SBJ/May 17 - 23, 2004/SBJ In Depth

Crapshoot or jackpot?

From the other side of the Atlantic, the head of Sportingbet, a London-based Internet sports book that took a billion dollars in wagers from U.S. residents in the last year, is perplexed by the U.S. government’s conflicting policies on gambling.

All but two states — Hawaii and Utah — allow some form of gambling. Pari-mutuel wagering is legal in 41 states. Thirty-nine states and the District of Columbia operate lotteries. Thirty-four states house casinos. An exemption to a federal law allows sports wagering in Nevada, Oregon, Maryland and Montana. Horse tracks and state lotteries offer wagering online.

And yet, it is against federal law to offer any online sports betting, or to offer online pari-mutuel wagering to a customer in a state that doesn’t allow it.

“Sportingbet tries to understand that we all are different and we must respect those differences,” said Nigel Payne, chief executive of the publicly traded London company that relies on U.S. customers for more than half of its revenue. “But, notwithstanding that fact, we don’t understand, we don’t get, the American government’s attitude toward Internet gambling. It makes utterly no sense to us at all and is completely illogical and against virtually the whole of the rest of the world.

“Why can an American citizen go on his PC and bet on a horse race and watch it on telly and collect from Internet gambling, no problem, but he can’t go on the Internet and bet on a golfer? Why can somebody go and choose six random numbers called a lottery ticket, but not go online and place a bet on roulette?

“Pardon me, but what a load of rubbish.”

That stringent legal stance aside — or perhaps because of it — the offshore sports-book business rages on.

In the 12 months that ended March 31, Sportingbet Plc took 17.8 million sports wagers from 719,381 U.S. customers on its Sportsbook.com site. Both figures represented peaks. Bettors in the United States accounted for about 55 percent of the company’s business, a percentage that matches the U.S. share of the global online gambling market.

While it is a major player, Sportsbook.com is only one of an estimated 1,800 gaming sites in the borderless world of the Internet. Analysts project global revenue from online gambling will exceed $7 billion this year, with more than half coming from the United States. That’s up from about 200 sites generating about $650 million in revenue in 1998.

The fact that the United States has the most restrictive laws against sports wagering of any major nation goes a long way toward explaining the dot.com gambling frenzy. We are a nation in love with sports, enamored with gambling and enthralled by the Internet, yet unable to come to grips with the union of the three.

The emergence of the dot.coms as a gambling venue since 1997, when there were approximately 50 online sports books, merely tagged along with the nation’s rapidly growing acceptance of wagering on lottery balls and in casinos.

In 1997 Congress created the National Gambling Impact Study Commission, which after two years of research, hearings and analysis described the shift this way:

“Over the past 25 years, the United States has been transformed from a nation in which legalized gambling was a limited and relatively rare phenomenon into one in which such activity is common and growing.”

The commission’s finding, at the time, was that it was “time for a pause,” that states and municipalities needed to slow down, take a step back, and figure out the consequences, which, “frankly, no one really knows much about.”

It was a reasoned sentiment, but it collided with the demands of the populace and the quest of many state governments to balance their books.

The wagering world has surged on, particularly as it applies to sports.

Some recent developments:

The World Trade Organization ruled in March that U.S. policy restricting Internet gambling violates international trade law. The WTO upheld a complaint from Antigua and Barbuda, the Caribbean nation that is home to 19 licensed gambling sites, setting off a firestorm among U.S. legislators who are pushing to tighten laws against online wagering.

The New Jersey state assembly earlier this month held hearings to consider allowing sports betting at Atlantic City casinos. Although current federal law allows sports wagering in only the aforementioned four states, New Jersey lawmakers are intrigued by the $1 billion to $1.5 billion that casino operators say they could generate in taxable revenue. A state commission has suggested that legalizing sports betting might undercut organized crime.

Delaware lawmakers last year raised the possibility of resurrecting a sports lottery that failed in 1976.

