Gaming Companies Cautious About Internet Gambling Legislation in the US

Rep. Barney Frank is proceeding with moving HR 2267 forward, hoping to replace the Unlawful Internet Gambling Enforcement Act (UIGEA) with a licensing and regulatory structure for online gambling. However, companies that would benefit are keeping a cautious stance and avoiding becoming too public in the discussion.

A Wall Street Journal report discusses the public positions and opinions of three gaming companies that would benefit from liberalization of internet gambling within the US. The consensus opinion is that if this moves forward, it is likely to happen no sooner than a year from now, near the end of this congressional session.

From discussion panels at the Global Gaming Expo, their consensus is that if any game is legalized online, it would be poker, followed by traditional casino games. No one is foreseeing the expanded legalization of sports betting online in the US anytime soon. However, given the estimates that only 1% of sports betting in the US is legal ($2.5B in Nevada casinos), that implies that $250B in illegal sports betting occurs each year. That's a lot of money not being regulated and taxed. I don't think many can make the logical argument that keeping something illegal is somehow going to make that $250 billion of illegal sports wagers disappear. It's still going to occur.

As a trend, the approach to legalize poker and other games of skill, then move to legalize other traditional casino games and slots makes sense. Don't make too much of a change at one time. Start with these games, learn how the regulatory structure responds, improve the process and then consider expanding the available games. Ultimately, people should be able to spend their money for the entertainment they desire, as long as it doesn't impact others. The US the last I checked was supposed to still be a free country, with a constitution that recognized the people's God-given rights to life, liberty and the pursuit of happiness.

Should regulations be instituted to keep minors from wagering? Absolutely. Should programs be in place to help problem gamblers? Sure. Reputable online gambling firms in other countries have been doing this for years. There isn't a reason that the same kind of protections wouldn't be effective here. There has been online wagering on horse racing in the US for almost 10 years and they don't seem to have an issue with gambling from minors or from problem gamblers.

How Far Off-Reservation Should Off-Reservation Indian Casinos Be?

The Associated Press reports on the cases of Indian tribes looking to off-reservation locales for new tribal casino properties. There have been some of these off-reservation locales applications in the past, usually involving tribes that have recently obtained federal recognition and needed to acquire lands for a reservation. Some of these locations could be located near lucrative population centers.

However, there are instances of tribes with reservations located great distances from population centers attempting to locate casino properties within close proximity to those sources of customers (i.e. you and me). The story discloses that the Bush administration decided that these off-reservation casinos could only be within commuting distance of the reservation. That seems like a reasonable restriction. The Bush administration, for example, rejected 20 applications for off-reservation casinos, one an astounding 1,400 miles from the reservation. Fourteen hundred miles? Well, you can't blame the tribe for trying!

Well there's a new administration in Washington, and the Bureau of Indian Affairs is reconsidering the commuting distance rule. If the rule is overturned, and tribes can extend their casino properties far from their reservations, tribal casinos could be even more of a threat to non-tribal casino properties. What if tribes could have off-reservation casinos on Fisherman's Wharf in San Francisco, the Gaslamp District in San Diego or Times Square in NYC?

There are two options in case this rule is amended. The first deals with the recently recognized tribes and tribes with no casinos yet established. The former will of course try and locate their new reservations as close to population centers as possible, but that wouldn't be required. The latter would be tribes with reservations in very sparsely populated, remote areas. It doesn't make sense to locate a casino on those lands as there is no customer base. They will be able to locate their new casino wherever they can obtain land.

The second option deals with tribes that have smaller, and perhaps not optimally located casinos. Those tribes might want to relocate their casino to a better location, closer to larger population centers. Why keep a location when a better location might be feasible? A recent post discussed the closing of a tribal casino, one not located in a prime locale.

If this change occurs, non-tribal casinos will be in even more peril. As discussed in a previous post, Nevada casinos have been suffering due to competition from California-based Indian casinos. Ceasar's Palace can't move from the Las Vegas Strip to LA, but tribal casinos might be able to do just that. This rule, if liberally modified, could open the door to Nevada casinos getting hurt to a much greater degree than what is happening now.

