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Betting big on sports betting

ASU business senior lecturer says newly legalized betting must have a nuanced approach to succeed

Smartphone and computer screen
September 07, 2021

Legal sports betting is coming to Arizona this week, bringing a taste of Las Vegas-style entertainment to the Valley.

Several casinos and corporations will launch their betting services on Sept. 9, which coincides with the start of the 2021–22 NFL season.

Going to a game and placing a bet on your favorite team will be as easy as ordering beer or peanuts.

Advertising dollars rivaling presidential elections are already enticing veteran bettors and novices alike with offers of free money to sign up for their service or app.

Is this a good thing for fans? Will it ruin the game? Who are the ultimate winners and losers? And will Gamblers Anonymous see a big uptick in business?

ASU News spoke to Daniel McIntosh, a senior lecturer with the W. P. Carey School of Business at Arizona State University, about this new phenomenon, which promises to enhance the fan experience and add to state coffers. But only if done correctly, he says.

Man with blue eyes

Daniel McIntosh

Question: I’ve never seen quite an advertisement campaign like I have for this sports betting … it’s everywhere. I just received an email saying if I sign up, I get $500 in credit.

Answer: Absolutely. This is an exciting time. The closest thing I could compare this to is the last presidential campaign. If you remember in 2020, every other ad was for the Republican and Democrat candidates. The same thing is happening here in the Valley right now. ... Today I’ve received four different emails from four different providers about opportunities to sign up and receive welcome bonuses to try and get me on their platform. It’s the swing-state scenario again where it is a war for market share and they're spending heavily to try and get people in their platforms using their services, and hopefully long-term customers.

Q: I’m not a gambling man, so please explain to me how this works and what pushed this to happen?

A: There’s been an expansion to legalize gambling, and my guess is eventually all 50 states will have some form of legalized sports betting. The coronavirus pandemic and its impact on sports revenues was a catalyst that helped accelerate progress in everything from digital-only tickets to a more open mind to alternative revenue sources. The coronavirus took away revenue from sports teams because they were limited as to how many people could attend games in person. The sports industry is asking, “How can we get people back into the stadium or arena?” because people found out that staying at home to watch a game on a 50-inch, big-screen television and saving $500 is not a bad thing when they’re worried about long-term job security.

For example, UCLA had their football home opener and they had 32,000 fans at the game. The problem is the stadium holds 80,000, and stadium operators and organizations are asking two things: How do we fill that revenue gap? And how do we get fans back into the stadiums? PASPA (Professional and Amateur Sports Protection Act of 1992) is overturned and this opportunity comes along and it’s a way to accomplish both. You’ve got teams looking to backfill revenue and looking to create new, exciting experiences to drive fan engagement, and you’ve got the states, which are trying to bring in additional tax revenue to their coffers. So that’s the dynamic at play here.

Q: What will this look like? Will a Las Vegas-style sportsbook be inside these chosen venues?

A: The answer is yes, but before I answer, if you recall, the NFL and NBA at one time said they didn’t want sports wagering because they felt it threatened the integrity of the game. Well, now they’ve reversed course and embraced this concept to where not only are we going to have sponsors in these previously off-limits categories but we’re going to welcome it onsite at our events. That’s a radical shift. To act as a safeguard, they’ve put in place data-sharing policies and the operators are all agreeing to core game-integrity policies and responsible gaming efforts.

In terms of what it will look like, they’re still figuring some of this out — but so far two venues are going to have this downtown at Talking Stick Arena and Chase Field, two blocks from each other. We’ll also see openings at TPC Scottsdale and State Farm Stadium for the Cardinals. The balance will be how do we still make this a family-friendly atmosphere without making it feel like a gambling den? It’s no different than when they integrated bars inside stadiums and arenas while not making it the main marketing or focal point. Everybody will eventually get what they want. If you want to take your three kids to a game and have a fun family night out, great. You can go over here. If you want to have some beers with your friends and place a wager on a game, you can do that over there.

Q: I’m getting visions of the degenerate gambler father who takes his kids to the venue, buys them a hot dog and a drink, and pops over to the sportsbook and gambles his week’s salary away.

A: This is a real concern in terms of almost every ad I’ve seen and every website I've gone to. They do have a huge warning about gambling addiction. “If this is something you've struggled with, here's the helpline that you can call to get help.” These organizations are trying to come through and make this an entertainment tool. When I talk with some of my colleagues who work at the sportsbook, they have told me, “Hey, you can go spend $25 to go see a movie with your friends. Or you can put $25 on a wager with us. With us, you at least have some probability of making some of that money back. You go to a movie, you're going to get none of that back. And we'll probably give you a more exciting experience on the average.” They’re trying hard to position this as a fan-engagement tool rather than a gambling experience. They are trying to bring it into the light as a way to augment the overall sports product.

Q: What does an average bet look like?

A: There are a variety of different bets. For example, you have things like prop bets where the question is whether a certain player is going to score more or less than five points, 10 points, whatever it might be. If you’re a Devin Booker fan and you think he’s going to score more than 15 points, you can put $10 bucks on him. That is a new style of betting. The older style of betting is the Suns are favored by seven, but you think they’re going to beat that line, and you put your money down. Then you have more of the straight-up bets, which are “Hey, I think they’re going to win.” You pay a premium to come and place that bet. Then there are over-and-under bets, which are, “We think the Suns are going to score 120 points tonight. We're going to bet the over.” There are a lot of different styles. They’re trying to come through and develop different markets because you have different segments of fans, and you have different products that are tailored toward each of those.

