybe as a slight derivative to that, it is about creating engagements, driving people from the sportsbooks and driving foot traffic into the casinos from online to offline. Also, just offering great content and engagement with the customers even when they are not on the casino premises.
The last one is, I am not going to mention the M word, but it is a younger demographic. The value of bringing in a sportsbook is probably going to be in bringing a younger generation than the average age of your loyalty program. On my sportsbook, I had an average age of 28, and we integrated that into a land‐based casino where the average age of the loyalty program was 45+.
Same thing with the horseracing tracks. Invariably, the average age of the horseracing gambler is 45+ and if the sports betting products are provided by the tracks, it will give them a great opportunity to attract a younger generation.
During football season, every Saturday and Sunday become big events in the casino. Super Bowl obviously is a huge weekend. Increasingly, what casinos and what we are doing here in Nevada is building these sorts of integrated experiences around food and beverage, including nice bars and areas to hang out for the day and watch sports and bet with your mobile device or over‐the‐counter. It's really keeping people in the sportsbooks and engaged through in‐play wagering and different sorts of things.
So, I think you are going to see sportsbooks and operators move towards the all‐encompassing, integrated experience, where you can really attract customers to a property and retain them for a significant period of time with many things going on in a very exciting, activated area of the casino.
Another is really putting in place the right risk management team as far as the bookmaking side. An operator might contract it to a third party like a William Hill or, if an operator is going to do it themselves, they have got to realize that this is a business where the casino can lose money. It is not like putting slot machines on the floor in a certain area and getting a reasonably good idea of what they are going to yield over some period of time.
There are fluctuations in sports betting. The results can be wildly volatile, especially if favorites are all winning. So, it is really important to have a solid risk management strategy and be able to stomach the ups and downs, especially if a casino is going to manage a book itself because if it is not watched closely, and if you are not managing customers effectively, it is a business where you can lose money over a given period of time.
Competitive products are about breadth, depth, and availability, and making sure that the price is on point. I think right now though, there is a massive risk of people actually not doing anything. For the sports betting early adopters, there are things that you should be doing right now: consolidating your database, talking to them about sports betting, providing play for fun games or doing something to understand your existing casino database, your media database, to understand your customers' propensity to gamble on sports. Because if you wait until legislation or until legalization, you are probably going to be too late. There are too many people that are operating right now that are trying to help companies understand those 30 million people that are betting in the United States already.
As we said, just as there have been 16 states that have passed and enacted DFS laws in the last year or two, it is not DFS that is picking up momentum. It's literal sports betting laws, as well as sports betting bills. There are 13 states that have introduced bills and/or resolutions calling for legalized sports betting, as we said. Three of those have already passed. We expect in 2018 that number to be just as high, if not higher, in particular with pre‐filed bills.
This is something where the momentum is too great for there not to be continued expanded sports betting. I would guess several states are up and running with full sports betting in three to five years.
As Mike said, there is wagering on NASCAR events. The NBA Summer League was here recently in Vegas, and we had record betting handle on it, and we have betting regularly on UNLV [University of Nevada, Las Vegas] basketball and football games here in Vegas. So, to say that there should not be wagering on teams that are playing here in Nevada is counter to the argument that legalized sports betting is a good thing. So, I do not see any sort of ban on local teams in the future here.
There are 28 states in this country that have tribal gaming. There are 24 states in this country that have commercial gaming. Some of those states, of course, overlap. Some of those states are distinct. In states where, for example, you just have tribal gaming, the tribes should be empowered to make the decisions that are best for them. And so far, to your question, we've seen interest in this issue from tribes.
I think that would be one element to be aware of at the tribal level, as opposed to a commercial sports betting law dealing more so at a state level in some state with just commercial interests. Overall, it is incredibly important that the tribes have a seat at the table and are a part of driving consensus on this going forward.
