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Planning ahead for the PASPA decision

| By Stephen Carter | Reading Time: 6 minutes
As the gaming industry anxiously awaits the New Jersey sports betting decision, US Gaming Services’ Larry Gibbs gives operators some tips on getting prepared

As the gaming industry anxiously awaits the New Jersey sports betting decision, US Gaming Services’ Larry Gibbs gives operators some tips on getting prepared.

While the most important jury remains out, there have been many optimistic forecasts following the recent Supreme Court of the United States (SCOTUS) hearing of Christie v. NCAA (National Collegiate Athletic Association).

The case has the potential to reverse the US legislation that bans sports wagering and lead to legalisation outside the state of Nevada, a breakthrough by anyone’s estimation. 

But despite the claims of victory by both sides of the argument, it is difficult to predict which way the nine Supreme Court justices will vote and the verdict is not expected before March, although it could come as late as June.

Listening to a confident New Jersey Governor Chris Christie leaving the courtroom, one might be encouraged to book a room at the luxurious Borgata in Atlantic City for the upcoming Labor Day weekend for the chance to be among the first to legally make a bet in its posh new sports wagering plaza.

We’d then navigate up the New Jersey Turnpike to the Meadowlands or historic Monmouth Park to wager on horses, while simultaneously betting on football games appearing on giant screens. Who knows, the ultimate fantasy dream could be comfortably making a Jets +6 wager on an iPhone within the confines of the Garden State.

For now, this is all speculation. At least three to four seemingly dissenting Supreme Court justices raised specific opposition during the recent testimony, citing the same concerns that have plagued prior appellate hearings.

Various reliable accounts reported that the majority of courtroom discussion seemed more a case of federalism versus individual state rights than focusing on the central issue of sports gambling itself. 

But given there’s at least a fair chance sports gambling will be legalised, is it prudent for operators to immediately put ambitious plans into action before any decision is rendered?

Pencil in a business plan
Knowing they have anywhere from three to six months to work with, what can gaming operators do to make the most of the valuable opportunity while anticipating and hoping for a potential historical change? Like any business sector, the best advantage may be obtained in carefully reviewing the past habits of their potential customers.

The other main objective is obviously creating several situational business plans with profit objectives based on both defined and range forecasted anticipated costs.

A popular benchmark figure has estimated the potential for sports wagering betting per year at anywhere between $60-$150 billion, which includes illegal wagering. With legal US wagering in Nevada only accounting for perhaps 3% of the total, it’s difficult to make firm, accurate judgements of the total revenue potential. 

The obvious place to begin is by looking at where the majority of US sports wagering takes place – the offshore wagering industry. Although obtaining official financial figures is not possible, gaining a foothold in a player’s mind is.

Reasonable projections involving customer demand from current bettors in the offshore gaming industry could be part of a modelled start. 

Who stands to gain?
The SCOTUS decision will be shrouded in mystery for up to six months. However, it should be much easier to predict what is likely to be in store for US bettors should an epic verdict overturn the Professional and Amateur Sports Protection Act of 1992 (PASPA) and rule sports wagering legal in New Jersey, and subsequently other states.

The following is a summary of a few wagering rules, changes and player behaviour customs that could be potentially mandated or universally followed by operators under new laws.

Licensing: I am confident all four major US sports leagues (NFL, NBA, MLB and NHL) plus perhaps the NCAA (if wagering is allowed on collegiate sports) will levy substantial lucrative licensing fees upon their games within the wagering framework, an ironic twist considering how strongly they have fought against legalised wagering in prior testimony.

However, I expect all leagues will distance themselves from casinos and legalised wagering locations, and I do not expect any formal co-op advertising or marketing plans akin to scratch-off lottery tickets, etc.

Also, unlike in Europe or other countries where wagering kiosks are located within stadiums, they would be forbidden in the US and discouraged from locations near venues. Only Las Vegas, with new sports franchises and new stadiums built in the shadows of the city’s world-famous tourist-attraction casinos, could be considered a longshot exception.

