A Major Gamble: MLB Embraces Sports Betting
During the 2017 World Series, a Las Vegas bettor won $14 Million by going six-for-six in his “let it ride” World Series wagers. That is, he chose the winning team in each of the first six games, then rolled his winnings into the next game’s bet. Rather than risk it all on the Dodgers or Astros in Game 7, the anonymous bettor walked away with his cash in hand.
What happened then could only happen in Vegas. On May 14, 2018, the United States Supreme Court found the Professional and Amateur Sports Protection Act (PASPA), the federal law prohibiting states from authorizing sports betting, to be unconstitutional, returning to the states the power to authorize and regulate sports betting. The expectation was that states would rush to introduce legislation to legalize sports betting to take advantage of the revenue stream it would create. However, legislation has come as more of a trickle than a waterfall.
Still, Major League Baseball is expecting the legalization of sports betting to engage a new generation of fans and forever change the way we watch the game.
For MLB, legalized sports gambling is a double-edged sword pitting an increase in fan engagement against the possibility of a breach of the game’s integrity. Baseball’s oft-criticized slow pace of play makes the sport perfect for proposition—or “prop”— bets; these are in-game wagers made on the occurrence or non-occurrence of an event not tied directly to the final outcome of the game. For example, will the next pitch be a ball or a strike? Will Mike Trout get a hit this inning?
“There are definitely some positives to come from legalized sports betting, including engagement of our fans in more diverse ways and reaching out to people who might not otherwise be fans who are fans of betting,” MLB deputy general counsel Bryan Seeley said. “Imagine a game that is not competitive in the late innings but continues to attract people’s interest because they can engage with that game through sports betting.”
Yet as of May 2019, just eight states, plus Washington, D.C., had fully legalized sports betting. Three states—Mississippi, New Mexico and Rhode Island—require bets to be made in person at a casino. Five others—Delaware, Pennsylvania, Nevada, New Jersey and West Virginia, along with D.C.—have authorized mobile and online betting, but only Nevada and New Jersey had put that into practice. (Note that only Pennsylvania, among states with legalized sports betting, has an MLB team.)
Twenty-nine other states have introduced, but not passed, sports betting bills, with bills in Indiana, Iowa and Montana awaiting governor approval.
So what does this mean for the pie-in-the-sky experience MLB wants for its fans? Right now, it doesn’t exist. Only those in New Jersey or Nevada can watch a baseball game at home and make bets during the game. Pennsylvania has set July 15 as the date that online and mobile wagering will go live in the state, which will allow fans at both Phillies and Pirates games to make bets from the bleachers. D.C. should have online gaming on track by the fall, allowing Nationals fans to do the same.
“We are out there lobbying and we have every state trying to get bills passed, but it’s complicated,” MLB executive vice president of gaming Kenny Gersh said. “Each state is different, but we are hoping that in the next few years, it will be widespread.”
Irony abounds with MLB’s vision for legalized sports betting nationwide. After all, the office of the commissioner was created exactly 100 years ago in response to a betting scandal. Kenesaw Mountain Landis was a federal judge at the time of the 1919 Black Sox Scandal, in which eight players from the White Sox infamously conspired to throw the World Series against the Reds.
In 1920, Landis was appointed baseball’s first commissioner and made it his mission to rid baseball of its bad seeds. He implemented MLB’s Rule 21 in the early 1920s and it is still posted today in every clubhouse in baseball:
Any player, umpire, or club or league official or employee, who shall bet any sum whatsoever upon any baseball game in connection with which the bettor has a duty to perform, shall be declared permanently ineligible.
Commissioner Rob Manfred has made it clear his goals are the same. “Our most important priority is protecting the integrity of our games,” he said following the PASPA decision. “We will continue to support legislation that creates airtight coordination and partnerships between the states, the casino operators and the governing bodies in sports toward that goal.”
MLB has petitioned each state in the hopes that their gambling legislation will include the “six pillars” that MLB has deemed critical to maintaining the integrity of the game. MLB wants each state to require that bookmakers use official league data to settle bets, cooperate with league investigations, share real-time betting information with the league, immediately report suspicious betting activity to the league, pay the league a royalty of .25 percent of the total amount wagered on MLB games and, finally, provide an opt-out clause through which the league can prohibit certain types of bets on certain events.
Because each individual state can decide which, if any, of these tenets it wants to enforce, MLB is also in favor of a bipartisan bill introduced by Democratic Senator Charles Schumer and Republican Senator Orrin Hatch in December 2018 that would require the U.S. Justice Department to set minimum standards for state regulation of sports betting.
“We don’t want to see a race to the bottom where certain states decide that less regulation is going to mean more to their bottom line,” Seeley said. “We think there should be a floor. States should have to enact certain provisions to protect the integrity of the game.”
