Misaligned Goals
What's going on in Illinois, and why the industry needs to get back in the lab and come up with some new ideas before it's too late.
The Bulletin Board
THE LEDE: There is a simple reason states will squeeze gambling companies.
VIEWS: Some more thoughts on what happened in Illinois.
ROUNDUP: VGW shareholder strife and lottery updates in Texas and Indiana.
VIEWS: This argument for prediction markets makes no sense.
AROUND the WATERCOOLER: Positive early numbers for WSOP.
STRAY THOUGHTS: Food for thought.
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The Lede: How We Got a Per-Wager Fee in Illinois Part 1
Illinois is facing significant pushback over its recent per-wager fee (backstory here). Analysts are calling it an early Christmas present for the black market. Lawmakers are being called “clueless” and the decision “mind-boggling.” The Sports Betting Alliance warns that “A per-bet tax most penalizes small recreational bettors, many of whom are betting a single dollar or two. Under this legislation, these popular bets will get hit with a massive 25% or 50% tax.”
I think the best statement on the policy happened before it was even announced:
I call it the “best” statement because it demonstrates how out of touch the industry is with the typical lawmaker and their constituents. The industry believes the state is its partner. It believes that everyone bets, and that many bettors are concerned about specific policies. As I said on Monday, nobody cares.
Yes, many people place bets. No, many people are not “bettors,” in the sense that they don’t care about sportsbooks, the industry, or the burdens states impose. Ask the average person in a liquor store what the local, state, and federal excise tax on alcohol is, and you’ll see how little the consumer cares.
In fact, given the option, they have no problem raising your taxes, and lawmakers know this and act accordingly. As I’ve argued several times, nobody will shed a tear for the gambling industry when lawmakers increase their regulatory or financial burdens.
The industry believes its goals are aligned with the state. After all, more revenue equals more tax revenue, and hey, who isn’t interested in consumer protections? But that is not how the typical lawmaker sees it. The industry is falling victim to one of the classic blunders: Never assume your goals are aligned.
The industry sold sports betting legalization as a means to boost revenue and eliminate the black market. Lawmakers who voted for legalization don’t care about your bottom line, especially if they’re not seeing jobs or that tax revenue landing in their district. They care about tax revenue and the appearance of safeguards. If they think either is lacking, they have no issue sending the legislative version of Jeff Gilooly your way.
And make no mistake about it, some lawmakers voted yes, who are now having second thoughts. Combine them with the lawmakers who see gambling as a pox on society (with a sprinkle of lobbying from competing industries for good measure), and you get what is happening in Illinois and beyond.
As I’ve said many times (including here), head-scratching policies that don’t protect consumers and prop up the black market are a feature, not a bug: “The best way to rein in an industry is to kneecap it with excessive burdens.” The toothpaste isn’t going back in the tube, but that doesn’t mean lawmakers won’t try to minimize the amount that comes out going forward; If they can’t get rid of it, the next best option is to tax it to death.
This tweet is highly accurate, except the people making these decisions would put a champagne bottle instead of a poop emoji after option #2:
Upshot: I’ve spoken at length about the misaligned goals between marketing and responsible gambling/compliance departments. But there is even more misalignment between states and sportsbooks, and the sportsbooks need to understand they are in bed with Paul Cicero, “Took a bath on March Madness… F**k you, pay me.”
Views: How We Got a Per-Wager Fee in Illinois Part 2
Here are a few more random thoughts on the situation.
When the industry was raising Cain about DFS 2.0, I mentioned that you only have so much political capital, and spending it fighting against DFS 2.0 operators didn’t seem like the best use of resources. Illinois did go from zero to sixty, but I’d heard grumblings of increased lobbyist activity in the state for a few weeks leading up to it, so it should not have caught any of the major players by surprise.
Separately, one has to start wondering about the industry’s strategy.
Online casino and sports betting legalization efforts are on the proverbial road to nowhere.
DFS 2.0, sweepstakes, and prediction markets are beating back prohibitive efforts.
States are increasing financial and regulatory burdens at their discretion.
Nobody is buying what the industry is selling.
As I wrote on Monday:
“Perhaps it’s time for a new idea [see below], as I’ve mentioned a few times in this newsletter — feel free to reach out; I do have a consulting business.”