Further Evidence Smoking Bans Harmful To Gambling Revenues

Several months ago, I posted on the topic of smoking bans playing into the hands of online gambling operators, to the detriment of land-based casino operations. The data from Illinois showed gambling revenues down approximately 20% after the smoking ban took effect. Montana has recently implemented a similar ban and the gambling revenue impacts are similar. According to the story by MontanaNewsStation.com, gambling revenues across the state are down 16% to 18%, just after one month. This is in line with the experience from Illinois casinos.

In my original post, I made the point that online gambling venues may benefit as if someone could smoke in their home and gamble might be a more attractive option than traveling to a smoke-free casino. Play the same games at home and smoke if you want.

In Montana, the competition can be online gambling, but a more clearly defined alternative is the tribally-owned casino in Montana. Tribally-owned casinos are exempt from the smoking ban as reported by the Flathead Beacon. According to a related story by the Great Falls Tribune, "some businesses on the state's Indian Reservations, which are not subject to the Montana Clean Indoor Air Act, are now marketing to people who like to have a cigarette with their cup of coffee, meal or adult beverage or while gambling - indoors."

What Montana has done in addition to eliminating smoking in more indoor venues is actually provide a sustainable competitive advantage to the state's tribal casinos, to the detriment of the other gaming competition. That likely wasn't an objective.

Most legislative bodies are chock full of lawyers. But like most lawyers, there is one law that they haven't been schooled in and continually run afoul of - the law of unintended consequences.

Lack of Parity in NFL Increases Sportsbook Risk

The Chicago Sun-Times has a nice article on the lack of parity in this NFL season. The NFL has been touting the "any given Sunday" line for years, stating that any week any team can beat any other team. This year, that tagline has been shown to be completely inaccurate. Do you really think the St. Louis Rams or the Oakland Raiders have a snowball's chance in hell of beating the New England Patriots, Minnesota Vikings, Pittsburgh Steelers or Indianapolis Colts? Nope.

Now TV ratings are not suffering, but there has been some impact with regard to attendance at the home stadiums of the poor teams. The lack of on-site attendance will have a future impact with regard to finances of the poorer teams as although there is sharing of television revenue, the teams use attendance revenue to assist with singing bonuses, etc. So, in this case the rich get richer and the poor get poorer.

Sportsbooks also suffer from lack of parity. That's due to the particulars of spread betting. Bettors put up $110 to win $100. So, for example if the Raiders and Chiefs were playing, with the Chiefs favored by 3 points, if you bet the Chiefs, they would have to beat the Raiders by more than 3 points in order to win the bet. If they won by just 3 points, the bet would be returned and if they won by less than 3 points (or lost the game outright), you would lose.

The sportsbook makes money by taking $110 from bettors on both the Raiders and Chiefs. They take in $220, pay the winner their $110 plus the winnings of $100, and the sportsbook keeps $10, or about a 4.5% profit.

This system works to ensure the sportsbook makes money if you can get equal bets on both sides - in the example equal bets on both the Raiders and Chiefs. Point spreads are set to help ensure this occurs. When the two teams are evenly matched, the spread is low, with the converse when they are unevenly matched. In theory, you can set the spread large enough to attract equal action. In practice, that doesn't always happen.

This is the problem with the current lack of parity in the NFL. If some teams are just horrible, they are just not going to attract betting interest, unless the spreads are set to a dangerous level. Usually, a very high spread may be 13 points. With the current disparity, a game between between a top team and a bottom team might have to have a spread of 20 points or more to attract ANY betting interest on the poor team. So far, favorites are winning and underdogs (particularly of the poorer teams) aren't winning (even against the spread). If all the betting action is on the favorites and the favorites win, there aren't losing bets on the underdogs to finance paying the winners. That means the sportsbook has to pay out of their pocket, which means the sportsbook actually loses money.

Parity in the NFL isn't just good for the fans - it's good for the sportsbooks too.