Legalized Sports Gambling in the US – My Bet

Two weeks ago, I was in Minneapolis for the Fantasy Sports Trade Association conference, and a big topic on the agenda was the recent Supreme Court decision overturning the federal ban on sports betting. I listened as the panelists – one of which was ESPN gambling reporter David Purdum, another of which was RotoWire’s Peter Schoenke – explained how each state would have to come up with its own regulations and how those regulations might take shape.

Some states, we were informed, might require would-be sportsbooks to work with Indian casinos or other existing operators, while others might insist on a tax or fee, which almost certainty would be passed onto the public in the form of a higher rake. Moreover, the sports leagues themselves have indicated they want a piece – the NBA and MLB have asked for an  “integrity fee” – purportedly to offset the costs of making sure no one intentionally shaves points or throws a game.

All told, Purdum suggested instead of the normal -110 rake on 50/50 bets, e.g., NFL bets against the point spread (ATS), the rake from the new legal sports books might approach -120. (-110 means you have to risk $110 to win $100, while -120 means you have to risk $120 for that same $100.)

As I detailed in a prior post, even the -110 rake is hard to beat. In order to see this, imagine you made 100 $1 bets ATS and won 52 of them. You’d win $52 and lose $48 for an ostensible profit of $4. But you’d lose another $4.80 to the rake (remember, you risk $110 to win $100), so you’d actually be down 80 cents despite winning more often than losing. (The break-even point is 52.38 percent.)

But if the legal sports books kick the rake to -120, winning ATS is nearly impossible. If you won 54 percent of the time (assume 100 $1 bets), you’d win 54 and lose 46 for an ostensible profit of $8. But you’d like another $4.60 * 2 ($9.20) for a loss of $1.20. To break even, you’d need to win roughly 54.55 percent of the time. To put this in perspective, even the best professional gamblers rarely break 55 percent over the long haul. Essentially, no one who understands the math would become a customer, instead preferring current quasi-legal offshore books that continue to offer the standard -110 rake.

I imagine novice sports bettors might, if prompted by sufficient marketing, jump at the chance to get legal action on their favorite teams, but you can’t build a business on customers who not only don’t win, but stand virtually no chance to win over the medium term. (One could argue few win long term at -110, but plenty of bettors have winning seasons at least.) If those bettors, prompted by marketing, enjoy a taste of the action, only to realize the cost is too steep, they might also find their way to the offshore books that are offering far better deals. Action itself can be entertaining, but the fun wears off awfully quick if there’s little hope of even medium-term success.

Moreover, a major tool for the states and legal books to crack down on the offshore ones – getting banks and credit card companies to stop processing transactions from them – is becoming obsolete. Crypto currencies obviate the need for third-party permission to transact, and as such, bettors can access better terms on their own.

Unless the legal sportsbooks offer a competitive rake – something that seems dubious in the short- and medium-term given what I heard at the conference – they might find themselves spending a great deal of money on marketing, only to deliver customers to the offshore books.

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My hope is they, the leagues and the states come to their senses ahead of time, realizing (1) the tax revenues are good for state; and (2) the leagues benefit from vastly increased interest in their product – even when two bad teams are playing. Consequently, the legal books could offer the standard rake and force the offshore ones to go lower or simply go out of business. Given what I heard at the conference, I don’t see it playing out that way.