Legal challenge: regulated versus offshore bookmakers

On August 6, it was two years since DraftKings first flicked the switch and went live with its mobile sportsbook in New Jersey, ushering in a new era of legalized sports betting on handheld devices in the Garden State.

Today, there are nearly 20 mobile sportsbook options in New Jersey, while 17 other states and Washington DC now have some form of legal sports wagering, be it retail-only or both retail and online.

The $64,000 question, though, is how this all impacted the shadowy illegal industry, from low-level street bookies to pay-per-head set-ups and the offshore outfits based in Central America and the Caribbean taking bets from Americans over the phone and online.

The offshore bookies – the likes of Bovada.lv, Bookmaker.eu, 5Dimes.eu, BetOnline.ag and MyBookie.ag to name a few – had been firmly entrenched as a go-to option for die-hard gamblers during PASPA, and even after the federal ban’s demise. This vast US-facing industry isn’t disappearing anytime soon.

Not when key states like California, Texas and Florida are still way off passing a bill. Throw in New York with just retail betting in four upstate casinos and you’re looking at 110 million people in those four states alone with no access to legal mobile and online sports betting.

Before PASPA was overturned, estimates varied wildly on the size of the black market, although Eilers & Krejcik Gaming pegged it at $50bn-$60bn a year. Sara Slane, who managed the AGA’s most important advocacy victory with its campaign to overturn the federal prohibition in her previous role as SVP of public affairs, says: “We struggled when I was at the AGA to calculate how much illegal activity was occurring.

“Not surprisingly, people are not terribly forthcoming with illegal activity when you try to survey them. There had been estimates as high as $500bn [but] we were more conservative and took the regulated market in Nevada and expanded that number to get to $150bn being wagered illegally.”

Research just published by the AGA revealed that spending with illegal bookmakers slumped 25% in states with legal betting last year, while legal betting rose 12% in those states. The study, carried out with 3,451 American adults between December 2019 and January 2020, also found that 52% of sports bettors participated in the illegal market in 2019, while 55% of those that placed bets illegally believed they were doing so legally.

The AGA said Americans had bet $22bn legally on sports since PASPA’s repeal, including $13bn last year.

Winners welcome

The offshore books present an attractive proposition for gamblers, even today for those situated in states where they can bet through legal channels. Products are fully functional and in tune with the needs of the inveterate US sports gambler, while being able to bet on credit is something onshore operators can’t offer.

In addition, offshore firms don’t tend to restrict accounts or ban savvy customers, especially the low-margin, high-limit outfits that use sharp money to shape their lines. And because they don’t have to deal with idiosyncratic and onerous legislation or have the same overheads as legal books – including taxes on GGR and license fees for each state – unlicensed bookies are able to offer market-leading odds.

Pat Porada, a sports betting consultant who was previously sports betting trading manager for Resorts in Atlantic City, says: “Those who aspire to be professionals go offshore because they can get credit and are not going to get limited as quickly. Some places don’t limit you at all. I don’t think anyone in New Jersey, or any other state, will be able to compete with a low-juice bookie.”

Offshore also offers the full gamut of betting options, including November’s US Presidential Election, college and niche sports, and more exotic wagers.

“The first year of the Superbowl, the DGE only approved events that were decided on the field, including the coin toss,” says Porada. “Everything else like the length of the national anthem or the color of Gatorade was not approved. Offshore companies can offer whatever they want.”

Quelling the threat posed by the black market largely comes down to implementing sensible legislation. States like New Jersey, Indiana and Colorado have favorable frameworks, including reasonable taxes and license fees, as well as full-blown mobile betting.

It’s why these jurisdictions have been a magnet for regulated online brands. And a competitive market is good for consumers in terms of odds, offers and products.

“The only way illegal websites go away is if the legal option is that much better,” Slane points out. “And the only way the legal option can be that much better is if the tax rates aren’t exorbitant. When legislators are crafting their policy, they need to keep in mind the consumer and, secondarily, the best model to compete with the illegal market.”

In Tennessee, for instance, legislation will require sportsbooks to have a mandatory 10% hold, compared with a natural hold of approximately 5%-6% in Nevada and around 7% in New Jersey.

This situation in Tennessee hampers operators from the get-go. “You can’t have a book full of price-sensitive people and still maintain a 10% hold,” says Dan Kustelski, co-founder and CEO of Chalkline Sports.

“It’s tough to get to 10%. If I’ve got a bunch of people churning through a million dollars a month on handle and I’m only holding 1%-2% on them, then I’ve got a lot of other bets that I need to make up to a 10% margin across my entire book.”

Meanwhile, in Washington DC lottery provider Intralot finally launched sports betting this summer with the GambetDC sportsbook, yet chief among the criticisms on social media was its not-so-generous odds.

In fact, 35-cent-plus lines (-111/- 125) on point spreads and totals, as opposed to industry-standard 20-cent lines (-110 on both sides), are commonplace at Gambet.

“Those lines are just outrageous; it’s like a robbery,” Porada exclaims. Even so, many people will still bet with GambetDC, obviously. Betting neophytes and those who simply don’t care about value or long-term profitability are the target audience. And it’s a big audience if New Jersey is anything to go by.

