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A bet on America: the sports gambling gold rush

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A bet on America: the sports gambling gold rush

Gambling industry

A bet on America: the sports gambling gold rush

Banned for decades, US betting is back and European gaming companies want a piece of the action

© Reuters

The boardwalk in Atlantic City, New Jersey, looks like a forgotten film set. Scant tourists look in vain for its Prohibition-era glory. The windows of the Central Pier Arcade are grey with dirt. The nearby Trump Plaza stands empty. Snarkier non-residents call the town “America’s armpit”.

But Franco Guerrero, who has worked in Atlantic City’s casinos for 29 years, says that after dark days following the 2008 recession, the town — its resorts and railroad once the inspiration for the US version of the Monopoly board game — has new hope courtesy of the legalisation of one activity: sports betting.

“A lot of people lost a lot of money and they moved out . . . but now there are more jobs and opportunities,” says Mr Guerrero. He moved from one of the boardwalk’s oldest surviving casinos, Harrah’s, to work at the Hard Rock resort’s sportsbook — the US answer to a bookmaker’s shop but with big live sports screens and alcohol on sale — which opened in June last year.

Atlantic City is the frontier town for a new American gold rush. The gambling hub of New Jersey was the first state to adopt legislation allowing sports betting after the US Supreme Court overturned a federal bill banning the practice in May 2018. A host of European and American operators have since built sportsbooks in its casinos.

US sports such as baseball provide a wealth of statistics on which to bet

The mistrust of betting is buried deep in the DNA of many US states — an historical attitude that went hand-in-hand with fears of mob violence and corruption in sport. Increasingly stringent legislation was adopted during the 20th century as match fixing and other scandals prompted public outcries. The 1992 Professional and Amateur Sports Protection Act outlawed sports betting in all but a handful of scenarios.

The Supreme Court’s decision opened up a fresh market, unhampered by the public and media clamour against problem gambling in mature markets such as the UK. Peter Jackson, chief executive of Flutter, which owns the Irish betting company Paddy Power Betfair, describes the opening up of the US as the most exciting development since the advent of online betting.

A combination of population size and the passion for sport could make it one of the most lucrative sports betting markets in the world, analysts say. Now legal in 14 states, five others have legislation pending.

Estimates for the size of the potential market vary wildly. Gambling Compliance, an industry research firm, values the market at up to $8.1bn in revenue terms by 2024. If the American Gaming Association’s $150bn estimate for the illegal sports betting market is accurate, it could be much bigger.

Then and now: Atlantic City in New Jersey in 1910
The Hard Rock Hotel and Casino in Atlantic City, previously the Trump Taj Mahal, pictured last year

But as with any gold rush, the glut of fortune-seekers makes competition tough and the depth of the mine is unclear. European gambling companies last circled the US market more than 10 years ago but had their fingers burnt when several executives were arrested for providing online sports betting into the US from bases in the Caribbean.

Mark Blandford, then chief executive of Sportingbet whose chairman Peter Dicks was one of those detained in 2006, remembers being “totally shocked”. “He was handcuffed to a murderer,” he says. Sportingbet paid US prosecutors $33m to settle the case.

But for newcomers, it is too good to be true. “It’s a once in a lifetime opportunity,” says Jason Robins, chief executive of fantasy sports company DraftKings, which has the second largest share of sports betting revenues in New Jersey. “[Here is] a market that is going from unregulated to regulated in the largest economy in the world.”

Since 1992, Americans wanting to bet on sports in the US have had three options: go to the Las Vegas sportsbooks in Nevada, seek out a local bookie in a bar, or bet via offshore websites.

The Supreme Court has fundamentally changed that. Many in the industry say its 2018 ruling was the work of one man: Dennis Drazin, a New Jersey lawyer who is also chairman of Monmouth Park racetrack in New Jersey. Looking to boost revenues in the state’s fast-failing horseracing industry, he figured that if Monmouth Park could host a sportsbook, punters would come. Mr Drazin fought a series of legal battles to allow sports betting in New Jersey on the basis that it should be a decision for the states, rather than the federal government.

“People said I was tilting at windmills like Don Quixote . . . But at the end of the day, I made a lot of people very rich,” Mr Drazin says. The fight took him seven years.

His efforts were boosted by the emergence in the 2010s of daily fantasy sports games in which people choose fantasy teams across various sports but win points based on the real-life performance of the players. For many it was a way to take punts on sport in a legal grey area outside of PASPA’s reach.

Dennis Drazin, chairman of Monmouth Park racetrack in New Jersey © Dave Kotinsky/Getty

DraftKings and FanDuel, the two biggest daily fantasy sports sites, came to the attention of regulators in 2016 after advertising by the two companies caused a backlash. Some asked whether fantasy sports was merely sports betting under a different guise but the companies successfully argued that fantasy sports are games of skill not chance and therefore did not constitute gambling. Their combined customer base of more than 13m players, however, showed that there was an appetite for the betting-like activity they offered.

The 22-window sportsbook at Monmouth Park is run by William Hill, the UK bookmaker which has had a presence in the US since it bought a Las Vegas counterpart for $50m in 2012. Late on a Saturday afternoon at the tail-end of the racing season, few punters are watching the horses. Yet the sportsbook — where they can bet on everything from basketball to golf — is packed.

