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Few things will rankle the sports betting industry more than a state choosing a retail-only sports betting model. Unfortunately, that’s something many states are not just considering, but doing.
The good news is some states are contemplating online sports betting. The bad news is some of these states are also exploring ineffectual policies that will limit market penetration.
Requiring people to visit a retail business to open an online account defeats the purpose of offering online wagering in the first place – convenience, market penetration and converting black market online sports bettors into white market online sports bettors.
So, why would a state go down the in-person registration road?
The public reason for this policy is because of the fear that online will replace brick-and-mortar gambling. The argument is jobs and revenues would be lost if casinos shift their focus to the ethereal online realm.
But cannibalization and casinos shifting their focus online aren’t rooted in reality. All available evidence points to mobile wagering maximizing the revenue opportunity and driving more customers to land-based sportsbooks and casinos (here, here, here and here).
But again, that’s the public reason. It’s the explanation companies are feeding lawmakers so they can regurgitate it to the masses.
There’s also a parsimonious explanation that better explains the push for a retail-only industry, or the preposterous promulgation of an in-person registration requirement: protectionism.
Imagine you’re a restaurant owner. You’ve got a great downtown location, and all of your competitors reside on the outskirts of town.
Like your business, they’re providing good food and good service, but with its superior location, your business is thriving, while their businesses are surviving. But then along comes a newfangled idea called delivery service, and suddenly your competitors have increased access to the same customer base as your business.
Dining at the restaurant is still the core of each business, and with your location advantage, your restaurant is still busier. But your competitors have begun to offer a really good product tailored to the new delivery model. When it comes to delivery, they’re beating you, and you notice some of your customers haven’t been visiting as often.
Now, imagine if there was a way you could have shaped a law that stifled restaurant delivery. What if customers were required to come to the restaurant to place a delivery order, rather than phoning it in or placing it online?
Such a policy would essentially maintain the status quo through inconvenience. Your current customers with a predilection to use a delivery service are less likely to drive 30 minutes to the outskirts of town when they can walk two blocks, or take a five-minute car ride to place their order.
As silly as that example sounds, it’s no sillier than an in-person registration requirement to open an online gambling account. It’s a way for retail operators in population-dense markets to maintain their edge by stifling the entire industry.
The idea that you’d limit your business with a restrictive policy seems like self-harm. And it is.
That said, it’s less harmful to your business than it is to your competitors on the outskirts of town.
Yes, fewer people will use your delivery service, but even fewer will use your competitors, and more importantly, very few of your customers will try your competitors’ product.
Like delivery service, online gambling is a market equalizer. It eliminates any proximity/convenience advantage one business has over another.
Stakeholders that currently enjoy those advantages have concluded that when an entire industry is hamstrung, the current market leaders are the least affected.
A perfect example of what big companies are trying to avoid is Golden Nugget.
Golden Nugget is one of Atlantic City’s smallest casinos, and routinely ranks near the bottom when it comes to land-based casino revenue.
In the three years prior to online gambling, Golden Nugget’s gross operating profits were in the red:
The casino was shedding money and was a prime candidate to close its doors.
But then along came online gambling and Golden Nugget online casino.
Online gambling is a vertical that didn’t constrain Golden Nugget by hotel rooms or gaming machines. Golden Nugget was on equal footing with the other casinos in the market and turned deficits into profits in the first full year of online gambling — with an assist from several other casinos closing up shop in 2014.
In the ensuing years, the smaller, boutique casino has become the runaway online gambling market leader and posted positive gross operating profits each and every year.
And lest you think it was the land-based casino contraction that saved Golden Nugget’s sinking ship, of the $327.9 million Golden Nugget generated in 2018, nearly a third ($104.8 million) was generated online.