“The majority of bettors, the average Joe’s, don’t really care about the offshore,” says Porada. “Trust me, from my time at Resorts, customers are not price-sensitive at all. About 99% of people don’t care about prices. All they care about are bonuses and promotions – basically free money.”

They may not care about offshore, but they could inadvertently end up visiting these sites due to the fact that mainstream media has consistently, and still does to a lesser extent, quote offshore odds, particularly the more exotic bets you can’t place on US soil.

Just recently, Yahoo, which has a partnership with Roar Digital, quoted odds and linked to BetOnline.ag in an article about rapper Kanye West abandoning his 2020 presidential run.

Indeed, there have been numerous examples of large media organizations referencing offshore books. “I think some of these media companies just didn’t know that these [bookmakers] were illegal,” says Kustelski.

Ignorance is all very well and good, yet you’re not going to be best pleased at this ‘advertising’ if you are an operator and you have stumped up an eye-watering $10m for a sports betting license in Pennsylvania, for example.

Kustelski adds: “If I go to Tennessee, Pennsylvania or Colorado and I spend money getting a license, I’m paying tax, adhering to regulations and I’ve got responsible gambling programs, the least I’ll do is ask my regulators to clamp down and to protect me as a legal and licensed entity.”

Offshore books continue to be the go-to option for die-hard gamblers 

Black or white?

When it comes to clamping down, not much has stopped the offshore books serving US customers since they first set up operations and took bets by phone some three decades ago.

The DGE’s director David Rebuck has probably been the most vocal and proactive regulator in the fight against the scourge and has threatened criminal and civil action against those promoting unlicensed sites, particularly affiliates.

With advertising opportunities drying up, some offshore sites have withdrawn from the Garden State, although that’s still less than 3% of the US population. There are growing calls for increased efforts around IP-blocking and the banks to do more to block transactions with offshore sportsbooks.

But with most of the leading books offering a range of cryptocurrencies for deposits and withdrawals, payments are no obstacle for the determined bettor. “Unfortunately, everyone finds a workaround so there really is no silver bullet,” Slane concedes.

As for those who have used an offshore book assuming it to be above board now that regulated sports betting is sweeping the country, better messaging and education is part of the solution.

If the public are warned that these sites aren’t paying taxes, creating jobs in America, don’t have player protection measures, or simply could refuse to pay up or disappear with your funds, they might think twice.

“From the people I spoke to [while at Resorts], everyone at some point in the past got stiffed by one [offshore] place or another,” Porada says.

Some, especially those who were wagering offshore during PASPA, are willing to take that risk, or at least bet with an established and more trusted offshore book.

Sure, the offshore segment has been impacted to a certain extent by almost 20 states launching legal betting, but it probably isn’t going away and both onshore and offshore will continue to operate in tandem.

And that kind of suits both sides. The regulated US bookmakers don’t particularly want too much of that sharp action and the professional players offshore operators attract; they are quite content scooping up all that recreational money and taking straight bets and parlays from sports fans who have never placed a wager in their lives.

It’s similar to the betting model adopted in much of Europe. “What the industry is realizing is how casual the US sports betting customers are,” Kustelski remarks. “The AGA says there’s going to be 30 million Americans that will place their first legal wager over the next three to five years, so there are millions and millions of potential sports bettors.”

On the flipside, the offshore books will carry on happily accepting business from those gamblers in states with no legal options and the pros and sharps who can’t get a big bet down legally or turn their noses up at the egregious lines caused by illogical legislation.

“I don’t think there’s a big enough reason for the die-hard sports bettor to pull their money out of the offshore accounts,” says Kustelski.

“But do I think that it’s going to happen? Without a doubt. Flutter just raised a billion dollars, GVC [and MGM] dumped $450m into Roar, and William Hill raised $300m.

There is all this money going into tech development, customer service and all the things that make the experience better in a legal environment,” he adds.

On top of this, you have the emergence of high-limit regulated bookie Circa Sports with its strapline

‘Sports betting the way it should be,’ while, for example, PointsBet took the unusual step of offering juice-free spreads on the restart of the regular NBA season.

And with high limits, too. All this will slowly but surely suppress the illegal market as legal betting proliferates. Again, it boils down to having legislation conducive to staving off the threat from black-market options.

This is the bedrock. So, full mobile betting and no requirements for in-person registration, no mandatory holds, exorbitant tax rates or a limited array of stuff to bet on.

It really is that simple – in theory at least. “The thing that stamps out the illegal market is having a really good legislative and regulatory model in place that just gives consumers no other option than to go to that one versus the illegal one,” Slane confirms.

Onshore and offshore:

$150bn
How much the AGA suggested the illegal market was worth prior to PASPA’s repeal

26
How many years PASPA effectively restricted single game betting to Nevada

52%
Proportion of sports bettors the AGA says participated in the illegal market in 2019

$13bn
Amount Americans wagered legally on sports in 2019

18
Number of states plus Washington DC with legal betting up and running

Various sources