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Slaying the Golden Goose

Is sports betting a boon for casinos, or a bust? We explore the odds of this growing casino segment.

Slaying the Golden Goose

Sports betting.

What a gold mine!

Or is it?

To anyone who’s listening, I’ve repeatedly pointed out that sports betting is one of the narrowest-margin operations in the gaming industry. As far as the house edge is concerned, it’s on par with blackjack, craps, baccarat and some of those wonderful video poker games that can be played almost evenly by an expert player.

But there are ways casinos can manipulate those odds.

With blackjack, you can change the odds substantially in your favor by instituting 6/5 blackjack instead of 3/2 (and on the Las Vegas Strip, good luck finding the 3/2). You can hit soft 17. You can add some ridiculous bonus bets that give the house a 30 percent edge.

In baccarat, add the no-commission game, and include some of those equally house-favorable bonus bets.

Craps already advertises all the bad bets on the layout—hardways, horn bets, field bets, 6/8. But don’t dare mention double, triple or 10X odds.

And video poker is easy. Complicate the strategy, so you have to be a math genius to figure out the best way to play the hands. Or lower Jacks or better payouts to a 6/5 instead of a 9/6.

But sports betting—that’s the difficult one.

Casinos traditionally make money on the “dime” line. You have to bet $110 to win $100. That’s basically the house rake. It’s the reason serious bettors have to win around 55 percent of the time to make up for that house edge and score a profit.

So, why not raise the basic bet to -120, meaning you have to bet $120 to win $100? Well, if you can get the -110 price (or even less) from offshore illegal sites, why would you pay an additional rake at the legal sites?

And then there are the “sharp” bettors, who play close attention to the games and understand the “data” way better than the leagues or even most of the nascent sportsbooks. You can get killed if you post a slightly wrong line, and the sharps come in with huge bets.

It’s very easy to lose money when conducting sports betting. I’ll be very interested to see the reaction of lotteries who jumped into the game quickly, expecting their usual profits. Hello, Oregon!?

And all this happens even before you split whatever profits you might have with your partners: the platform developers, the data providers, the marketers, the affiliates—not to mention your partners with the state. License fees, high tax rates, regulatory costs… and that’s just the start.

Then there’s the surprising emergence of daily fantasy sports companies as market giants. In New Jersey, DraftKings and FanDuel control almost 80 percent of the market. In states where they also operate, their dominance is also apparent.

So what’s left for the casino industry?

At last month’s GLI Regulators Roundtable, a majority of attendees polled said they were ready to approve any company that could pass regulatory scrutiny for a sports betting license—whether or not they owned a casino as well. Not great news for casinos.

Not only are the margins slim, but when you add technology partners, state taxes and fees, and competitors who have an edge with effective databases, why are we even in this business?

Last year, at a sports betting conference in Las Vegas, I asked an executive at one of the Pennsylvania sports betting companies how he could be making money with a $10 million license fee and a 34 percent tax rate. While he didn’t answer that question, he did point out that many of the new sports betting customers have migrated to the online casino module, which has a lower tax rate (for table games) and a higher house edge on slots, with the same tax rate.

So, will legal sports betting spur more legal online gaming with virtual tables, slots and poker? Yes, no doubt. It’s already happening.

The bad news is that the DFS companies have launched online casinos, and are transitioning sports bettors to those casinos.

Sports betting clearly isn’t the golden goose. But maybe online gaming is. The challenge is to figure out how to develop customers who will play online, and then visit your bricks-and-mortar casinos when they want a weekend getaway. This is something the DFS companies can’t offer, unless they partner with a land-based casino.

With the coronavirus keeping people at home for a while, now is the time to start to figure out how we can capitalize on iGaming in conjunction with sports betting.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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