Inside the Battle for the Future of Sports Betting
This spring, Americans spent $8.5 billion indulging in a time-honored vice: wagering on college basketball games.
March brought with it “March Madness,” the three-week-long avalanche of upsets and buzzer-beaters that is the NCAA Men’s Basketball Tournament. And with March Madness comes bets, brackets, office pools, and, of course, lost employee productivity—up to $13.3 billion worth of it, according to outplacement firm Challenger, Gray & Christmas.
But this year, things have been a little different. It was the first NCAA Tournament since the Supreme Court’s landmark decision last May to overturn the federal ban on sports betting, which for decades had largely restricted the activity to the casinos and sports books of Nevada. Which means that for the first time, bettors in seven states that have subsequently legalized sports gambling haven’t had to resort to under-the-table wagers—or a trip to Las Vegas—to get in on the action.
The nation’s major sports leagues and associations recognize just how epochal this shift is. After years of opposition to the notion of sports betting, they’ve virtually all now come around to its economic potential. While the NCAA continues to officially oppose “all forms of legal and illegal sports wagering”—which NCAA president Mark Emmert said in January “threaten[s] the integrity of college sports in many ways”—America’s professional sports leagues are almost entirely on board with this new state of affairs.
Buoyed by the commercial possibilities, the likes of the NBA, MLB, NHL, and Major League Soccer have each struck official partnerships with MGM Resorts, while the NFL announced its own deal with Caesars Entertainment. But these commercial agreements represent only a piece of the larger sports betting puzzle for the leagues. Ask them, and they’ll tell you that much more significant is the opportunity to use gambling as a vehicle to draw in, engage and interact with millions of sports fans across the country.
“We always saw, and we still see it, as a fan engagement opportunity,” Keith Wachtel, the NHL’s chief revenue officer, tells Fortune. “That’s the holy grail of sports betting; it’s not the short-term [gambling] revenue.”
Simply put, more betting on sports means more eyeballs watching and paying attention to those sports, and that equals more money flowing into the leagues’ coffers. According to an October study commissioned by the American Gaming Association (AGA), legal sports betting could result in an additional $4.2 billion in annual revenues for the four major North American sports leagues (NFL, NBA, MLB and NHL)—with the majority of that influx resulting from increased fan engagement with the product, rather than revenue coming directly from the gaming industry.
“I think [the leagues] absolutely view this as something that’s going to increase fan viewership and engagement,” says Scott Butera, MGM’s president of interactive gaming, who is spearheading the company’s sports betting strategy. “They see this as a way of letting fans have some skin in the game, and more reasons to watch a game now.”
According to the AGA, Americans illegally wager more than $150 billion on sports every year, whether through offshore betting sites or illegal bookmakers. With that kind of money potentially up for grabs via legitimate means, it’s no surprise that there’s a debate currently taking place about what the future of the fledgling, legal sports betting industry should look like. Beyond the leagues themselves, there are numerous stakeholders to account for, each with their own objectives.
There are the casino operators that hold significant influence at the state level, where legislators are crafting the nation’s sports betting regulations. There are mobile betting operators like DraftKings and FanDuel, whose digital platforms are widely considered to be the future of the industry. And, of course, there are the sports teams themselves, many of which are either preparing to, or already taking advantage of, the commercial and fan engagement opportunities allowed by sports betting.
Through interviews with more than a dozen people from these various groups, there is a clear sentiment that all parties have a shared, mutual interest in a successful legal sports betting industry in the U.S. But that’s not to say there aren’t disagreements, currently playing out across the country on a state-by-state basis, regarding issues that could shape the future of sports gambling in America for decades to come.
The (State) House Always Wins
Last year, the NBA, MLB, and PGA Tour teamed up on a lobbying effort targeting state legislatures across the U.S. The three pro sports organizations share ideas that they believe should govern sports betting and stand in contrast to the NFL and NHL, which have taken a more lax approach toward the regulatory environment. (Wachtel said the NHL does not consider it “a winning battle at this point” to dictate sports betting regulations, while the NFL is not pursuing a similar lobbying effort and did not return multiple requests for comment for this story.)
