Paul's Blog June 25, 2018

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"One should always play fairly when one has the winning cards."  Oscar Wilde

There are a couple articles about the psychology of gambling – i.e. what are the motivational drivers and emotional cues and such that stimulate the impulse to play games-of-chance.  The dialogue about “loot boxes” seems to be eliciting this focus on the underlying psychological and emotional factors.  “Loot boxes have blurred the line between in-game purchasing and plain old gambling.”  So, researchers “have stepped back to take a more objective look at the question of whether loot boxes should be considered a form of gambling.”  To be sure, these are interesting and important objects of study.  They found that "loot boxes present a number of striking similarities to real-world gambling."  Well, duh.  Just like Publisher Clearing House (google that and see the headline for the very first link: “Win $1,000,000 & Cash for Life”) present a number of striking similarities to Lottery.  Just like Fantasy Sports presents a number of striking similarities to “real-world gambling.” 

 The lines that distinguish between legal and illegal games-of-chance are, as the psychologists point out, becoming blurred.  To protect problem gamblers and for a variety of other reasons, we need more insight into how player behavior is impacted by new game concepts, attributes, play-styles, and promotional stimuli.  Additionally, though, this blurring of the lines is creating profound regulatory issues.  The problem is that, for the laws to be enforced, the rule of law requires language to precisely and decisively clarify the difference between what is legal and what is illegal.  Loot boxes, for instance, have been around for ten years and regulators are just now beginning to re-define “gambling” so these new forms of gaming can be classified as a form of gambling that needs to be regulated.  Publishers’ Clearing House introduced sweepstakes in 1967 and is still not regulated as a lottery.  The application of regulatory control over sports-betting in the U.S. will hopefully lead to a more consistent and rational regulatory framework for Fantasy Sports as well.  The government-sponsored gaming sector needs regulatory policy to move more quickly, to keep pace with changes in the market-place.  Any ambiguity favors the gray-market operators who ae not bound to comply with as high a standard as are government-gaming operators. 

Rhode Island, Mississippi, Pennsylvania, and West Virginia appear to be among the first states to follow Delaware and New Jersey with new regulations to legalize sports-betting. 

 Maybe the professional sport franchises in the U.S. would be better off by dropping the whole “integrity fee” angle and just focus on their claim to be paid for content.  The goal of protecting the integrity and preventing corruption in sports is too important to be conflated with the goal of extracting a fee for content.  Too, it has nothing to do with IP and the value of content.  Being compensated for content may possibly make sense to some people, but it won’t happen if the franchises continue to muddle their strategy with talk about “integrity fees.”  

 Major League Baseball’s strategy is to “no longer allow teams and networks to accept sports betting.”  I am not sure how they can enforce this kind of rule on TV networks.  But it is an example of how the franchises may attempt to impose their will on sports-betting operators.  The article does go on to say that “This appears to be a losing battle for sports leagues.”  MLB does accept ads from DraftKings, presumably because they are part owner of DraftKings and therefore enjoying economic benefit from the success of DraftKings. 

Another problem arises in the calculation of the fees.  The total amount wagered is much higher than the amount left over after winnings are paid out, which in turn is much higher than net revenues that are left over after winnings are paid out and all taxes and costs are deducted.  When the franchises refer to 1% or .25%, which of these figures are they referring to?  According to the International Center for Gaming Regulation at the University of Nevada, $158 million was bet on Super Bowl 2018.  1% of that is $1.58 million, which actually exceeds the net revenues taken by the sportsbooks which was $1.17 million, or 0.7 percent of bets.  On the other hand, 1% of $1.17 million is just $17,000, a figure that may be slightly less than the sport franchises have in mind.  

With revenues coming from sponsorships, advertising, media rights, and content licenses, eSports is becoming a billion dollar industry.  That’s in addition to the estimated “$1 billion plus in betting going on in eSports, and if it becomes more available in the U.S., it will bring more money to the sport and more interest to the sport, and it will continue to expand.”  eSports and “skins gambling” represent yet another frontier for regulators to figure out.

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