There are a long list of traditional brick and mortar stores falling prey to their online competition who operate with thin margins, low inventory, and greater reach. But what about when online sites aren’t allowed to compete with their brick counterparts?
The SAFE Port Act, enacted in October 2006, provides a great example of such an industry. In short, the Act “prohibits the transfer of funds from a financial institution to an illegal Internet gambling site, specifically excluding fantasy sports, online lotteries, and horse/harness racing”. Although the Act doesn’t specifically outlaw online gaming, all publicly traded companies in the London Stock Exchange have discontinued service to American players.
Let’s examine the 3 major differences between online casinos and sports books and their Las Vegas counterparts.
1) -110 v. -105
For those of you unfamiliar with sports wagering, the above numbers represent odds to bet a point spread ie. Indianapolis Colts -7. -110 denotes that $110 must be wagered in order to win $100, while -105 denotes that a $105 winning wager will net $100. As far as I know, no Las Vegas sports book offers anything but -110, while dozens of online sports books offer -105. Big deal right? Actually it is pussy888.
Here’s why. In order to break even in Las Vegas, you’d have to win 52.38% (110/210) of your wagers. At -105, that percentage shrinks 2.2% to 51.21% (105/205). So what right?
If a professional gambler averages 3,650 bets per year (10 per day), then he has to win 41 fewer games in order to break even at -105 odds. Even further, if a professional averages $300 per wager, he’s saving $12,300 just by wagering online.
Low estimates of the number of paper bets that are physically lost in Las Vegas are in the 2-4% range and are upwards of 8-10%. Let’s say that half of these lost tickets are winners, which means Las Vegas isn’t paying 1-5% of winning bets because the ticket must be physically present for redemption.
Unfortunately for online sports book managers, this edge doesn’t exist – no bettor is losing his electronic ticket.
3) Line Shopping
You’re likely going to see nearly identical betting lines up and down the Strip. Why? The casinos have incentive to collude and act as a cartel. It’s publicly known that they’ll often “lay off” lopsided action with each other in order to balance money and bets on each side of a game. In that same vein, it’s also beneficial for each sports book to have the same line because the risk of taking a non-consensus line is risking not being able to lay off lopsided betting.
Online, the practice of laying off action doesn’t exist and thus each sports book manages the lines to its respective risk and exposure. A bettor is able to get a much more advantageous line through just a little “line shopping”.
Despite the disadvantages faced by online sports books, Ladbrokes, a London-based site, profited $232mm after taxes in 2009. However, there are also many advantages to operating an online casino over a physical casino: lower capital costs, lower labor costs, greater reach, no capital depreciation, agility, etc. The ability to operate at a lower margin allows online casinos to pass through “savings” to players in the form of better odds – similar to Zappos, Netflix, Woot, etc.
Las Vegas business would certainly be hurt by the legalization of online gambling so their success is highly tied to their ability lobby effectively but as the budget deficit grows, legalization and taxation of online gaming might prove to be just the non-controversial tax increase Congress is looking to enact.