“There’s no question that the world changed after the Supreme Court decision,” says NBA senior vice president and assistant general counsel Dan Spillane, who is leading the league’s lobbying effort alongside the MLB and PGA Tour. “We saw that there is an opportunity to engage with the [gaming] industry, not just from a commercial standpoint but an integrity aspect as well.”
Some of the leagues’ positions are in line with casino industry groups like the AGA, including an embrace of mobile betting and support for cooperation between the leagues and bookmakers on detecting irregular betting patterns that could signal “integrity issues” with certain games and contests.
Other proposals have been flatly shot down by the gaming industry. Perhaps no stance has been less popular than the notion of an “integrity fee,” which would see the leagues get a cut of the revenue from each bet placed on one of their contests. While the NBA, MLB, and PGA Tour initially floated the idea of a 1% fee, they’ve since revised their stance to 0.25% of every bet.
“There is no betting on Major League Baseball unless we put on the games and invest a lot of time and effort, as our players do, on putting on compelling contests,” says MLB senior vice president and deputy general counsel Bryan Seeley. “They should have to pay us something for that.”
Seeley also cites the costs of the league’s gambling oversight efforts, and the risks inherent to embracing sports betting, in justifying MLB’s position.
“If we have a scandal regarding the integrity of our game, that could cost us hundreds of millions of dollars,” he says. “Baseball has a long history of fighting against issues related to sports betting. Anyone who’s followed baseball knows about Pete Rose and the Black Sox scandal.”
Pete Rose, a former player and manager, was barred from the MLB in 1989 following allegations of gambling. (He later admitted to them in a 2004 autobiography.) The “Black Sox” refer to eight members of the Chicago White Sox who were banned for fixing the 1919 World Series.
But that position garners little sympathy from the gaming industry, which cites its own low-margin business model in ruling out the leagues getting any cut of betting revenues. Sara Slane, the AGA’s senior vice president of public affairs, says that the originally proposed 1% integrity fee on each bet would amount to bookmakers effectively sacrificing up to 20% of their profits—given how bookmakers pay out 95 cents in winnings for every every $1 that is bet, according to Slane.
She also shoots down the notion of a more limited 0.25% fee on bets. “At the end of the day, this is a low-margin business,” she says. “Taking that money off the top hurts our ability to compete with illegal operators.” So far, it appears that the casino lobby is winning on this issue. While integrity fees have been included in several proposed pieces of sports betting legislation across the country (such as a bill introduced in Connecticut last month), they’ve yet to make it into law anywhere.
Then there are other issues that relate to in-play betting—a massive and ever-growing piece of the sports betting market that’s enabled by the vast amount of data collected by the leagues and sports data partners like Sportradar and Genius Sports.
“At the end of the day, this is a low-margin business.” —Sara Slane, American Gaming Association
On the first count, the NBA, MLB, and PGA Tour want bookmakers to be required to pay for their official, league-sanctioned data streams. They claim this is important to provide the most accurate, up-to-date betting data for wagers, and also to protect the proprietary data collection operations that they’ve spent millions of dollars to establish.
“We capture data from every single [golf] shot at a PGA Tour event—on a Thursday and Friday, that’s 10,000-plus shots a day,” according to David Miller, a vice president and assistant general counsel for the PGA Tour. “We don’t think it’s fair, in a regulated market, for someone to be able to use a tracking tool or web-scraping device and turn around the data we collected to bookmakers for a fraction of the cost.”
Additionally, as part of their efforts to protect the integrity of their games, the leagues want to see restrictions on certain kinds of wagers. “We want to make sure that, as we get into more granular bets, we don’t encounter integrity issues,” Seeley says. “It’s very difficult for an individual to fix a nine-inning baseball game. It’s a lot easier to fix the next at-bat; a batter is in complete control of when he strikes out.”