In all, I foresee a potentially strange first year for the US, which has taken a very conservative, firm legal stance against legalised sports wagering for decades. 

Taxes: This is another troublesome area for the wagering public. Pennsylvania has recently established a new record 54% tax as standard on operators upon expanding its legalised gaming laws, which includes online gaming.

New sportsbooks in New Jersey and other states can only hope billion-dollar estimates involving illegal sports wagering are true; they will need a large slice of a new pie to earn significant revenue with such a  large tax burden to absorb.

Especially thin profit margins in Nevada sportsbooks have been the norm and surprisingly, in most offshore wagering outlets maintaining half of their normal vigorish is considered a successful year.

Vic Salerno, president of Nevada sportsbook USBookmaking and member of the American Gaming Association (AGA) Hall of Fame, isn’t confident legal sports wagering could thrive long-term under such circumstances. “It is quite possible that in states like Pennsylvania legal sports wagering will initially generate a lot of enthusiasm and teach people how to bet sports,” says Salerno.

“Over the long haul, however, many of these people will migrate to illegal bookmakers where they will find significantly better odds than the casinos. The casino industry, saddled with huge tax rates, will not be able to offer a competitive product. Illegal bookmakers will be everywhere — the bars, health clubs, restaurants and everywhere that males 25-54 congregate.”

On the player side, reporting taxable winnings for sports wagering will be a new custom of great concern for some. Avoiding taxes and the resulting scrutiny is one of the primary advantages offshore and illegal wagering sources will continue to promote and market.

Sports wagering customs: Unfortunately, with added costs often come reduced advantages. That could mean the end of the popular “nickel and dime lines” wagering customers have enjoyed in current scenarios — it is possible that sportsbooks may have to charge customers a larger commission to make up for their added burden.

Larger vigorish or what are known as “juice” spreads may become customary for legalised US wagering sites. Also, there are likely to be lower payout odds involving popular parlay and teaser wagering options when compared with illegal wagering options.

It is also very unclear whether the increasing menu of untraditional sports, esports and entertainment bets will be available should PASPA be repealed for newly legalised states. 

One bright spot for US licensed operators may be the opportunity to create lucrative reward programmes for new accounts. By US bettors embracing the newfound trust in more secure sports wagering sources, a chance exists to seize customers by gaining their support to offer generous incentives and point rewards.

As sports bettors are often known to be more private and secular, this is an obvious chance to attract new clients to multi-tiered casino reward programmes.

Online wagering: Legally speaking, this could be the most complicated issue within the Supreme Court’s review. Online wagering did not exist when PASPA was originally legislated in 1992.

Will bettors be able to wager on sports within individual state boundaries online through legalised gaming site operators (intrastate)? This could be a debatable roadblock toward keeping the current offshore wagering industry thriving.

We currently cannot visualise US federal legislation allowing online sports wagering to be fully legalised in the very near future. However, when compared with casino gambling it is even more necessary to be able to wager on games through a computer or cell phone.

As an example, from sports bettor behavioural analysis, not having intrastate online access on an NFL Sunday would be a very difficult inconvenience. Bettors consider it a must to be able to deposit back to accounts or close out a successful day on the NFL’s most heavily wagered games. A long trip back to a land-based sportsbook would be a decided disadvantage. 

We can’t control the votes of the nine Supreme Court justices deciding Christie v. NCAA. However, like a well–thought-out chess game, operators can plan out several optional strategies to anticipate the next move.

With a wealth of knowledge of the game, it would serve them well to focus their efforts on building various business plans and more importantly, gaining as much information about their potential sports wagering customers as possible. 

Larry Gibbs is vice president of US Gaming Services, a full-service consulting and marketing research organisation with 15 years’ experience in US online gaming.

Related articles: Supreme Court may back New Jersey in sports betting case
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US sports betting: H2 ‘deep dive’ analysis (paywall)
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