Happy Thanksgiving from GGB; Newsletter Returns December 4

Merati: SB445 Opens Nevada Books to International Markets

A sports betting bill that allows financiers to invest in the sports betting business will provide liquidity to make sports betting a truly viable business in the state of Nevada.

The two sports wagering bills recently passed by Nevada legislators could overhaul the state’s bookmaking business. Currently Nevada regulators are in the process of setting up public workshops to finalize the gaming rules and regulations for these bills. If these bills prove to have a successful business impact, regulators in other states may well adopt them when sports wagering will be legalized in their states

The bills will also encourage Nevada books to evaluate their current betting systems to better prepare for the upcoming market conditions. One of the bills, SB443, authorizes financiers to invest in sports wagering business. The other bill, SB445, allows Nevada books to operate in other regulated markets. The purpose behind the latter bill is to provide the essential liquidity to make sports wagering a viable business for the new entities entering into the business of betting on sports.

Nevada books in essence have been operating as the facilitators for patrons to wager against each other. Race and sports book managers are risk averse, their business model is not to be in the odds making business, they use risk management tools to balance their books to prevent them from getting exposed to a game’s outcome. To protect themselves against the wise guys, they even go as far as collaborating with their business rivals rather than competing with them.

The new laws will allow more sophisticated and better-capitalized wise guys, i.e. professional sports betting entities to enter into the marketplace to take the risk that bookmakers try to avoid. This will make the business more completive and through arbitrage, it will open up access to international prices. The professionals will use statistical modeling to bet against the market when they disagree with the odds. The new rules will require these entities to be registered, transparent and pay taxes. These newcomers along with legalization of wagering laws in other states will also impact the business of illegal operators.

Professional wagering could be a lucrative business. As an example, if a sports betting entity’s average winning percentage is 55% and the entity negotiates volume discounts from bookmakers to push down its trading costs to about 3%, the entity will be making 2% each time it makes a bet and if it bets 50 times in a year, it can have 100% annual return for its investors. This return does not even take into account the extra few points the entity could make by playing arbitrage between the local and international markets.

By betting on sports, one is essentially betting against a market, however a market will not be efficient if it is not run competitively and does not have sufficient liquidity. SB445 will expose Nevada books to international prices resulting in better values for the public and lower pre-match margins for the middlemen, i.e. the bookmakers.

Even though the margins for pre-march bets will be squeezed, offering more lucrative bets during a game will more than compensate for the difference. It is proven that people love to place bets using their phones while watching a live game on TV. By placing a wager, viewers can express their opinions as to what they think would happen next. These bets, by their nature, happen on the fly and have a short life, making them more difficult for the betting entities to profit from. By receiving dynamic odds feed from a third party, an operator can increase its in-running offerings and cover more sports.

In Europe, sports wagering has grown far beyond the traditional high street betting shops, Nevada books will also undergo a transition. In future, a race and sports book will play more than just an amenity role to an integrated resort. Betting on sports has the potential to be a major part of a gaming company’s business.

Most of today’s gaming companies in Europe either started online or began their business a few decades ago as high street betting shops. The operators that did not timely embrace internet technologies lost market shares to the newcomers as well as to their bet shop competitors who were early adaptors of new technologies. A similar transition will happen in Nevada, those who delay implementation of better risk management systems, or will not offer more in running odds will lose market share.

In long run, technology and market forces will push the sports betting industry towards a more structured putting for all its stakeholders. The first stakeholder group will be the amateur fans financing the entire industry for the entertainment value they will receive for placing bets on their favorite teams. The second group will be those who facilitate the betting process, i.e. the bookmakers. The third group will be those who analyze the historical data to better predict the odds. This group will use their internally calculated odds for their own trading purposes or sale to the first and the second groups. The fourth group will be the states that legalize the business and charge gaming and income taxes.

In summary, the high demand for sports wagering will make its legalization inevitable and will transition it to a robust multi-billion mainstream industry. The states that delay the process will keep losing potential tax revenues, and the operators who do not start embracing state of the art risk management systems, or do not offer competitive odds or a comprehensive set of in-running bets will stand to lose their market shares.

Articles by Author: Bruce Merati

Bruce Merati is cofounder of BC Technologies, a sportsbook system provider and CEO of Uplay1, a gaming IP company.