The Answer to Integrity is Data, Not Leagues

The integrity fee being pushed by the major sports leagues will surely destroy the already slim margins for sports book operators. Worst of all, it’s not necessary, if you can use the latest technology and a new cryptocurrency. Gaming veteran Bruce Merati (l.) explains.

The Answer to Integrity is Data, Not Leagues

With the possibility of sports wagering expanding beyond Nevada, the leagues have started pushing for an integrity fee, a narrative that has ranged between one to a quarter of one percent, making operators and lawmakers nervous that the fee could harm the business. It is worth noting that a one percent fee amounts to twenty percent of the current theoretical hold percentage of Nevada books and slightly more than their historical net profit after taking into account operational expenses and taxes.

The gaming industry has been pushing back, arguing that: i) legal wagering will be a blessing to the leagues reversing their declining fan base, ii) Nevada has never paid such a fee, iii) the fee will be another cost discrepancy benefiting the illegal market, and iv) the leagues are essentially asking the operators to take all the risk of a wager, which is close to fifty percent with the leagues not sharing the risk.

The leagues have also made it clear that the fee is not to guarantee integrity, but rather a reimbursement for expenses, without providing any specific details or cost breakdowns. Knowing integrity of a game cannot be guaranteed, the gaming industry should embrace technologies that can detect manipulations and fraudulent activities.

The best deterrent against manipulation is data mining combined with tools that can identify bad actors, similar to those used by the SEC to uncover insider trading, e.g. correlating large profits with unusual movement of stock prices. Keeping detailed wagering data can be achieved using new technologies that create a secure and historical list of wagering records on a distributed ledger. The technology I am referring to is a version of Blockchain, very different from those used by Bitcoin or other crypto currencies developed around the concepts of anonymity and lack of central authority, both of which are against the basic principles of regulated gaming.

Blockchain is a broad term and it simply means distributing records on separate servers rather keeping all the data on one server. Blockchain is real and will overhaul our digital world, including gaming, for better. Major technologies companies such as IBM are rolling out their own versions and banks such as Chase are developing proprietary platforms. The gaming industry can also develop their own Casino Crypto Currency (C3) version of Blockchain, which will have multiple benefits, the immediate one being integrity of sports wagering. By keeping a history of wagers and using data mining tools, operators and regulators can identify irregularities and investigate suspicious wagers.

C3 effectively is a set of instructions telling a sports wagering system to encrypt each wager information, such as user ID, wager amount, event ID, time of wager, etc. and send them to a specified location. Each operator has the tool to access and decrypt its own data using its own private key and password. Similarly regulators, using their private keys and passwords, can decrypt and query the data (“block”) of all the operators under their jurisdictions linked (“chain”) through C3’s (“Blockchain”) platform. Regulators can review the data across all licensed operators, looking for unusual wagers and investigating those that look suspicious and use the data as evidence in case of a prosecution.

Another advantage of C3 is its use in online casino gaming, creating a database that correlates wagers with related elements chained to the player’s other blocks of data such as online and offline casino marketing promotions, and down the road to land-based games such slots and electronic gaming machines. Thanks to all the technologies that recently have been developed for crypto currencies, the use of C3 as a currency for online wagering and online gaming or any form of account wagering is not futuristic. Online gaming systems developed in the last decade have open architecture cashier pages that can interface to different payment methods such as wire transfers, credit cards, PayPal, etc. giving each player a wallet that tracks the player’s deposits, wagers, winnings, etc. C3 can be another currency that interfaces with the cashier’s page of an online gaming system, which will take data from the system and will record them on a separate database as a subsidiary ledger to be scrutinized for unusable activates.

C3 is essentially a digital casino currency fixed to the dollar, very different from Bitcoin and other crypto currencies that fluctuate making them undesirable for any type of gaming. Use of a fluctuating currency in gaming is double gambling, which would not work for the player or the operator. Fluctuating crypto currencies are not attractive to the gaming operates because when the currency goes down the operator can lose, potentially more than its house edge and while the currency is rising the player prefers to hang on to the currency.

Players in North America trust casinos with their dollars knowing they are regulated and have the cash reserves to pay them back on demand. Similarly, crypto currencies issued by casinos will have the trust of consumers and the potential to effectively be a currency both for gaming and non-gaming purposes with gaming activity residing on gaming servers and non-gaming activities recorded on a distributed ledger that manages integrity of the transactions of the participating merchants such as hotels or restaurants within the casino’s resort, thus saving the operator on credit card fees.

In summary, technologies are in place for gaming companies to start consolidating all their currencies, including slot vouchers and table chips into a casino crypto currency initially with online wagering and gradually working towards creating one digital currency that players keep as an app in their smart phones that records and tracks all of their activities, gaming, non-gaming, marketing promotions, etc. across all channels and enjoy lower operational costs, provide more transparency and real time revenue accounting across all game offerings currently have to be put together piece-by-piece through a labor intensive and cumbersome process at the end of each day.

Articles by Author: Bruce Merati

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