The WNBA last year allowed the Mohegan Indian tribe to purchase a franchise and place it in a 10,000-seat arena adjacent to a sprawling casino complex. The Connecticut Sun begins its second season Saturday night.

Though the NFL threw a public fit when it found out that some CBS affiliates accepted Super Bowl commercials from the Las Vegas tourism bureau, the casino industry has become a fertile and accepted source of sponsorship revenue across most of pro sports. Gaming interests will spend about $44 million on U.S. sports sponsorships this year, according to IEG Inc., up from $32 million in 2002.

While the four major sports leagues all still say they vigorously oppose any wagering on sports, the NBA, NHL and Major League Baseball have grown comfortable with casino gaming.

Some, such as NCAA gambling enforcement officer Bill Saum, worry that growing acceptance of gaming across society sends a “mixed message” to athletes, who are expected to refrain from gambling on sports even as those around them pound down wagers.

Others who believe that the answer is regulation, rather than prohibition, see U.S. gambling policy as a hypocritical mish-mash that is tailored to satisfy special interests rather than to legislate against risks associated with gambling.

“If you, America, had laws to stop gambling, we’d understand your position,” Payne said. “If you had laws that said you didn’t want to expand e-commerce, we’d understand your position. If you had tried to regulate this industry to try to control the things you say are going on — like people losing what they can’t afford — we’d have some sympathy.

“But the facts are that you are expanding Internet gambling through horse racing, through lotteries, while completely ignoring chances to regulate the [online gaming] industry. So don’t … try to take the moral high ground when you’re turning a blind eye to this thing.”

Betting on Vegas

For the sports industry, the gambling equation is one of profit and peril.

Perhaps the most telling development in that equation has been the gradual shift in team and league attitudes toward casinos.

In 1979 baseball Commissioner Bowie Kuhn suspended Willie Mays from official involvement in baseball when he refused to give up a job as a casino greeter. Four years later, he did the same to Mickey Mantle. Both remained suspended until 1985, when Peter Ueberroth lifted their bans.

Less than 20 years later, teams in the NBA, NHL and MLB take advertising from casinos, and all are pondering placing a team in the capital of all casinos, Las Vegas, which with a metro population of about 1.8 million ranks as the largest U.S. city without a big four team. The question no longer is whether one of the leagues will pull the handle of the one-armed bandit, but which will do it first.

Colangelo
“It won’t be too long before someone takes the plunge and there will be a team in Vegas in one of our sports,” said Jerry Colangelo, owner of the Phoenix Suns and Arizona Diamondbacks. “Gambling is a very large part of our culture, good, bad or indifferent. It’s all over the place. You can start with lottery tickets for a buck and work your way up. So we’re to the point now where it’s not the gambling we have a situation with — it’s the sports book.

“Would Las Vegas have a team by now if the sports books didn’t exist? Absolutely. There’s a lot going on there besides the Strip.”

While Las Vegas would rank as the second-smallest MLB market, larger than only Milwaukee, it would fit comfortably among the midsized cities that have proved to be able hosts for NBA or NHL franchises: Indianapolis, Columbus and San Antonio, for example.

The Arena Football League is the largest pro sports league to take its chances in Vegas thus far. The AFL failed in Vegas when it put a team at the MGM Grand in 1994. But it took a second shot at the market last year and has seen attendance hover at about 10,000 per game.

Because many casinos now take bets on the AFL, the league had to weigh the sports books in its equation before it decided to return.

“These days, with Internet gambling and offshore casinos, gambling is more regulated in Nevada than any place else,” said David Baker, commissioner of the AFL.

Baker
“You don’t have to be a rocket scientist to understand there is a lot going on there that has nothing to do with gambling. Companies are locating there. Housing starts are phenomenal there.

“Were it not for gambling, there would be [an NBA or NHL] team there right now. All those people need eyeglasses and health care and shoes. And they also need sporting events.”

All three leagues have said they would want the casinos to agree to stop taking bets on their games before they would locate a team in Las Vegas. While the casinos oppose that idea, there might be a middle ground that could be found through negotiation.

