Wednesday, May 27, 2009

Different Sport, Same Result: The Failure of Montana Sports Action

(Data Source: Montana Sports Action)

This is another post that discusses the implementation of a fantasy sports wagering game by the Montana Lottery (Lottery), on behalf of the Montana Board of Horse Racing (BHR or Board). You can review the other posts in order of publication here, here and here. I strongly recommend reading them because in my very humble opinion, they are quite good. Actually, one of these posts was read into the record (not by me) as testimony to the Montana Legislature earlier this year during a committee hearing on HB 503 that sought to amend the fantasy sports wagering law.

After promises of improvement from the Lottery after their inept fantasy football wagering game last year, they perform even worse with their current game based on NASCAR. Although the pitiful result could have been easily predicted, to be fair, enough races needed to be completed to have a reasonable base of results in order to make an assessment.

Now I don't want to brag about my prognostication skills, but I did predict that the auto racing game would be less attractive than the football game with a similar handle trend - some initial interest, realization that the game is poor, and a steady gradual decline in handle. The chart above appears to bear out that hypothesis. To the racing game's credit, it is generating almost 90% of the football game's handle, but 90% of little isn't really that much of an accomplishment.

As disclosed in one of the earlier posts, projections for fantasy sports betting were on the order of $12 million in handle per year. So far, being in operation almost 9 months, the geniuses at the Montana Lottery haven't even generated $150,000 in handle with a SPORTS BETTING GAME. There are possibly bookies in Billings generating that kind of handle. If the game was generating handle as projected, approximately $9 million would have been wagered to date. The game under current management is only generating one-sixtieth (1/60) of the handle projected.

Relevant statistics for the racing game (after 12 races):
  • Cumulative Handle (Est) - $58,660
  • Horse Racing Revenue (Est) - $9,385
  • Lottery Revenue (Est) - $3,520
  • Retailer Commission (Est) - $2,345 (divided among approx 175 retailers)
This is pretty sad since fantasy sports betting was supposed to generate sufficient revenue to keep the Board of Horse Racing operating and allow live racing to survive in Montana.

Given the continued contraction of live racing dates, perhaps someone at the Board of Horse Racing might be bright enough to figure out that the Lottery handling this isn't working? Oh, that's right, those Einsteins at BHR signed a sole source agreement with the Lottery for, as it is understood, 8 YEARS. Horse industry in Montana, don't worry! Apparently the Board can exercise an out clause giving 1 year notice. However...the Board had the chance earlier this year to do just that, but didn't, when given a bona fide request by a party in January to offer a game in compliance with HB 616. That story will be told in more detail in a future post.

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Sunday, May 17, 2009

Need to Brush Up on Math Skills? Gamble!

What, you say? How dare I try to make a claim that gambling has a societal benefit? Don't take it out on me! Take it out on Teri Hatcher, one of the lead actresses on the television series Desperate Housewives. A news item reported on that Teri takes her daughter to racetracks (Teri's apparently a horse racing fan) and uses gambling problems to hone the youngster's math skills. As Teri is quoted, "I do use the opportunity to make her understand math and what you're betting and what you get back... so we work on math. It's fun."

There 'ya go. See, responsible gambling can be used to teach kids math! According to the American Academy of Family Physicians, alcoholism affects between 8%-14% of the population. But the Connecticut Department of Mental Health and Addiction services reports that only 2.7% of Americans suffer from problem gambling. Why is this relevant? Because you see much more opposition to gambling than you do to drinking. Seems to me that if these people wanted a more lucrative target, they would oppose drinking. Oh, wait...did that a few years back. How did that work out? Right, no one's drinking anymore. Hmm, tried something similar for internet gambling with UIGEA a couple of years back. How did that work out? Right. No one's gambling online anymore.

So what's going on here? What's going on is that an adult properly instructing her child using a form of entertainment for adults, handled responsibly, isn't such a bad thing. If anything, gambling would be a means to teach math. Addition, subtraction, multiplication, division, probability - gaming math covers all these things.

If you think this is a rare exception, think again. Now not gambling, fantasy sports is also mathematically-focused. There is actually a published mathematics curriculum used in schools right now that leverages fantasy sports to teach mathematics. Effective? Here's a couple of data points:

  • 75% of the teachers agreed that students understand mathematical concepts more now than they did before they used Fantasy Sports and Mathematics
  • The percentage of 8th grade students who tested proficient at Woodbine School in New Jersey increased from 10% to 54% in one year after using fantasy sports

There you have it. Find interesting and entertaining ways to teach kids - and they learn. What a concept. Isn't this better for the kids than handing out condoms and phone numbers to abortion clinics?

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Sunday, May 10, 2009

Delaware Sports Betting Bill Passes House

The Dover Post reports that the sports betting bill, finally passed the House on Friday. Earlier in the week, the bill had actually failed. The rumor has it that the state's casino operators were in opposition to the original bill, due to the higher gaming taxes and unclear path forward for table games. This blog described other issues with the original bill in a previous post.

The modified bill reduces the increase in taxes so that operators now only will have to pay 43.5% of their gaming revenue. That is a problem. The state should have kept the gaming tax rate at the 37% level. What Delaware is doing is not just adding new gaming options, but increasing the taxes on all gaming revenue.

Let's consider a fast food example to clarify the issue. You have a burger joint. You sell hamburgers, fries and soda. For those items, you pay 10% of the gross profit (price of items minus cost of ingredients). Now, the county health department will allow you to sell cheeseburgers and milkshakes. The price for this expansion is that you will have to pay an upfront fee of $10,000 every year to give you the right to sell cheeseburgers and milkshakes. Not only that, but the tax rate for all food items moves up from 10% to 15%. So, you see in this example, it doesn't really seem like that good of a deal for the burger joint. It isn't.

The original bill was worse, but that was defeated earlier this week. The modification is only slightly better. The increase in the gaming tax rate was reduced to 6.5% from 8%, so the casinos will be paying 43.5% on all gaming revenue. The annual sports betting license fee was cut a paltry half a million to $4 million. The best improvement was putting the table game approval path on a 75 day track to hash out details to present before the legislature.

Politicians seem to live in a world of "orthogonal tuning" when it comes to taxes and revenues. For example, if taxing an item at 20% generates 10 million in taxes, then to a politician it is obvious that raising the taxes on that item to 40% would generate 20 million. Easy! Not so. The politicians, although experts at laws, most of them being lawyers, seem to be oblivious to the law of unintended consequences. When tax rates increase, that has impacts on behaviors and responses. What the government might find in this case that the increase in the tax rate actually results in the decrease in tax revenue.

With regard to the sports betting bill, the casinos will have to operate more lean and mean to survive. As stated in the earlier blog post, the parlay game may not be sufficient to generate lots of interest. Initially, sure, as it is new, but if the game isn't really that good, interest will wane.

What if the casinos, in order to survive, even with table games and sports parlays, had to reduce staff? Is that what Delaware wanted? They might get more revenue from the casinos, but what if one of the casinos close? Will all the revenue move to the remaining casinos? Probably not. With the new legislation in Washington looking to regulate online gambling, it may be in a year or two people can play slots and table games from their home. Why go to a Delaware casino when you can play at home? The only thing the Delaware casinos will have to differentiate themselves is the sports parlay game, which may not be enough.

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