FanDuel, bought by Flutter in the same month as the Supreme Court decision, and DraftKings have both launched full-scale sports betting websites and apps in New Jersey. According to figures from the New Jersey Gaming Board, the pair accounted for more than 75 per cent of the total sports betting market in August. Total revenue from sports bets that month was $25.2m.

But that market lead is threatened by an influx of experienced European operators, equipped with the technology and keen to diversify away from highly regulated markets such as the UK and Australia. William Hill has done a deal with the casino group El Dorado, giving it access to 15 states as they legalise. GVC, owner of Ladbrokes Coral, and Stars Group, the Canadian owner of SkyBet, have also done deals with, respectively, casino giant MGM and media company FoxSports, to enter the US.

Not everybody is welcoming the new arrivals. There have been grumblings from local employees in the back rooms of Las Vegas casinos. “There’s a lot of animosity against European bookmakers that think they can come in and know US sports,” says a sportsbook employee in Vegas, who described the market entrants as “arrogant”. Another says that when Bet365 launched a beta version of its app in New Jersey it did not label football “soccer” or call the NFL “American football”. Changes have since been made.

This month, Flutter announced a £10bn tie-up with Stars Group that would, if allowed by regulators, create the world’s largest online gaming company. The prospect of owning two of the strongest brands in the US market was a major driver of the deal, says Flutter’s Mr Jackson.

Members of the Chicago White Sox baseball team who were accused of deliberately losing the 1919 World Series, one of the biggest betting scandals in US history © Bettmann Archive

But the golden opportunity is complicated by what Mr Blandford, now chairman of marketing company Gambling.com, calls “a spaghetti nest of legislation” as each state sets its own idiosyncratic rules.

Mississippi, for example, allows mobile betting but only within casino grounds. New York only allows sports betting in three selected casinos. Tennessee, which has no casinos, will be online only but with an upfront licensing fee of $750,000. In Rhode Island, wariness of betting is such that gambling executives have to answer reams of questions including whether they own a gun or get along with their mother-in-law.

Then there are the varied tax rates across the states, from 6.75 per cent in Iowa to 36 per cent of gross gambling revenues in Pennsylvania.

“The [legislators] have recognised that this is a great opportunity to gain additional revenue for the state coffers,” says Bill Miller, president of the American Gaming Association, from his office near the White House, adding that the thriving offshore market is “a common enemy for all”.

Another potential stumbling block for the gambling companies, lawyers and advisers say, could be opposition from Native Indian interests. Many tribal groups were granted rights to run casinos on their land in “compacts” with state governments in lieu of compensation for poor treatment in the past. Compacts are large multiyear deals that many tribes are loath to renegotiate in case states decide to raise their fees.

James Kilsby, managing director of Gambling Compliance, says the lobbying power of the tribes, fearing a loss of their monopolies over gambling, could delay sports betting legislation in some of the US’s most populous states, including California and Florida.

“Passing sports betting laws is complicated — casinos, online operators and sports leagues have enough lobbying battles among themselves as it is — [but] the tribal complications make the challenge that much tougher,” he says.

American sports tend to be long and data heavy. The potential for bets on minutiae such as the speed of a baseball pitch or the number of yards gained in football are endless. The popularity of in-play betting — known as “prop bets” in the US — has grown far quicker than many expected.

But divisions between the sports owners and gambling operators are already becoming apparent. League owners — like the National Football League, National Basketball Association and Major League Baseball — view sports as their intellectual property and are pushing for legislation to set minimum national standards on betting. They argue that they provide the sport and so should share in the proceeds.

Christopher Halpin, chief strategy and growth officer at the NFL, says only the federal government has the power to kill off the current offshore market.

In an ideal scenario the leagues would like a legal protection forcing the betting companies to pay them for their data, as well as responsible gaming standards and bans on certain types of bets such as whether a player will get injured.

The five biggest leagues — for ice hockey, American football, baseball, basketball and soccer — generated total revenues of $40bn last year. Casino operators argue that by offering sports betting they are encouraging even more people to watch games. But the leagues, except the NFL, which is by far the richest, are still pushing for those “royalty” payments from the industry.

Punters bet on yardage gains in NFL games © USA Today/Reuters

“We think that by having the royalty, whether it’s in the commercial deal or the legislation, we’re going to be more incentivised to help grow the sports betting [market],” says Kenny Gersh, executive vice-president of gaming at Major League Baseball.

In September, Republican Mitt Romney announced that he would back a federal sports betting bill with Democrat senator Chuck Schumer. Despite this show of bipartisanship, few in Washington or Las Vegas think that it will get off the ground, despite the leagues’ lobbying efforts. Gambling companies are strongly opposed.

Joe Asher, William Hill’s gruff US chief executive, says federal involvement will be as bad for the leagues as it could be for the betting companies: “If something gets screwed up in a state regulation that’s not good but it’s just one state. If something goes amiss at the federal level that’s the whole country.”

Neither the tangle of local interests nor the threat of regulation has put off the Europeans. “We’re in for the long run,” says Adam Greenblatt, chief executive of the GVC-MGM joint venture.

From behind three computer screens in a small room at the back of the Mirage casino in Las Vegas, Jeff Stoneback has set betting odds for MGM’s sportsbooks for 33 years. For the first time in his working life sports betting has become “a real revenue driver”, he says. “[But] right now it’s [just] the tip of the iceberg.”

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