Monday, March 23, 2009

New Jersey to Legally Challenge PASPA

In 1992, Congress passed the Professional and Amateur Sports Protection Act (PASPA). It should have been called the Nevada Legalized Sports Betting and Illegal Sports Betting Monopoly Act. The law grandfathers four states that had some kind of legal sports betting to be able to allow sports betting, but restrict all others from having legalized sports betting. The four grandfathered states are: Nevada, Oregon, Montana and Delaware. Nevada, is by far the state with the largest amount of legal sports betting. Note that illegal sports betting wasn't hampered by this law. All the law did for 46 states was ensure the "Sopranos" didn't have any legitimate competition. How sweet of Congress to take care of the illegal bookies like that!

Congress knew the law was weak and had iffy Constitutional strength. The Department of Justice (DOJ) actually opposed this law on the grounds that it violated states rights. The reference to the DOJ is here. In addition, the DOJ highlighted the issue that the law allowed professional and amateur sports organizations to bring civil injunctions against states. Professor I. Nelson Rose in his article on PASPA mentions that the US Supreme Court has ruled that states can not be sued without their consent. Professor Rose makes the point that if a state can't be sued by an Indian tribe, what real chance would a sports organization like the NCAA have in getting their case allowed?

The law had never been officially challenged - until now. With state governments scrambling for cash, gambling is looking good. As gambling becomes more prevalent, competition for gaming dollars is heating up. Delaware, as mentioned in a previous post, is considering exercising its rights under PASPA and legalizing a sports betting game. This is causing concern among neighboring states which aren't allowed by PASPA to follow suit.

A New Jersey group comprised of gaming and racing interests filed suit challenging the constitutionality of PASPA in US District Court. The link to the Reuters article is here. It likely won't be decided for quite a few months, but the process is started. Will the DOJ fight the suit even though they are on record questioning the law's violation of states' rights?

I think PASPA should be declared unconstitutional and tossed. Then each state can decide if it wants to allow sports betting and get that betting that is currently unregulated going to bookies become above board, regulated and taxed. Everyone wins...except those with losing bets. Even if PASPA was declared invalid, that would not allow interstate sports betting. That would still be in violation of the Wire Act. This would allow intrastate sports betting. So, the betting books and pools would have to be contained fully within the state, similar to how sports betting in Nevada operates now.

If PASPA is declared invalid, it should increase the value of YouGaming's patents. YouGaming could offer very attractive games to these new markets. Fantasy sports is still growing and pari-mutuel wagering offers a higher intrinsic takeout compared to wagering typical of typical sports wagering.

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Monday, March 16, 2009

What's the Best Betting Value in the NCAA Tournament?

So, who will win the 2009 NCAA men's basketball tournament? I haven't a clue, but it will be one of 65 teams. I know, that's a great insight - you can thank me later. Looking at the initial odds posted by the Las Vegas Hilton (referenced in a story in the Las Vegas Sun), there may be some teams that based on the odds relative to their seeding, might be worth a gamble.

I took a look at the odds posted for the various teams and mapped them to their seeding. I averaged out the odds per seed level and looked for teams that the posted odds were significantly above the average. Before I give you the possible values, here's the average odds per seed level:

Seed Avg Odds
  1. 5.75
  2. 14.25
  3. 28.75
  4. 47.5
  5. 71.25
  6. 56.25
  7. 100
  8. 175
  9. 250
  10. 200
  11. 475
  12. 175
  13. 400
  14. 200
  15. 200
  16. 200
You can see that there is a natural trend that the lower the seed, the higher the odds, except for the lowest seeds. The LV Hilton sportsbook has most of the teams with discrete odds, with a field entry for everyone else. The field entry for this tournament consists of all 14-16 seeds, plus Northern Iowa and Akron. I don't think the field entry is a value bet, even though you get a chance on 14 teams.

Notice that the 5, 9 and 11 seeds on average pay more than the next lower seeds. We'll look there and also look at other seed levels to determine if a team or two is being offered at a significant differential to the average odds for the seed level.

If we set a level of differential to identify those teams whose odds are 75% higher than the average odds of their seed level, here's what we get:

4/Xavier - Odds 100:1/Seed Avg Odds 47.5:1
6/Marquette - Odds 100:1/Seed Avg Odds 56.25:1
9/Siena - Odds 500:1/Seed Avg Odds 250:1
11/Utah St - Odds 1,000:1/Seed Avg Odds 475:1
13/Cleveland St - Odds 1,000:1/Seed Avg Odds 400:1

If we lower the value threshold to 40% higher than the average odds of their seed level, these other teams appear:

5/Utah - Odds 100:1/Seed Avg Odds 71.25:1
5/Illinois - Odds 100:1/Seed Avg Odds 71.25:1
8/BYU - Odds 300:1/Seed Avg Odds 175:1
10/Minnesota - Odds 300:1/Seed Avg Odds 200:1
12/W. Kentucky - Odds 300:1/Seed Avg Odds 175:1

This will be interesting to see if any of these make a Cinderella run, or, if the oddsmakers are right, they make an earlier exit than expected.