When it comes to integrity, other leagues have expressed serious concerns about prop bets, the precise type of wager MLB is leaning on to create more fan engagement. Prop bets fundamentally pose a significantly more serious security risk than moneyline wagers, or bets tied solely to the outcome of the game, because individual players are more easily influenced than the end result of an entire game. NFL executive VP Jocelyn Moore testified before a U.S. House of Representatives committee in September 2018, proposing that Congress allow individual sports leagues to ban prop bets.
“Examples might range from the number of passing yards by a quarterback in a football game or the number of points or rebounds by a team during a quarter of a basketball game,” she testified. “These types of bets are significantly more susceptible to match-fixing efforts, and are therefore a source of concern to sports leagues, individual teams and the athletes who compete.”
In baseball, we’ve all seen big leaguers brought to their knees by curveballs they were desperately trying to hit. How different would it look if a player swung through a pitch on purpose? In the big leagues, where the league minimum salary is $550,000 and the average is $4.52 million, one would hope players would be sufficiently incentivized not to take a bribe. But it is a risk MLB is willing to take to boost fan interaction and engagement.
Last November, MLB became the third U.S. professional sports league to partner with MGM Resorts International, behind the NBA in June and the NHL in October. While MGM is not the only operator to have access to MLB’s official data, MGM does have exclusive access to advanced statistics, including exit velocities, route efficiency and speed on the bases. According to Scott Butera, MGM’s president of interactive gaming, the casino plans to use this unique data to create an entertainment experience surrounding betting in the United States that will differentiate it from Europe’s more transactional model.
“The traditional sports bettor is someone who comes in pre-match, bets a lot of money, is slouched over their chair with a cigar and a newspaper, but that’s not where things are going,” Butera said. “It’s much more a millennial entertainment experience now, and it’s all about tying sports betting into a whole way of consuming sports as a means of entertainment.”
MLB and MGM see eye-to-eye on the potential for the prop bet to enhance that entertainment experience and engage fans, and MGM’s content will reflect that, even in states that don’t allow sports betting. MGM and MLB are developing a free-to-play app for use in states that do not yet have legalized betting, or for use as an intro to betting for those not yet ready to wager real money.
“The idea is to create engaging sports-betting products in a free-to-play environment so people who either don’t want to bet or can’t legally bet can understand what it’s like,” Gersh said. “For us, it’s about engagement with the free-to-play app, so that’s a win, and if it drives people to bet and it creates more engagement, that’s great.”
The free-to-play app is also not without a revenue stream. As Butera often notes, “Fortnite is free-to-play and makes $1 billion per year.”
Minor League Transactions
Minor league maneuvering for organizations for the period April 1-June 1, 2020.
It’s not surprising, then, that projected league revenues due to legalized gaming are astronomical. A study released in June 2018 by the American Gaming Association and the data analytics giant Nielsen took into account both direct revenue sources from betting operator investments in the leagues through advertising, sponsorship and data fees and indirect revenue sources generated by an increase in the consumption of sports due to betting activity. According to the study, the four major U.S. sports leagues stand to make a combined $4.23 billion per year from legalized betting, with MLB taking home $1.1 billion.
Legalized betting through sports books like MGM, FanDuel and DraftKings is also considerably safer than bets made before PASPA was overturned, when sports bettors were placing wagers all across the country whether they were in a legalized state or not. Bets made through bookies or with an offshore website are inherently dangerous.
“A legal betting marketplace provides a guarantee of the financial stability and suitability of the betting company,” sports betting attorney Daniel Wallach said. “There is no recourse for a bettor with a bookie or an offshore sports book if the company goes belly-up or the bookie disappears. And there are infinitely more consumer protections to safeguard bettors and to identify and help those who are getting in over their heads.”
Legal sports books also monitor the kind of suspicious activity about which MLB is most concerned: anything that could indicate the outcome of a sporting event has been influenced in some way. “If we normally take around 200 bets on a particular event, and all of a sudden we’re taking 1,000 bets and the handle is $10,000 instead of $800, we look into it straight away,” FanDuel director of trading John Sheeran said. FanDuel has been monitoring their European betting markets since 2002.
Like all of the other licensed sports books operating in the U.S., FanDuel monitors every single bet they offer and any sign of an integrity issue is raised immediately within the company and brought to the attention of other operators, state regulators and the governing body of the involved sport. “We know what it looks like,” Sheeran said. “We are very much aware that any bad news in terms of integrity is not just bad news for the leagues. It’s also bad for us and bad for legislation on a state-by-state basis.”
For now, it is a waiting game for MLB and its fans as the states work through their legislative processes and make their decisions about the extent to which they will legalize sports betting, if at all. “I think we are in the second inning of a nine-inning game in terms of what sports betting is going to look like in this country,” Seeley said. “I think a lot of people thought after the Supreme Court opinion that we would quickly advance to the sixth and seventh inning, but we just haven’t. Will the later innings be faster? I think they’re likely to be, because states look at what other states have done.”