Richard Curran: US sports bet legislators should come here to see how not to regulate gambling
Warren Buffett famously said of investors in the early days of the car industry, that the better way to make money was to short horses. A similar analogy was floated this week about a US Supreme Court ruling which will allow American states to legalise sports betting.
As shares in various betting companies shot up on Monday, on the back of this multibillion dollar US gambling opportunity, one 'Financial Times' commentator said perhaps it is time to short the mafia.
The illegal American sports betting business is enormous, as only a handful of states allow punters to place bets on sports events. Some estimates have put it at as much as $150bn per year. Research by Eilers & Krejcik Gaming put it at around $50bn to $60bn.
Such a figure implies that bookies get to keep around $3bn per year.
But if this court ruling leads to a widespread shift towards legal sports betting across many states, the opportunity could of course be a lot bigger than that.
Imagine how much sports betting would grow if bookies and online betting companies are allowed to advertise and even do sports sponsorship deals.
Paddy Power Betfair shares shot up by over 10pc on Monday, while shares in William Hill climbed over 11pc. Both already have interests in the US gaming and betting market which places them in a better opportunity to respond quickly to new legislative developments across different states.
But by Tuesday, some of the euphoria in the sector had died down and investors were taking a more sober look the scale of opportunity this may represent and the time frames involved.
Good news no doubt for investors, but it will take time. Davy Stockbrokers said the "strategic value of companies with sports betting capabilities increased yesterday, irrespective of the near-term earnings impact".
The US has an unusual relationship with sports betting. The Professional and Amateur Sports Protection Act of 1992 halted the spread of legal sports betting beyond states that had already allowed it. This means you will find legal sports betting in Nevada and some sports lotteries in Oregon, Delaware and Montana.
New Jersey, home to Atlantic City's casino business, was given a chance to opt in, but didn't. However, in recent years the state's view has changed, primarily under the governorship of Phil Murphy. The state passed laws allowing for sports betting but its legal right to do so was challenged in the Federal Courts. That went all the way to the Supreme Court where Mr Murphy (New Jersey State) won.
Five other states have passed laws to enable sports betting as they anticipated this Supreme Court outcome: New York, Connecticut, Pennsylvania, West Virginia and Mississippi. Fourteen others, including California, are considering legislation.
In California you can order marijuana deliveries using an app, but you can't place a bet with a bookie on a basketball match.
Eilers has estimated that 32 states will authorise some form of sports betting by 2023. Estimating the potential size of that market is not easy. It isn't just about taking a bookies slice of what is today illegal activity.
Firstly, there is the potential growth in the sector once it is bombarded with massive marketing campaigns. But then there are still questions of laws and regulations. It isn't clear what kind of laws will be implemented by all of these states and how restrictive they might be.
Tax or betting levies is another big factor. Sports bodies, such as the National Basketball Association (NBA) are stepping up to claim a percentage of any bets placed. The NBA wants 1pc of all bets placed on their games. Other sports leagues will want the same. The industry is already arguing against this, saying a 1pc fee would be equivalent to 20pc of the revenue collected by sports bookies, as they claim the only keep around 5pc of the total bets made. The rest is given back in winnings.
Individual states will see sports betting as a revenue earner for themselves through taxation.
All of the issues around legislation, taxation and regulation around marketing and advertising, will all have to be sorted out at state level. Equally, because sports betting has been prohibited for so long, it isn't clear what kind of stance different state legislators will take. They have to decide whether or not to embrace this new legislative freedom they have been given. Many may not want sports betting at all.
Americans may well be using illegal bookies for sports bets already, but the wider American public will find a lot of this pretty alien.
Take an article written during the week in 'The New York Times'. 'Is Britain the future of US sports betting', it asked in the headline. It went on to explain to its American readers just how ubiquitous sports betting has become in Britain.
"Bettors place wagers before the game and during it. They wager on who will score the next goal, or how many goals will be scored in the final 10 minutes or in stoppage time", the article said.
It is not unusual for there to be 500 different betting lines on a single game, it said, before pointing out that even Britain's Queen Elizabeth is known to "fancy a flutter".
Nine of the 20 clubs in the Premier League have names of gambling companies printed across their jersey - "companies based as far away as Macau and the Philippines", 'The New York Times' pointed out.
Betting advertisements on television are so plentiful they can outnumber those for beer and pizza companies on match days.
This might not seem remotely unusual or surprising for us in Ireland, where the betting industry is so pervasive.
Of course, there is one very big difference between Ireland and the UK when it comes to betting regulation. They have a regulator. We do not.
Americans' lack of familiarity with sports betting means they are looking at the latest developments with a more insular American perspective. The NBA wants its cut of betting action and analysts over there talk about how there are so many American leagues in different sports on which people could bet. They haven't fully grasped that some Americans will end up betting on their smartphones on how many corners there will be in the first half of a second division soccer match in Turkey.
Of course, the argument is that if any American is likely to do that, they are probably doing it already, illegally, anyway. But there are flaws in that argument given that many of them won't realise it is possible, until they are sucked in by aggressive marketing campaigns from big betting operators.
These are marketing campaigns that very often have to be reined in by the UK Gambling Commission. We don't have one.
There is a very real betting opportunity for industry players that will open up in the US. The actual scale of that opportunity will only emerge in time as individual states decide on taxation and regulation. It is a little ironic that as the UK and places like Australia, try to roll back the pervasive nature of gambling through greater regulation and taxation, the US is just beginning to open it up.
In Ireland, there is no sign of a row back on anything and neither is there a sign of a betting regulator, a decade after then Justice Minister Dermot Ahern said Irish laws were "past their sell-by date".
It has been eight years since the Government outlined several options for regulation of the sector. Nothing has happened.
Americans will have one chance to get their approach right. US legislators should visit Ireland to see the model of how not to regulate gambling.