Miller says the PGA Tour agrees with that stance when it comes to “negative bets,” such as “a bet that [a golfer will] miss a putt or drive it less than 300 yards”—and particularly “at the lower levels of our sport,” where the winnings are smaller and players are potentially more prone to manipulation. (Likewise, Seeley said MLB is against sports betting at the minor league level.)
Unsurprisingly, the casino lobby is at odds with both a mandate on where bookmakers can buy their data from and what kinds of bets they can take. Slane says such a mandate “enables [the leagues] to have a monopoly over data rights,” while restricting the types of wagers that operators can offer would simply “drive [bettors] to offshore, illegal [gambling] websites” to find certain bets.
She adds that the gaming industry has “just as much invested” in ensuring that the integrity of the contests it takes bets on are not comprised. “When we’re paying out to winners who have insider info, that hurts us just as much,” she notes. “If there’s something suspicious happening, it’s bad for the leagues but it’s also bad for us.”
Carsten Koerl, the founder and CEO of Sportradar, tells Fortune that while it’s “very understandable that [the leagues] want to protect the sport,” the idea that they can dictate where gambling operators can obtain their data from “is not going to work in a free market.” Having provided betting data to sports books around the world over the past two decades, Sportradar now has similar partnerships with most of the major American sports leagues.
Crucially, the company also helps leagues and authorities monitor potential integrity issues, such as betting irregularities that may indicate a contest is fixed in some way. “I understand the leagues have an interest, but betting operators have the same interest that the sport stays clean and nobody is using these small side bets to influence it,” Koerl says.
He adds that the debate over the use of official data “is not very positive, because it will slow down the process” of getting sports betting up and running in many states. “I would like to see that [the leagues and gambling operators] are both lobbying in the same direction.”
Like the integrity fee issue, the leagues’ efforts to mandate the use of official data and restrict certain types of bets have yet to gain much traction at the state level. But they did make it into a bill, proposed in the U.S. Congress in December, by Sen. Charles Schumer (D-NY) and then-Sen. Orrin Hatch.
That bill would represent the first piece of federal legislation governing the legal sports betting industry in the U.S. While the gaming industry appears to be against such legislation—Slane said it would “add another level of bureaucracy” for gaming operators already heavily regulated at the state level—the idea is met with virtually unanimous approval among leagues, data providers, mobile betting operators, and other industry participants.
Double or Nothing
At Prudential Center in Newark, N.J., fans attending a New Jersey Devils game can visit the William Hill Sports Lounge, buy a drink, and survey several screens that list the most up-to-date betting odds for any number of sporting events. While there are no betting windows available to take wagers in person—New Jersey law still restricts where you can establish a brick-and-mortar betting operation—all one has to do is flip open bookmaker William Hill’s mobile sports betting app (or any other sports betting app, if they like) and place a wager with the tap of a finger.
“We’ve made it a priority to make sure that when our fans come to the games, they are getting a unique and connective experience, and we saw sports gambling as additive to that,” says Hugh Weber, the president of Harris Blitzer Sports & Entertainment (HBSE), the company that owns both the Devils and the Prudential Center (as well as the NBA’s Philadelphia 76ers and the English Premier League’s Crystal Palace F.C.). As Weber notes, his patrons don’t even have to visit the lounge if they want to place a bet; they can “actually place bets from their seats in the arena.”
While sports betting is now legal in Pennsylvania, mobile sports betting is not, which means that similar offerings are not yet on the cards for the 76ers at their home in Philadelphia. But HBSE, which has also struck commercial deals with Caesars and FanDuel at Prudential Center, is among American sports team owners who are ahead of the curve in embracing the possibilities of sports betting, wherever and whenever they’re available.
