Sports Book Investing? Is There a Catch?

Sports betting¹⁾Remember kids, only gamble with money you can afford to lose, and by kids I mean folks at least twenty-one years old continues to grow in popularity ever year.  This could be due to a number of factors. With technology now, it is possible to watch a telecast of almost any game imaginable.  Additionally, with the internet becoming faster and more ubiquitous with each passing year, it has become easier and easier to bet on sports.  For example, in a ten year period starting in 1994, the amount bet on the Football Championship²⁾the name of the event is protected by copyright law  doubled to almost 120 million dollars³⁾ Click here to see the chart.  Nevada, through her legislators, has the foresight to see this as a long term trend, and in turn, passed significant legislation during the 2015 legislative session to put the state in the forefront of this growing industry.

Now I will tell you a bit about Senate Bill (SB) 443 that legalizes sports book investing.

Sports Book Investing and the Text of SB 443

Before getting into the specifics of the bill, I think it is worth taking a look at Section 2 of the bill that states the purpose and intent of the new law:

1. The State of Nevada leads the nation in the regulation and enforcement of race book and sports pool wagers, such that the State is uniquely positioned to expand the means for natural persons to place race book and sports pool wagers in a controlled environment.

2. Allowing natural persons to pool money in a business entity which can then place race book and sports pool wagers with nonrestricted gaming licensees will increase wagering activity in this State.

3. A comprehensive registration of business entities that place race book and sports pool wagers will provide greater transparency for nonrestricted gaming licensees, prevent fraud and assist law enforcement agencies in this State.

The issue with offshore sports betting⁴⁾that is most of the betting people do now on the internet, which is illegal by the way is that you have no assurances that the offshore entity will pay you ⁵⁾just because they show a credit in your online account does not mean they will send you a check, and there is no telling who is profiting off of the VIG ⁶⁾the amount 10% or so that the book collects on each bet, for example when you bet most any sport on an even line, the odds are -110, meaning you have to bet $11 dollars to make $10.  That extra dollar is the VIG.  The advantage of legalized wagering in Nevada (besides the 100,000+ of jobs the casino industry supports) is that the companies have to file disclosures with the SEC, and the casinos are regulated sufficiently to guarantee that you will be paid on a winning sports (or other) bets.  Betting through a bookie or offshore is completely unregulated and provides no American jobs.  The legislature is admirable for attempting to take some of the illegal sports betting market share and have the money invested in our economy.

What the New Sports Book Investing Law Permits

Section 3 of SB 443 allows a “business entity,” once registered with the Gaming Control Board and after payment of the $1,000 registration fee⁷⁾with $500 due each of the following years to place wagers on sporting events.  Once registered with the Secretary of State, the business entity will operate in a similar manner to a mutual fund, where folks can invest with a company they believe in, and these companies will make the best wagers they can⁸⁾similar to hedge fund investing, except there are no dark pools or flash trading.  The books will still have the option to accept only the bets they want to accept.  I imagine, similar to investment funds, people will evaluate past performance and pick the fund that will make them the most amount of money.⁹⁾this may be a faulty assumption

We will have to wait and see if the larger casinos will be risk averse toward these funds, but my hunch is, given the competition for gaming dollars, they will eventually be pushed into raising their wagering caps.