What is holding back online sports betting in the U.S.?
In May 2018, the US Supreme Court ruled that it’s up to individual states to determine sports gambling laws. The 6–3 decision has led many states to consider whether to enter the sports betting world. Now — almost a year later — seven states have legalized sports betting: Nevada, Delaware, New Jersey, Mississippi, West Virginia, Pennsylvania, and Rhode Island. Questions linger, however, whether the various states are prepared to provide a regulated market that will see key players including sports fans, sports betting operators and other partners get their fair share of the multi-billion dollar sports betting industry.
Last July we talked about what it would take to succeed in the newly opened U.S. sports betting market. There are still some issues that need to be resolved before the sports betting landscape is ready for the masses. The toughest questions to answer is whether U.S. gambling operators are technically prepared for the anticipated influx of gamblers and can they provide the necessary services for sports fans that will win bettors away from offshore sites.
Leading Point
Historically, most sportsbooks in America have originated from Nevada. New Jersey, whose former governor Chris Christie was a big proponent on lifting the federal ban on gambling, has been an early supporter in encouraging businesses to launch sports betting operations. In August 2018, New Jersey was the first state after Nevada to open the door for online wagering on sports, and the state can currently boast of nine operational sportsbooks with online and mobile apps, which makes it well positioned to drive the nascent U.S. sports-betting market.
According to a recent report by the New Jersey Division of Gaming Enforcement (DGE), New Jersey posted more than $1.2bn in sports-betting handle in 2018. Though figures vary month to month, reports indicate that up to 60% of all wagers have been placed online. Fantasy sports platforms turned sportsbook operators, DraftKings and FanDuel, are leading online wagering in the garden state and across the country, bringing new betting opportunities to the American public. Have they been doing a good job so far?
Overcoming Mistakes
Despite the fact that FanDuel and DraftKings were quick to capitalize on legalized sports betting, collaborating with major operators such as Paddy Power Betfair and BetStars, both sportsbooks have been plagued by technical issues. FanDuel Sportsbook, the busiest sportsbook in New Jersey, experienced a computer glitch in September 2018 forcing it to adjust bets for an Oakland-Denver NFL game. While the bet for Denver to win should have been -600 ($600 to win $100), the sportsbook instead offered a bet on a Broncos victory at +7500 ($100 to win $75, 000). The issue lasted for just 18 seconds, yet over a dozen bettors were affected. FanDuel initially denied winnings to the lucky bettors but due to the publicity this received, they deferred to house rules and made good on the bets.
Similar issues go beyond FanDuel, and, sports betting in general. For instance, regulations typically permit casinos to cancel wins that stem from electronic or mechanical faults; and it would surprise everyone how regularly this occurs. Even so, pricing errors cause gamblers to walk away with a negative impression; especially if they thought they were winning $82,500 instead of just $18. Though sportsbooks are protected from incorrect odds created by technical errors, a significant backlash from the betting community forced FanDuel to reverse its position and the operator paid out the erroneous tickets at full value despite house rules. However, that was a “one off” resolution that didn’t set the precedent for future incidents.
More recently, DraftKings was pulled into a controversy in January 2019 when several bettors were not allowed to make final wagers for a $2.5 million prize pool on the Saint-Eagles playoff game. Around the same time, FanDuel encountered an issue with their betting app during the college football championship game between Alabama and Clemson where users could not place bets. The crash was blamed on a system upgrade and the matter wasn’t resolved until 45 minutes after kickoff. Needless to say, they lost out on a significant amount of potential profits.
These are just a few examples, and I am not singling out DraftKings and FanDuel, where operators and related sports betting companies have to be vigilant about keeping their technology house in order. A lot of work remains, in a relatively short period of time, for U.S. sports betting companies to shore up their issues in order to provide the best experience to bettors.
Where U.S. Sports Gambling Is Headed
While the public is clearly ready for online and mobile betting, the legislative odds are not entirely in their favor. Not only will sports betting operators have technical challenges to overcome, other areas of concern are hindering the growth for online sports betting.
Even though different states can promote sports wagering in their jurisdictions, interstate sports betting remains illegal per the federal Wire Act, 18 U.S.C § 1084. Until the act is repealed or amended, sports wagering will be limited to intrastate wagers. This is one of the main reasons that will limit the migration of illegal offshore betting sites users to legal sites domestically.
The latest DOJ opinion has made things even more ambiguous by stating that the Wire Act can be applicable to any form of gambling that crosses state lines. If the opinion is aggressively enforced, it is broad and vague enough to disrupt many related activities in the gambling industry such as payment processing and data transmission, it can jeopardize the infrastructures of online platforms that lawfully operate in several states.
Finally, there is the issue of profit sharing and taxation policies. As the quest to make sports betting a mainstream venture continues to gain momentum, creating a complete regulatory scheme that will allow stakeholders to get their rightful shares of the revenues will be daunting. From the aspect of cost-sharing between betting sites and third-party partners to professional leagues pushing for a maligned royalty fee, many challenges remain in this area. The caveat is that this is still a fairly new industry and there is time for companies to develop the proper revenue sharing structure.
When all is said and done, it is up to the stakeholders in the U.S. sports betting market to come together and forge the way forward. The U.S. sports betting market has to evolve and improve in this new era while overcoming the temptation to rush toward making quick profits. The largest of all initiatives might be to repeal or amend the Wire Act to allow interstate gambling as well as to encourage states to put in place legislation that guarantees fairness and safety. Additionally, sports betting operators need to provide robust services but also to avoid things that may lead to players questioning their integrity. Investing in innovative and reliable technology will help separate the winners from the losers, while establishing state-of-the-art wagering infrastructures and use experiences will draw consumers from illegal sports betting sites.
By Russell Karp,
Vice President of Media and Entertainment Practice at DataArt
This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +431,678 people.
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