Ted Leonsis, who owns both the NHL’s Washington Capitals and the NBA’s Washington Wizards, recently announced that he will open a physical on-site sports book at the arena his teams share in downtown Washington, D.C., after the District’s city council voted to legalize sports betting in February. The Sacramento Kings—owned by real-time trading software entrepreneur Vivek Ranadivé—have offered fans predictive gaming platforms on the team’s official app. Meanwhile Major League Soccer, as a relatively fledgling enterprise, has perhaps the most to gain from sports betting as a fan engagement tool. It’s currently “developing a free-to-play game” with new partner MGM, according to MLS deputy commissioner Gary Stevenson.
Despite opposition from state gaming lobbies across the country, most people in the sports betting industry agree that mobile sports betting is the way of the future, if not the present. While some gaming operators have expressed reservations about whether mobile betting will drive traffic to their casinos, the consensus is that it’s necessary should the legal market wish to capture the bulk of the illegal, black market’s share.
“We are largely aligned with the leagues around this—they realize that mobile is the future,” says Kip Levin, the president and COO of FanDuel. The fantasy sports company recently opened a retail sports book location at the Valley Forge Casino Resort, located a half-an-hour’s drive outside Philadelphia. Levin says he expects Pennsylvania to be “the next big state with combined retail and mobile” sports betting.
“Mobile is the future.” —Kip Levin, COO, FanDuel
Both FanDuel and DraftKings have dominated the mobile sports betting market in nearby New Jersey, and mobile betting itself has come to represent a majority market share of the overall sports betting market in the Garden State. Yet, in order to do business there, both companies are required by law to agree licenses, or “skins,” with existing casino operators—Atlantic City’s Resorts Casino Hotel, in DraftKings’ case, and Meadowlands Racetrack and Casino, in the case of FanDuel.
For both companies, which made their names as daily fantasy sports operators, it’s simply the cost of doing business in a regulatory environment that has long been dominated by the brick-and-mortar casinos.
“There’s no firm reason why any state has to run licensing through the casinos,” according to Matt Kalish, the CRO and co-founder of DraftKings, who noted that the company’s home state, Massachusetts, has proposed a sports betting law allowing mobile operators “direct licensing [that] wouldn’t run through a casino.” But Kalish notes that, in New Jersey, the company is “pretty happy” with the state’s sports betting regulations and is “making it work with whatever framework” is provided.
Like FanDuel, DraftKings has also established a physical sports book presence, in its case at Scarlet Pearl Casino Resort on Mississippi’s Gulf Coast. But both companies are also looking to be ahead of the curve as far as opening up the national mobile betting market; DraftKings recently announced a deal with Caesars that could allow it to acquire licenses in states where the gaming company has a presence, while FanDuel struck a similar agreement with casino operator Boyd Gaming last year.
For each daily fantasy sports-turned-sports betting operator, the issues surrounding the debate over what legal sports betting should look like are not black and white. Though each operator has partnerships with professional sports leagues, it is not tied to the notion that sports books should be mandated to buy data from those leagues (“We don’t think it should be written in a statute; we think it should be a commercial negotiation,” Levin says) or required to hand over a percentage of their revenues via an “integrity fee” (“I don’t think anyone loves the idea,” Kalish notes).
But these companies do believe that, along with all the various parties that are having a say in how sports betting should operate in the U.S., they have a shared interest in bringing the industry out of the darkness and into mainstream.
“They’ve realized that if the illegal market is as big as it is, the integrity issue actually exists today, and it’s actually worse,” Levin says of the sports leagues’ embrace of sports betting. “They have access to the data; if they think there’s something is weird, they can pick up the phone and call us. If they have an issue or a concern, they can reach out. We’re all aligned.”
Nonetheless, the debate will rage on: There are active sports-betting bills pending in 22 states.
“I think it’ll be really interesting to see what happens at the closeout of the [state] legislative sessions in June,” says Slane. “Then we’ll really see what the map looks like.”
Rey Mashayekhi is a staff writer at Fortune. Email him at feedback@fortune.com.