Tuesday, November 25, 2008

Montana Sports Action: Pie In The Sky From The Big Sky

Montana Sports Action (MSA), the fantasy sports wagering game instituted by the Montana Lottery, has been in operation for three months. There is enough data to perform some analysis.

MSA allegedly is an attempt to implement a fantasy sports wagering game in accordance with Montana HB 616, which authorized pari-mutuel wagers on fantasy sports. A previous post discussed the potential regulatory issues with MSA.

This new wagering game was predicted to deliver big revenue. During the legislative process in 2007, the Governor's Office of Budget and Program Planning estimated annual wagers of approximately $12 million ($11,985,600 according to the documents). More recently, an article by Online Casino Advisory.com quoted the Montana Lottery Director as expecting "the game to produce between three and five million dollars annually." That may not be the case as published results from the MSA website show.

At the top of the post is a chart showing the amount of wagers per week so far this NFL season for MSA. You are reading it correctly. After 12 weeks, the game that was supposed to generate millions in wagers has barely topped $65 thousand dollars total, with the highest weekly handle a paltry $6,800. You would think that the Montana Lottery and its vendor could figure out how to make a popular GAMBLING game. Obviously not. Don't think that new sports like NASCAR and golf will help these folks either. Fantasy football is the largest of the fantasy sports by a good margin. These other sports are very likely to make LESS than this. Montana Sports Action needs to be renamed More Suckers Anyone.

So, how is this "plethora" of cash broken out? By law, any game that is operated under the authority of HB 616 needs the following revenue split:
  • 74% - Winning Bettors
  • 16% - Montana Board of Horse Racing
  • 6% - Network Operator (Montana Lottery)
  • 4% - Retail Outlets
So, after 12 weeks, $48,753 has gone to the winning bettors, $10,541 to the Montana Board of Horse Racing, $3,953 to the Montana Lottery and $2,635 to the retail outlets. Who is making money? Let's start with the retailers and work our way up.

There are about 150 of the retailers, who had to pay $75 for a license fee to offer Montana Sports Action. In return, they get 4% of the fantasy sports wagers as a commission. To break even on that investment, the retailers will need to sell $1,875 worth of fantasy sports wagers. Assuming each of the retailers sold an equal amount (unlikely), after 2/3 of the NFL season, each one on average has sold only $440. Remember, fantasy football is the most popular of the fantasy sports. Other sports should generate far LESS revenue.

It gets better (if you have a warped sense of humor). Assuming that the betting terminal consumes 150 watts of power, is on for 12 hours a day, and electricity costs 10 cents per kilowatt hour, the terminal will cost the retailer $5.40 per month in electricity. The average retailer earns a whopping $5.84 in MSA commissions. So, each retailer earns enough to cover the electricity costs plus turn a monthly profit of 44 cents. Wow. But remember, that is only if the retailer is performing at the retailer average. Those that are underperforming likely aren't generating enough in MSA betting to even cover the cost of electricity for the betting terminal.

Retailers? NOT making money on Montana Sports Action.

The Montana Lottery is acting as the network operator for the game. So far, they have pulled in just under $4,000 in MSA revenue. To put on the game, they need marketing labor to push the terminals on the retailers, put up the website, etc. But, let's assume all that costs zero. They still need a statistics feed to run the game. Based on the typical rates for these kind of statistics feeds for fantasy sports games, a ballpark assumption is that the cost for fantasy stats for the NFL season would be around $20,000.

Montana Lottery? NOT making money on Montana Sports Action.
Stats Supplier? MAKING money on Montana Sports Action.

The Montana Board of Horse Racing was hoping for this big revenue to keep the horse racing industry alive in the state. To date, they've pulled in approximately $11,250 in retailer license fees and $10,500 in MSA wager revenue, totaling $21,750. Unless jockey insurance drops dramatically and horsemen like race purses around $100, I don't think they are going to get the money they need.

Montana Board of Horse Racing? NOT making money on Montana Sports Action.

So, of all the entities involved in a GAMBLING game, only the stats supplier seems to have a valid profit on Montana Sports Action.

But what if the Montana Lottery's motivation was not really to push the fantasy sports game but really to push lottery ticket sales? We'll examine that possibility in an upcoming post.

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