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Wednesday, March 11, 2009

To Combat Gaming Slide, What Do Reno and Lake Tahoe Do?

As discussed in other posts, the gaming industry is learning that they are no longer recession-proof. By diversifying their revenue streams to rely more on lodging, entertainment and food and beverage, they now are more susceptible to the economic variances in the greater hospitality industry.

Even before the recession, Nevada gaming has been facing an increased threat from other gaming competition. Data provided by the American Gaming Association (AGA) states that casino gambling, at one time found only in Nevada, now exists in 33 states. Tribal casinos alone now exist in 29 states. According to the National Indian Gaming Commission (NIGC), Indian gaming generated approximately $26 billion in revenue in 2007. The AGA also cites that since the early 1990s, online gambling has grown significantly, generating just shy of $6 billion in revenues in 2005, before the passage of the Unlawful Internet Gambling and Enforcement Act (UIGEA). We'll discuss in an upcoming post whether that law actually impacted the patronage of online gambling sites by Americans.

Las Vegas, being a destination attraction in addition to being a gambling mecca, has fared better with regard to gaming competition than the Northern Nevada gaming markets, Reno and Lake Tahoe. These markets have definitely felt the impact of tribal gaming operations in Northern California. For residents in Northern California, if you want to gamble, why drive to Nevada when outstanding properties are less than an hour's drive away? In the last year, gaming revenue in Reno is down 10%, South Lake Tahoe down 23%, North Lake Tahoe 20%. For Reno, this continued the downward trend that begun back in 2007, not just with the recent recession.

It can be estimated that for a gaming property, market share is inversely proportional to the square of the distance from the population center to the property. In other words, the closer you are to the customers, the more customers you should get. As an example, consider two gaming properties near a major city. One is twenty-five miles away and one is fifty miles away. Based on the formula, the property that is fifty miles away would be expected to have a market draw one-fourth of that of the closer property.

The Lake Tahoe and Reno properties are essentially falling victim to their distance from major population centers. The only way to solve that problem directly is to have an earthquake severe enough to move San Francisco and Sacramento about 100 miles or so northeast. That likely isn't going to happen anytime soon. The casinos in these markets provide the same product that the population in Northern California can get much closer to home, with the sole exception of sports betting.

According to Michael Porter's theory, in a competitive market, successful participants can pursue one of three generic strategies. They can pursue either a low cost, niche or differentiated strategy. The Northern Nevada markets may be pursuing a low cost strategy, but it may not be translated to the casino floor. Proper application of this strategy would entail lowering the house advantages on their games to attract demand. People likely would be willing to travel farther to gamble at a location that gives them a better chance of winning.

At first glance, this appears to be a potential useful strategy. It may not be effective, long-term, due to the ability of the tribal casinos to match that innovation. All the low-cost strategy may likely do is commoditize the gaming product, lowering the profits of the overall industry, and leaving the Reno and Lake Tahoe gaming properties in the same competitive disadvantage. Those markets may actually fail sooner, then the tribal casinos would restore their house advantage to prior levels, not having to worry about Northern Nevada competition, then de facto non-existent.

Another approach is to push their advantage in being able to offer sports betting. Unfortunately, sports betting isn't the largest revenue producer in a casino, and isn't likely to become that ever. In addition, the law notwithstanding, dedicated California sports bettors can place their wagers with online bookmakers or their local bookmaker, without having to drive to Nevada.

The most radical inspiration for Reno and Lake Tahoe actually lies to the south. Las Vegas is known as "Sin City." The slogan, "What happens in Vegas stays in Vegas," is very well known. Leveraging Las Vegas and Porter's theory, Reno and Lake Tahoe may differentiate by offering something that can't be copied by competing California tribal casinos. Sports betting is good, but not sufficient. The radical idea is to bring the legal brothels, now restricted to areas outside the major Nevada cities inside the hotel-casino properties. This approach is the most radical because it completely moves these casino properties fully into the adult entertainment realm, otherwise known as the three B's: Bets, Booze and Babes.

If patrons had more on their minds than gambling and drinking, the properties could offer something more in their facilities without the patron having to leave the property and travel. All elements of this entertainment offering would be available under one roof. With regard to these kind of services being offered in a hotel environment, they are not uncommon in Asian hotel properties. In those properties, the definition of "massage" may be a bit broader than is customary elsewhere. Not all properties would desire to offer this element and instead try to differentiate by being family-oriented. If that is occurring now, it doesn't appear to be very effective in countering the California-based competition.

Brothels integrated with the hotel-casino, catering to both men and women, would be definitely a unique but controversial differentiator. It is likely that these services are indirectly available now, but due to this indirect nature, the true advantage isn't being captured. The offering must be convenient and immediately available for those patrons wishing to buy. This does not exist today. Of course, proper layout and location of these "salons" would be required, but with a multi-story hotel-casino property, this can easily be accommodated, similar to the club floors for frequent stay program members that most hotel chains employ.

There will be a need to be a change to Nevada law as well as potential zoning changes and regulatory modifications to allow this offering, so this last ditch effort, if seriously considered, would be an indicator of the severity of the competitive situation.

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