Scare Tactics: I’ve taken to referring to the gambling black market as a bogeyman, a convenient threat unleashed whenever policies are considered that the industry disagrees with.
Whoa, Little Fella, You're Not Speaking My Language: Explain it to me like I'm five years old is valuable advice, particularly when the conversation isn't widely understood, like responsible gambling.
Further, when you muddy the waters to the point that DFS isn’t betting (it’s a contest) and then start patting yourself on the back, you get the current situation full of skill games, HHR machines, sweepstakes, prediction markets, and membership poker rooms.
Slap a new label on it, hire a legal team to argue that it’s something new and innovative, and voilà, you’ve got a new product that falls outside current laws. Sometimes it works; sometimes it doesn’t. But the waters keep getting murkier.
Everyone is perfectly fine with that when it works in their favor. When someone deploys the same tactic and cuts into their business, it’s a travesty.
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Roundup: VGW Shareholder Strife and Lottery Updates in Texas and Indiana
VGW founder wants complete control [Complete iGaming]: Laurence Escalante, founder of Virtual Gaming Worlds (VGW), is reportedly seeking full control of the $3.2 billion sweepstakes casino giant. The company (and the entire sweepstakes industry, for that matter) is facing regulatory pressures in the US. According to reports, Escalante aims to buy out dissenting shareholders, telling investors who lack confidence in his vision to exit. The potential buyout highlights a growing divide between Escalante’s leadership and investors amid regulatory challenges and market shifts.
Bill abolishing Texas Lottery Commission continues to make progress [SB 3070]: A bill to abolish the Texas Lottery Commission (TLC) passed the state House last week. SB 3070 was unanimously passed by the Senate a few weeks ago, and an amended version passed the House this week by a 112-27 margin, with one abstention. The Senate concurred on the amended bill, which is now on the desk of Gov. Greg Abbott. The bill would abolish the TLC and place the state lottery in the hands of the Texas Commission of Licensing and Regulation for two years, after which its status would be reviewed again.
Lottery winner sues Texas Lottery for withholding winnings [NBC News]: A woman who sparked the state’s efforts to abolish the lottery is suing the TLC’s Acting Deputy Director Sergio Rey for the $83.5 million Lotto Texas jackpot she won on Feb. 17 through the use of lottery courier Jackpocket. Following her win, Texas legislators called for investigations into the TLC and couriers. Unlike an April 2023 incident when a collective known as “Rook TX” purchased nearly every outcome of a Lotto Texas drawing through the aid of couriers to win a $95 million jackpot, the unnamed woman bought just 10 tickets and did so through means that were not considered illegal by the TLC at the time of the purchase.
No progress in iLottery in Indiana [Indiana Public Media]: The Hoosier Lottery attempted to introduce iLottery games in 2022 but was abruptly halted by state legislators. A bill was passed that year requiring the Hoosier Lottery to obtain legislative approval before adding online lottery games. Three years later, Hoosier Lottery officials have told Indiana Public Media that they are not making any efforts to lobby lawmakers to allow for an online lottery.
Quote of the Week: “The fact that we also have all of those instances where it has been mismanaged, and we’ve seen what the Lieutenant Governor has uncovered, I think is further proof that it’s not serving the purpose that it was originally intended, which is to be a funding source for education for our veterans.” ~ Texas State Rep. Daniel Alders
Views: A Strange Argument About Prediction Markets
The idea that prediction markets are more accurate than polling, or some source of truth, continues to be a bizarre argument to me:
For every hit, there are misses, and someone is on both sides of these markets.
As I said in response to the following tweet from Sporttrade CEO Alex Kane, it’s the Nate Silver polling discourse all over again. 70% means you’ll be wrong 30% of the time.
Around the Watercooler
Social media conversations, rumors, and gossip.
Economic policies, immigration debates, and varied perspectives on the current administration were some of the overarching attendance concerns heading into this year’s World Series of Poker.
Thus far, there doesn’t seem to be any sort of boycott, according to the early numbers analyzed by Pokerfuse.
Stray Thoughts
"The bamboo that bends is stronger than the oak that resists." — Japanese Proverb
"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." — Charles Darwin
"You can’t hold back the tide, but you can decide whether to drown or swim." — Unknown