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The Las Vegas Golden Knights trip to Stanley Cup illuminates business risk for bookmakers

The Las Vegas Golden Knights are heading to the Stanley Cup Final in their first season as a franchise. No one expected this to happen — including the team probably — and that’s why the Golden Knights were 500-1 to win the Stanley Cup.

USA TODAY aggregated betting tickets through Darren Rovell’s Twitter. The running theme is that there are a ton of low-risk, high-payout bets that Vegas sportsbooks have a ton of exposure on if the Golden Knights take home the Cup.

That’s a problem. Most people in Las Vegas probably threw in a small bet as a piece of memorabilia. They could frame the betting ticket, put it next to a Golden Knights jersey and maybe throw a game ticket in there for some game-room art. That’s what was expected. Now, that $50 ticket could bring a multi-thousand dollar pay-day. (Some unsolicited advice, these folks should probably hedge this ticket. Las Vegas sportsbooks will be looking for relief).

This event should be a warning to potential local sportsbooks or sportsbooks in-venue that will be popping up throughout the country after PASPA was struck down last week by the Supreme Court. Fans are homers. They are more likely to bet on their team to win than to lose. That means the books need to figure out how to manage their exposure. A New York Giants fan isn’t going to bet against the Giants in-stadium. They especially aren’t going to bet against the Giants after a few festive beverages in the parking lot and after they get caught up in the exciting atmosphere.

This doesn’t even take into account that local books will have great exposure on futures betsas well. Everyone in Boston would bet that the Celtics would win the NBA Finals next year if betting was legal in Massachusetts. That could mean that local books in Boston would be inundated with Celtics bets.

That leaves the chance for huge liability for local books on local teams. There are ways to get around this of course. They could charge a higher vig — the percentage collected by the house on bets — to make a local bet. The Giants may be -7 (-110) in Las Vegas or on an off-shore book, but in-venue could have them listed at -7 (-140). So instead of betting $110 to win 100, fans would have to bet $140 to win $100. Local books could also ramp up the spread. If Las Vegas or off-shore books set the spread at -7, local books could set it at -10. That would be a sucker’s bet, but fan is short for fanatic for a reason.

Futures bets could be sold to other out-of-state gambling houses to lessen risk. Maybe a book in Cleveland buys some Celtics futures from a Boston book and vice versa. Of course, this would create some type of insurance-interstate commerce issues that would need to be addressed. Larger companies operating in multiple states may be able to pool risk, but if they do start moving lines, sharp bettors will search for value on a state by state basis.

Historically, the idea was that sportsbooks set lines to take home the vig with no risk. If the line in a football game is 7.5, they want 100 $10 bets on -7.5 and 100 $10 bets on +7.5 which allows the book to take the 10-percent — the -110 side — for free. In reality, it’s just a dollar figure to dollar figure match they were looking for. That’s changed slightly as books have taken into account how the public bets. There are some teams that are bet more than others no matter the spread. Sportsbooks have adjusted to take advantage of those bad bets.

In the grand scheme of things, this Las Vegas Knights issue shouldn’t happen often. There are reasons that there are tall shiny expensive buildings in Las Vegas and it’s not because gamblers are leaving the city winning consistently. The local liability risk is still a risk that needs to be taken into account as gambling becomes more provincial. Local lines will move because otherwise the handle —  the total amount of money wagered over a specific period of time on a specific event happening — will build. A local team going on a win streak could really hamper a books’ ability to turn an expected profit percentage.

Local exposure is a real issue. It’s an issue for Las Vegas and this is the city’s first year with a professional team. This is a completely different risk than what normally happens in Las Vegas as bettors from around the world act as a natural hedge.

This risk is more difficult to control because it’s emotional betting on a regional level. Very few fans will bet against their team if they are attending an event. Very few fans will bet against their squad in-game on a local sportsbook app or website. It’s something the gaming industry will have to take into account as it settles around this new world of legalized sports gambling.

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