Abstract
Good News, Bad News for Drafkings and Fanduel
New York State Attorney General (AG) Eric T. Schneiderman brought a case against the two daily fantasy sports (DFS) titans, alleging false advertising. The AG objected to the following sorts of issues with their ads:
• A FanDuel ad in which a self-described “regular guy” talks about how anyone, not just the professionals, can win—without it being disclosed that he is a professional DFS contestant—and a similar ad in which an alleged personal trainer said that he turned “$2 into $2 million”—without disclosing that the “personal trainer” worked professionally in the sports analytics industry. • Ads claiming that anyone could win money playing DFS, when in fact, only 10% of players net out as winners. • A DraftKings disclaimer claiming that the average player won $1,263.00 during the past 12 months—when that number did not include fees and losses.
The legal action hanging over the two companies represented a large potential liability, of unknowable dimensions. That is why it's good news FanDuel and DraftKings that the AG has agreed to settle the claims against the two companies for $6 million each (as well as enhanced advertising transparency), which lets them put a cap on liability and move ahead.
The bad news is, the two industry giants are apparently having financial trouble and may have difficulty paying the settlement. Insiders claim that the companies asked for an installment payment plan, because of financial difficulties. This assertion is in keeping with FanDuel laying off 60 employees, both companies running behind on vendor payments, and the two companies apparently reducing their advertising spend. So even with settling the case and capping their liability, FanDuel and DraftKings evidently have some real challenges ahead.
Macau Gaming Revenue Up for the Third Month in a Row
According to Macau's Gaming Inspection and Coordination Bureau, October 2016 gambling revenue was up 8.8%, to US$2.72 billion, over October 2015. This was the third month in a row that Macau posted year-over-year gains vs. 2015: September 2016 revenue was up 7.4% over 2015, while August 2016 revenue was up 1.1% over the year prior.
October 2016 was Macau's best month in almost two years (21 months). The strong performance was fueled in part by China's Golden Week holiday, which was the first week of October. But the gains were also attributed to continuing increases in “mass market” (non-VIP or high-roller) gamblers, who have been helping diversify the territory's economy from an overreliance on VIP revenue, as well as to an uptick in Chinese VIP players, who may be trickling back from other, more distant gaming venues. Since it was the falloff in VIP players which led to Macau's revenue declines in the first place, falling from a high of US$5.2 billion in 2013 to US$28.98 billion in 2015, if Macau can recapture at least some of the missing high rollers while also adding a robust mass market segment, the territory can be well positioned for a recovery.
“Edge-Sorting” in Casino Blackplay a Breach of Contract and the New Jersey Casino Control Act, New Jersey District Court Rules
“Edge-sorting” is using tiny defects on the edges of playing cards to identify them when face down. A federal court in New Jersey (Hon. Noel Hillman presiding) found that's what professional high-stakes poker player Phil Ivey and an associate Cheng Yin Sun, did when they played baccarat at Atlantic City's Borgata Hotel in 2012. The two requested that only decks from a specific manufacturer, with defects of which they were aware, be used, allowing them to use edge-sorting to shift the odds in their favor. This enabled Ivey and Sun to win $9.6 million.
On becoming aware of what was done, the Borgata sued the two for the return of its money, alleging several causes of action, including fraud and breach of contract. Recently (October 2016), the federal judge ruled that while Ivey and Sun had not committed fraud, they did commit breach of contract, since their edge-sorting, by changing the odds of the game and how it was played, violated the state's Casino Control Act (which delineates odds and game play) and therefore also the contract between gambler and casino, which incorporates the Act. The judge ordered them to return the more-than $9 million which they won, though undoubtedly, the matter is far from settled: it will be very surprising if the pair do not appeal.
This is not the first time Ivey and Sun have run afoul of the law by edge-sorting: a UK court held that Crockfords Casino in London was entitled to withhold $12.4 million in baccarat winnings the two amassed using edge-sorting in violation of UK gambling rules. That case is on appeal.
Ivey and Sun's attorney tried to put a good face on the NJ ruling, trumpeting that his clients were not found guilty of fraud. True—but they were ordered to pay over $9 million (all the money they'd won), which has to be a loss in anyone's book.
New Jersey Rejects Atlantic City's Five-Year Financial Recovery Plan
Atlantic City's finances have been devastated by the loss of five of twelve casinos: casinos pay the bulk of the city's property taxes and also provide employment for thousands of residents—losing the casinos, for example, reduced the city's tax base by a jaw-dropping 70%. Atlantic City has been on financial life support from the state, and the state, in return for its support, wants and expects a greater say in the city's finances and governance. If the city cannot satisfy the state that it has its financial house in order, the state may take the city over.