“Presently, the ownership of the [NBA] is not prepared to overlook that,” said Colangelo, who is chairman of the NBA’s board of governors. “But it will be very interesting, as the whole gambling industry evolves, how this all plays out at the end. If we were looking into a crystal ball, somewhere down the line there will be a team in Las Vegas, and they’ll be very successful.

“When that is, I’m not going to predict.”

At least one other NBA owner believes Las Vegas’ time has come. Joe Maloof, whose family counts the Sacramento Kings and a Las Vegas casino resort among its holdings, has lobbied both the league and the city on a marriage.

“Each of the leagues understand now that gaming is part of the American culture.”
Joe Maloof, co-owner, Sacramento Kings
“I think the ownership in the NBA are sophisticated enough to realize there’s a great opportunity there in Vegas and somebody ought to seize it,” said Maloof, who had to agree to stop taking wagers on NBA games at his hotel in order to clear NBA ownership rules. “Each of the leagues understand now that gaming is part of the American culture. You’ve got churches that provide bingo. You’ve got racetracks and casinos throughout the country. The Bugsy Siegel days are gone. It’s a highly regulated corporate business now.

“There’s really nothing for the leagues to be afraid of.”

That’s the same message put forth by the larger offshore sports books. Payne said his company would pay 10 percent of his U.S. margin in gaming taxes if the federal government would legalize and regulate Internet gambling.

The offshore casinos hope they may gain momentum in that direction as the result of the recent WTO ruling, which the United States has appealed.

“It’s definitely a steppingstone,” said Simon Noble, CEO of BetWWTS.com, an Antigua-based gaming company that was one of the first to take wagers via the Internet. “Within five to 10 years it will be completely legal in the United States. Is this the final nail in the coffin? I don’t think so. But Antigua has paved the way for any other country, such as, say, the U.K., to use the same point of law.”

Thus far, the ruling appears to have led supporters of tougher legislation, such as Senate Republicans Jon Kyl and John McCain, to push even harder.

The bill that appears to have the best chance of passing would make it illegal for U.S. financial institutions to process transactions with Internet gambling houses. That bill cleared the House and the Senate Banking Committee last year but has not made it to the Senate floor.

“If you stop them from using credit cards, people will use checks or wire money,” Payne said, pointing out that his business had actually grown since some U.S. credit card providers started to block gambling transactions voluntarily last year. “You won’t stop the industry. What you’re doing is stopping the main process I use to tell whether somebody underage is coming on to my site.”

What about players?

The last high-profile point-shaving case in the United States involved a former place-kicker and National Merit scholar from Notre Dame, Kevin Pendergast, and the best three-point shooter on the basketball team at Northwestern University, Dion Lee.

Facing separate gambling debts that neither could pay, the two conspired to make their money back by shaving points late in the 1994-95 college basketball season.

Pendergast would pay Lee and two teammates $4,000 to make sure Northwestern lost to Penn State by more than the 14-point spread set by oddsmakers. Pendergast would bet all the cash he could get hold of on Penn State.

When the scheme worked out as planned for two games, Pendergast decided it was time for a big score. He doubled his payment to Lee to $8,000 in exchange for a promise that Northwestern would lose to Michigan by more than the spread. Then he and several associates who joined him in the scam began making bets at sports books in Reno and Las Vegas, placing the largest of their wagers — $20,150 — at Caesars Palace.

Michigan won, but failed to cover, costing Pendergast and his friends every penny they bet and shutting down their operation.

Over the course of the next three years, federal agents investigating a student bookmaking ring at Northwestern would become aware of Pendergast and Lee’s scam and successfully prosecute both men.

Nearly 10 years later, the NCAA’s gambling enforcement director points to that case as a reminder of how difficult it is to get away with shaving points.

The casinos did not diagnose the Northwestern fix. Illegal bookmakers in Chicago were largely unaware of it. And yet, the feds caught Pendergast and Lee, relying on information gathered from students who turned them in to avoid prosecution.

