Finance Uncategorized

Casino sports gambling isn't a panacea, but the possibilities are intriguing

The benefits of legalized sports gambling don't come from direct revenue, but could be seen in stronger fan engagement.

AP Photo/The Press of Atlantic City, Ben Fogletto
AP Photo/The Press of Atlantic City, Ben Fogletto

With the announcement from New Jersey Governor Chris Christie that the state would not prosecute casinos or racetracks that accept sports bets, it will be interesting to see if other states follow suit. Sports gambling, still illegal under federal law outside of a few states, has been something most leagues have come out against, although NBA Commissioner Adam Silver’s recent comments could indicate a softening of that stance.

The spread of legalized gambling started a decade ago when states looked to legalize slots. Soon table games at racetracks and casinos followed. Currently, 20 states allow for profit gaming (this does not include Native American casinos), which has eaten into profits and tax revenue for long-time gambling standbys such as Atlantic City, N.J. By allowing gambling on sports, Christie and New Jersey are hoping to pull crowds away from Pennsylvania and Delaware. The problem is that sports betting doesn’t make a significant amount of money for casinos.

I spoke to a Wall Street analyst with experience covering the gaming sector who noted the relatively small casino revenue from sports books compared to slots and table games. He wasn’t kidding: According to the 2013 Nevada Gaming Abstract, casinos in Clark County (where Las Vegas is located) generated almost $9 billion in revenue that year. Sports book revenue accounted for roughly $127 million, less than 2 percent of the total. Betting on sports just doesn’t drive revenue. Unless sports betting attracts people to casinos to make other bets as well, the little tax revenue sports betting generates won’t save Atlantic City.

It still stands to reason that if someone wants to bet on sports, they will probably find a way to do so (whether through illegal books or offshore betting sites). However, until it can be accomplished from non-casino locations, it won’t drive revenue.

AP Photo/Las Vegas Review-Journal, John Locher
AP Photo/Las Vegas Review-Journal, John Locher

With salaries as high as they are, the chances of a professional athlete throwing a game for gambling purposes are extremely thin. Still, New Jersey will not allow bets on teams from or games held in the state (similarly, UNLV is off the board in Vegas). Things won’t get interesting until sports gambling is made legal outside the confines of a casino.  Imagine an off-track betting-style business opening in every major city. What if fans could bet on games while at stadiums, in real time, like what’s already happening in Europe? Could leagues and teams could capture some of that revenue?

There are other benefits outside of revenue. Gamification and gambling creates a more engaged fan (even Adam Silver pointed this out). The competition and money involved have helped fantasy sports grow. This intense engagement attracts sponsors, which in turn, create even more revenue for the teams and leagues.

As additional states look to take advantage of the increased tax revenue from legal gambling, leagues may have to alter their stance. And the leagues may even have to get involved to make sure they get a piece of the pie.

Michael Colangelo is Assistant Director at the USC Sports Business Institute and Senior Editor of The Fields of Green.

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