To try and stave off that fate, Atlantic City had proposed a five-year financial recovery plan. The plan's centerpiece was the sale of a former airport site to the municipal utilities authority for $110 million and a generous tax settlement with the remaining casinos—which have contested the tax assessments on them, based on demonstrable reductions in gambling spend, and hence in casino value. Other elements of the plan included 100 city job cuts and getting other city employees to accept early retirement. However, according to Charles Richman, commissioner of the state Department of Community affairs, Atlantic City's plan failed to include a balanced, legally compliant budget for 2017; underestimated the cost of the city's debt service; overestimated property tax revenue; and did not accurately estimate overall revenues. Another problem was that the plan relied on things beyond the city's control—like the aforementioned casino tax settlement, to which the casinos would have to agree.
Now that the state has rejected the city's plan, will the state take over Atlantic City? It's too soon (as of writing) to tell, as this story has been developing month by month.
Pennsylvania Becomes United States' Top Gambling Tax Producer
Pennsylvania has only 12 casinos; Nevada has 271. Pennsylvania's casinos generated an aggregate of $3.17 billion in gross gaming revenue (GGR) in 2015, vs. $11.11 billion in GGR for Nevada. And yet, PA received $1.38 billion in tax revenue from gambling in 2015, vs. NV's $889.1 million—with less than one third the GGR, Pennsylvania generated 60% more taxes than the nation's senior gambling venue. Such is the power of a significantly higher tax rate.
Another relative gambling newcomer, New York, is poised to soon surpass Nevada in terms of gambling tax revenue, too. Its $888.4 million in 2015 tax revenue was less than $1 million less than the vastly larger Nevada gambling market generated.
Gambling-Addicted Ponzi-Scheme Operator Sentenced to Only Four Years in Prison for Defrauding Friends, Family, and Investors of More than $38 Million: Judge Cites Gambling Addiction in Giving Him ¼ the Recommended Sentence
As many have observed, ofttimes, the only difference between Wall Street and the Vegas Strip is that the Vegas casinos are much better regulated and have much better consumer protection. After all, you can bet on the market much the same way as you bet at the roulette or blackjack tables—which is exactly what Andrew Caspersen did. He formed a Ponzi scheme in 2014 to fuel a ferocious gambling habit, only instead of betting in a casino he bet on the market, taking big trading gambles that, in the words of his attorney, “bordered on madness.” Among Caspersen's victims were his own mother(!), the parents of an ex-girlfriend who died on 9/11(!), and a major charitable foundation(!)—i.e., this was truly, to borrow a phrase from Donald Trump, a “bad hombre.”
He could have—and in this author's opinion, 1 should have—received 16 years in prison under federal sentencing guidelines. But the judge rejected those guidelines because Caspersen played the addiction card, blaming the Ponzi scheme on his need to fuel his gambling habit (gambling in the market, that is); the judge was convinced that Caspersen has “a very real gambling disorder” and was “not acting with a full deck.” 2 Accordingly, the judge felt that a 16-year sentence was “absurd” and that “[n]o purpose will be served by letting him rot in prison for years on end.” Really, Your Honor? No purpose? How about justice? Specific deterrence (he can't steal from anyone else while incarcerated)? General deterrence (deterring crime by showing others that if do this, your life as you know it is over)?
As Gaming Law Review & Economics' I. Nelson Rose has been writing in the last several issues, as more and more people—including judges—come to view gambling addiction as a mental illness, not a failure of character or will, we'll likely see more results like this: criminals getting reduced or light sentences, or even treatment instead of punishment; problem gamblers being able to sue casinos to recover their money; gamblers' families suing gaming operators for the harm done them by their addicted love one; etc. Such outcomes flow from viewing the addicted gambler as a victim of his own pathology, since, as Rose has noted, we don't punish the sick—we treat them.
But did gambling addition (assuming arguendo that Caspersen was addicted) really cause him to steal $38 million? For an alternate explanation, one could look to Caspersen's family history: his wealthy father committed suicide in 2009 while being investigated for tax evasion. So, did gambling addiction make Caspersen do it? Or is it that he came from a family of financial criminals who can't face the consequences of their own actions, and the claim of addiction was just a ruse to mitigate punishment?