“I’ve come to learn there are no secrets in life,” said Saum, who assumed his current role at the NCAA one month before Boston College football players admitted to betting on games in September 1996. “If somebody knows, somebody else is going to find out. If you’re changing the outcome of the game, in due time it will be discovered.”

That was a reasonable expectation in the brick-and-mortar gambling world in which Pendergast operated.

Sites such as Sportsbook.com make it simple for people to wager on sports.
With access to the Internet and a credit card, today’s college athlete can operate in a far more secretive world.

Consider this scenario: Three players of significance at the University of Anywhere come together on a Friday night and, using a fourth student’s credit card, place $1,000 bets against their own school with four or five different Internet sports books.

They lose Saturday’s game, but win their bet.

Two weeks later, they do it again, doubling their money. This time, they don’t even lose the game. They merely fail to cover — shaving points. Their accounts swell while, in their minds, nobody gets hurt. They do it once more.

All college students have easy access to the Internet. About one-third of college students carry a credit card balance of more than $3,000 by the time they reach their senior year. It’s a combustible combination.

The sports-book operators argue that the best way to protect against point shaving is through government regulation. In England, for example, Sportingbet is required to alert regulators when betting patterns or other information lead them to believe a game might be fixed.

“It’s something that’s going to happen on occasion, maybe once a year,” said Payne, the Sportsbook.com CEO. “But our view is that you’re better off having it regulated. We’ll call the authorities if we see something. Do you think company X, based in Antigua and virtually unregulated, is going to ring up the government and report that they think a game is fixed?

“Of course not.”

The NCAA last week revealed the results of a sweeping survey in which it asked 21,000 athletes from Division I, II and III about their gambling habits.

Among male athletes at Division I schools, 63.4 percent reported that they had gambled since entering college, 28.8 percent said they had wagered on sporting events and 17.2 percent said they had bet on college sports.

Worse yet, 60 out of 2,132 Division I football players who answered the survey said they had provided inside information on a game to gamblers, 23 said they took money for playing poorly in a game and 34 said they knew a teammate who had done so. Two out of 388 Division I basketball players admitted to accepting money for playing poorly. Six said they knew a teammate who had done so.

Patrons watch opening day action of the NCAA basketball tournament at the sports book of the Stardust Hotel and Casino in Las Vegas.
Asked what the outcome might have been had Pendergast wagered via the Internet, rather than through a casino, Saum allows that neither the NCAA nor law enforcement agents can monitor the online habits of an athlete.

“It’s incredibly challenging to pursue individuals that wager on the Internet,” Saum said. “But when it comes to individuals who wager on the Internet and then try to change the outcome of the game, I still feel we’re going to get to the bottom of it. “It’s really the same situation that we’ve had with the others that have been caught. Somebody else has to know. Eventually, they talk.”

It has been more than 50 years since point shaving was last exposed in a major U.S. pro league. Yet each of them continue to lobby strenuously against any bill or policy that would expand sports wagering.

Security officers at the leagues continue to monitor gambling lines and gather intelligence from law enforcement agents, even though today’s players are paid handsomely enough that it seems unlikely they would risk their careers for the $10,000 to $100,000 they might be able to make shaving points. League officials worry more about players passing along inside information than conspiring to fix games.

Still, so long as there is the possibility that a player might bet his way into a hole, there is an equally likely chance that he might take a monumental risk to climb out of it.

The NFL, for example, employs two security representatives in each NFL city, as well as two in Las Vegas. Most are former FBI agents and retired senior law enforcement officers. League security officers meet with players from each team before each season.

“If we have a gambling scandal, it’s everybody’s problem,” said Derrick Crawford, an NFL attorney who is responsible for developing and enforcing the league’s policy and procedures on gambling. “I’m a lawyer. I can go work somewhere else. Where else are you going to make the kind of money you’re making as an NFL player if we have a gambling scandal?

“That’s the message that we’ve taken to the players. You want to remind them of how much they have to lose.”

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