The other piece that is tied together with this: You have Caesars, which are your traditional sportsbooks, but then you also have the FanDuels and the DraftKings, which have the sportsbook piece, but they also have the daily fantasy sports. These are different products entirely where you come through and create your fantasy lineup — your lineup versus my lineup — and the winner gets $10. Again, there are products for everyone. I don't know if it's fair to say that there's an “average product.” If you went to the different casinos, they might each have a different answer in terms of where their bread is buttered, but the parlays are very popular.

Q: Any idea what the revenue split will be between the venue, the team and the sportsbook?

A: When I spoke to my source, they wouldn’t release that figure to me — at least not into a number that they would say or that I could publicly share. The general model is they have something called the holdout. This is the odds of you coming in and getting your money back. The easiest way to think about this is if you go to a slot machine and you put in a dollar, there's a little percentage for each machine. Let’s call it for a certain machine 97.5%. That means for every time you pull that slot in the long run, you're going to lose 2.5 cents. They have hundreds of these everybody's pulling, and they're just constantly making money. With sports gambling, the different bets have different holdouts. On average, if we're talking gross margins, it's in the single percentages. And that's something that a lot of people get confused about.

Fundamentally, how does this work from a financial point of view? There's something called the vig. This is the premium we as customers pay to make a bet. Imagine you and I were going to place a bet to try and win $10. I would bet $11. You would bet $11. And the casino's job is to get equal money on both sides of the bet. If you win, they would take $10 out of my $11, give it to you and they’d keep the $1. The net result of what happens is $22 got bet, but the sportsbook only made $1 in profit. If you go through and you see these big numbers, like, “a hundred million dollars is being wagered,” that’s technically true, but that doesn't mean it's a hundred million dollars in profit. They’ll probably make 4% profit on a hundred million dollars of wagers.

Q: Is this going to be good for the Arizona economy?

A: Great question. In other words, did we just save Social Security, or plug some big revenue gap? In short, no we didn’t do that, but it is likely good for the state. There's a couple of ways to think about it. For example, when we do studies of economic impact, what we're talking about is new dollars coming into the state. If we come through and say, “Hey, all of the money's going to be made from in-state residents.” Well, from an economic-impact perception, it's roughly neutral, right? Instead of what I said before about going and spending the $25 at the movie theater, you go and spend $25 at the local arena. Well, that didn't bring any new money. The impact would be zero. Now, what it can do is move money around, right? I was spending the money in Scottsdale or Paradise Valley. Now I’m spending it in downtown Phoenix. So there are some comparative benefits. The big source is getting some of this revenue out of the shadows, out of the non-recognized areas and into legal and taxable platforms. That will have a net positive impact.

Then the last element would be the concept of tourism. If you talk to people at the Arizona office of tourism, they would tell you the No. 1 export of the state of Arizona is tourism. Well, not every state has legalized gambling. If we come through and say, “Hey, California is one of our biggest sources of revenue in terms of tourism.” They've got the option to go to Las Vegas to gamble, or they could come to Phoenix to gamble. Well, we're going to get them on a lot of different things. We're going to beat them on hotel quality. We're going to beat them on golf course quality. And we're also, at least right now, going to beat them on basketball teams. Las Vegas doesn't have a basketball team. So if you come to Arizona and go to a basketball game instead of going to Las Vegas, that's going to be a net positive revenue to the state. Now, the question is how many of those people are going to change their tack from going to Las Vegas to Phoenix? We don’t know, but it won’t be zero.

And so it's a guess at this point. These are brand-new things. As we start to think about this, we have to ask what are the effects? How quickly will we have an advantage over other states? From an economics point of view, you look at things like COVID-19, you look at all the other variables that are out there. It's hard to come through and say it’s going to bring in an extra $25 million, especially if the primary user is local. But it will be overall net positive.

Q: So it almost sounds like this service is a convenience, an exciting convenience if you will?

A: Absolutely, but it’s also a way for sports to maintain their relevancy and it’s a fan-engagement tool. It's a reason to go and watch a three-and-a-half-hour baseball game, even if your team is losing seven to nothing. That's an important concept, right? How do we keep fans in the stadium? If they're leaving after the seventh inning or they're leaving after the third quarter or whatever the case might be, that’s a problem. If they leave, they're not buying hot dogs. They're not buying programs. They're not buying merchandise. They're not likely to have these lifelong fan experiences of staying to see the 20-point comeback. But if they have a bet, they stick around and they have an experience that sticks with them for a lifetime. There’s also an element of convenience, but it's much more of a fan-engagement play.

Q: Is there an entity out there who’s against this?

A: One of the things that's going on is the number of licenses that will be distributed. ... If I am a tribal nations casino and I've been promised one and then I don't get one of these sports gambling licenses, they’re going to be a little bit upset, right? So the question is centering on: Is this still an equitable agreement to the same extent that it was when the tribal nations originally signed on however many years ago? The counterpoint to that is that we don’t want licenses to be too easy to get. We don’t want wildcat providers out there that are acting in ways that would lead to some of the potential negative consequences we naturally think about with gambling going wrong. That’s again why we have the licensing limits to regulate, monitor and ensure integrity and compliance.

Q: Where do you see this headed in the future?

A: One of the more interesting announcements was a partnership with the Phoenix Mercury. You ask, “Why would Bally’s gaming partner with the Mercury?” Gambling has historically been skewed heavily toward males, and this is one of the ways to tap into the women’s sports fan market. If there were a way to get access to that market, create products for that market, it would be a massive win. I think further adoption of this market and new products that are interesting to new markets are something we’ll see in the future. 

Top photo courtesy of iStock/Getty Images

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