I often see the argument made that regulated sports betting products need to be equal to their illegal offshore opposition in order to “capture the black market”.
This line of thinking follows the belief that in order to get the market to switch from illegal providers to regulated providers, the regulated providers will need to provide the same (or at least close to the same) odds, promotions, and other benefits currently available offshore.
With this in mind, each additional burden introduced by legislation (tax rates, licensing fees, registration requirements, lack of mobile availability, etc) is viewed as yet another cost that regulated books must address that their competitors can ignore. And ultimately, these costs are passed along to the end consumer leading to a more expensive, clunkier product.
On the surface, it makes a lot of sense.
If I can get the same product cheaper online, what motivation is there for me to change? And if the options available to me online—like mobile wagering—aren’t available in my local regulated market, why would I go through the hassle?
As mentioned above, this line of thinking has led to favorable taxation and legislation to help level the playing field. But there’s a myth in the logic that isn’t often discussed.
Different Products
The black market and legal market are NOT offering identical products.
Yes, the wagers may look the same on paper—and betting the game at -110 offshore vs -120 locally might appear to be a no-brainer at first glance. But regulated sportsbooks provide many features and benefits that their illegal counterparts can’t match.
The most significant of these benefits lies in the trust and protection consumers have in a regulated product. Trust and protection in knowing that bets will be paid. Trust and protection in knowing that someone is watching to keep books operating fairly. Trust and protection in knowing that if there is a dispute, there is someone you can turn to.
And for all this trust and protection, I believe the market will pay a price premium. Sure, they would love to have all the benefits without the costs, but they recognize they aren’t receiving the same product and they will adjust accordingly.
We see this pop up in our everyday lives.
It’s why we pay more for brand-name clothing vs their cheaper off-brand rivals. Or why we pay a few dollars more for electronics that come from Best Buy vs Jamie’s Online Computer Parts & More. And it’s why we dine at established franchise restaurants when we travel vs the locally-owned unknown spots.
We even have a term for this human behavior: loss aversion. Loss aversion refers to our tendency to fear loss much more than our desire for gain.
We pay a premium for trust every day. Why would sports betting be different?
So while I agree that we need to be careful not to introduce too much “red tape” that might handcuff legal operators, I feel it’s equally important that we recognize that regulated sports betting is not the same product as offshore sports betting.
One Other Caution
Still not convinced?
Let’s envision that you are right and that states follow your suggestion. They have low taxes, fees, and restrictions that allow legalized sportsbooks to match offshore offerings.
What happens next? How will offshore books respond? Will they sit on their hands and do nothing?
Of course not!
They will provide even better odds and promotions that undercut regulated operators. After all, they don’t have any restrictions! They are free to do as they please and can operate on tighter margins.
Trying to match the illegal market is the beginning of a race to the bottom.
And as Seth Godin if fond of saying, the thing about a race to the bottom is that you just might win!
Conclusion
As we continue to propose new legislation that will shape the future of sports betting in the United States, I think we should aspire to create a product that isn’t simply a replacement for offshore betting, but an improvement.
We need to realize that a segment of the market was never going to convert in the first place. That there was always going to be a reason that some continue to use offshore or local bookies and no level of industry-friendly legislation was going to overcome that.
However, the majority of consumers are willing to pay a premium for legalized sports betting that offers them security and protection. Let’s make sure we provide them with the best product and protection possible.
And finally, with or without a price premium, the gambling “pie” is going to be massive. Let’s make sure we allow for innovation to take place not only on the gaming side, but also on the awareness, education, prevention, and treatment side as well through proactive measures.
We have a chance to get this right from the start.
Everyone can win.
But it can’t happen with a “lowest-price wins, offshore betting 2.0” philosophy.
