Happy Thanksgiving from GGB; Newsletter Returns December 4

Why DFS Matters to Gaming

What is at stake in the DFS trouble is nothing short of the credibility of gaming not just legality of daily fantasy sports. The integrity of gaming overall is at stake when you consider the investments made in DFS companies by major media conglomerates.

Consumer trust is hard to build, but easy to destroy. This is particularly true for the gaming industry, which in the past thirty years has grown from being a shady business to a credible and thriving industry, thanks to the integrity checks and balances developed by gaming regulators, gaining the trust of the public to feel safe when they go to a casino across the U.S.

Laws and regulations provide privileges to the gaming industry that puts them in a position of great trust, empowering them to bring substantial financial benefits to the states they operate in. Recent scandals in the world of unregulated fantasy sports jeopardies the public trust. The large prizes advertised on major TV channels across most states as well as advertisements on credible websites, combined with consumer demand, have fueled the recent growth of daily fantasy sports.

Lack of integrity in any type of wagering could have serious reputational risks to the gaming industry especially at the time when the industry is in dire need of getting into online business to attract the millennials. What has caused the fast growth of daily fantasy is availability of enormous amount of historical sports related stats, new advertising revenues for the media companies who became the primary financial backers of DraftKings and FanDuel, the two major providers of daily fantasy sports wagering. If these companies and their investors go through a thorough examination process of the SEC or a routine investigation of a highly regulated gaming state, a conflict of interest question will arise as to whether their media investors are double dipping with their investments.

Gaming regulators and the SEC could argue that an investment by a media conglomerate that immediately receives back its investment dollars as advertising revenues should be frown upon as a conflict of interest and a financial trick. Media investors, in effect are taking money out of one pocket and immediately putting it back in their other pocket inflating their revenues by their own investment dollars and at the same time are increasing valuations of their investments.

The recent scandal that erupted in the already popular multibillion-dollar fantasy sports industry shakes the integrity of the gaming industry with those who don’t understand the difference between regulated and unregulated gaming. The scandal also highlights the need for insider trading rules similar to the ones that have been developed for the financial industry. If sports fantasy gets regulated, gaming regulation will require those who have access to private information to go through a rigorous licensing background check. This approach has been effective in the licensing process of gaming manufacturers and distributors.

Millennials are now the Holy Grail of every business, representing the 83 million U.S. populations born in years 1980-2000, outnumbering baby boomers. Casinos across the U.S. have been trying to figure out how to attract millennials who show less interest in land-based casinos than their parents and grandparents. Millennials have grown up with interactive games and have no interest in slot machines, which require no skills to play, and, let’s be honest, we can’t blame them.

Laws and regulations are good to have as long as they are clear and are not contradictory. Gaming laws of different states have become so complex that attorneys specializing in gaming laws and the state attorney generals who enforce them cannot agree on a simple question as to whether daily fantasy sports is legal or illegal in a state such as New York. This shows the system is broken. If online sports wagering was legal in the U.S. it is doubtful that daily fantasy sports would have become so popular in a short period of time. Millions of fantasy sports participants are sending the message that they love online sports wagering. The gaming industry should blame itself for not listening and not pushing for legalization of online gaming and sports wagering which is the core business of any European internet gaming operator.

In Nevada, the only state that effectively offers full sports wagering, the sports book of a casino is another amenity to the core business of a resort. In contrast, the sports book business of an online gaming company operator is its core business and everything else is an amenity to its sports book. The U.S. gaming industry and lawmakers need to come to the new reality that online gaming and sports wagering is critical to the industry. We need to realize arguing over ambiguous gaming laws is a waste of time. What is at stake is credibility of gaming.

Articles by Author: Bruce Merati

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