Sports Betting: What DraftKings & FanDuel Don't Want You to Know

[00:00] And that's going end the game. Of course you do. how did we go from broadcasters making subtle references to gamblers...

[00:15] Right and there are some going, I can't believe what just happened! ...to this.

[00:35] Well, it's a funny story. I mean, it's something I grew up around. which once upon a time was America's gambling capital.

[00:49] Hot Springs was Vegas in the United States. I grew up going to the racetrack with my family on the weekends. that was pathological or taboo, that's just what we did for fun.

[01:06] to leave that place and travel a bit to realize that not everybody in America thought about it the same way, especially not in the 80s and 90s. Mr. Rose has accepted baseball's ultimate sanction,

[01:21] Did you bet on your own team? There's a name for it, gambling on sporting events. It's clandestine, immensely profitable, and entirely illegal,

[01:36] I bet just about every week, yeah, on the football games. Today, if you want to bet on a game, you can log on to any one of these apps tens of thousands of different bets that you can make on any given day.

[01:52] There's just a firehose of bets that are sprayed directly into your face. If you made a legal, regulated bet in Nevada, there was a small menu of things that you could choose from and bet on.

[02:08] which is picking which side in a game would win. would be over or under a certain number. in a certain sport this year, but that's pretty much it.

[02:24] The idea that you could bet on literally tens of thousands of things every day That's because the sportsbooks in places like the Stardust in Las Vegas, they operated as amenities to the customers.

[02:36] Casinos only had sportsbooks in order to bring in customers who wanted to bet on the game and hoped that they would stay in the casino and gamble on other things. and was subsidized or bankrolled by the rest of the casino.

[02:51] in America don't have casinos bankrolling them. This can be confounding and frustrating for the shareholders

[03:03] When the CEO has to come to a earnings meeting and tell them that all the favorites covered this season.

[03:24] Customer friendly stretch of NFL outcomes is code for the bettors won too much.

[03:43] businesses in America, the interest of the business and the business’s customers here are incredibly diametrically opposed. for a sportsbook to make more money, they have to win more money.

[03:59] That I think is a far more problematic dynamic that exists with the expansion of sports betting right now: the relationship I think that that creates a relationship to this activity that's a lot different

[04:18] than what the relationship between the better and the bookie used to be. Those foot races were put together by gamblers I mean, up until about 1950,

[04:32] the most popular sports in America are baseball, horse racing, and boxing. when gambling was outlawed at the horse races. And so the bookmakers would start taking bets on ballgames from the stands.

[04:47] So we see this sort of cycle where sports in America have really grown in popularity and become a bigger part of American culture Bet on them now at 9 to 1!

[04:59] betting on it has a corrupting influence on the sport. But what we know is that even when gambling is prohibited, In some ways, gambling is as American as apple pie.

[05:13] And the way they got around that was they implemented lotteries as sort of a voluntary tax. What’s sometimes called a sin tax was very attractive to, government leaders who didn't want to tax people

[05:27] Simpsons episode about the Bear Patrol, where, everybody wants things, Mr. Mayor! I hate to break it to you, but your city is infested with bears!

[05:42] This is an outrage! lotteries funded a lot of the American Revolution. going right to the very beginning of America's founding.

[05:58] we want to put a little bit at risk, And that's why lotteries are tremendously popular. Rcord breaking Powerball jackpot has reached $1.6 billion...

[06:12] The chances of hitting the top prize are only 1 in 292,000,000. Government has come to really depend on gambling revenues. literally tens of billions of dollars in tax revenue from the local

[06:26] and state and federal level that are collected from gambling all over the country. and there's some form of gambling in every state except for two. betting as being just the latest chapter in a way that they can create brand

[06:41] new tax revenues without having to raise more traditional taxes on people. But when you look at all the tax revenue possible, states It was a pretty easy pitch.

[06:55] “pass this bill, we’ll open up in your state, and we'll give you all the money In Montana, it goes to fund STEM scholarship funds. In Illinois, it's specifically directed to fund improvements to roads and schools.

[07:08] And in Colorado, it goes towards the state's water conservation plan. were vehemently opposed to gambling in any way, shape or form. NBC advertise the show Las Vegas during NFL broadcasts on their network.

[07:25] They didn't even want the network to advertise a television show There was this feeling that being associated with gambling would somehow hurt the leagues and their credibility and their integrity.

[07:40] and otherwise, legalized sports gambling. We will not compromise on that. the state of New Jersey challenged the constitutionality of the federal ban.

[07:56] What I was really fighting for was each state's ability to make their own choice. The Supreme Court will allow states to legalize sports betting. The first thing we saw was a pretty big marketing push.

[08:10] here's a bonus bet for you and the boys. Hard Rock bets legal in Florida. Oh, yeah.

[08:24] had been playing what's called daily fantasy sports, but hadn’t necessarily ever bet on sports before. I mean the biggest stars that you could think of were being enlisted to be in sports

[08:36] betting commercials, to be spokespeople for sports betting companies, athletes, even the leagues started to sign deals with sportsbooks. And they said, if you're going to use our data to process bets and make odds

[08:53] We think we should be compensated in certain ways for the additional costs we're going to incur through through various integrity measures. immediately got involved and got into bed with the sportsbooks right away.

[09:07] The Supreme Court ruled, we have to adjust. I mean, now you can't go to a professional sporting event in America these days

[09:19] without seeing ads for sportsbooks all over the stadiums and arenas. the uncouth nature of it

[09:31] because people love sports and they want to be able to enjoy this innocently with their kids, with their friends, without being, I ain't never lost gambling.

[09:44] That's my record for real? I'm going on a winning streak, brothers. I think the way you’ve sold this...

[09:58] That's the way to look at it. as people who are experts in this industry when they really have no idea Once again, furthering this idea that if you know about sports,

[10:13] They think they have an edge when they don't. It's something that announcers reinforce.

[10:28] If I had to bet football, as much as I know, I tell you what, in a year or so, I'd be living under a freeway overpass.

[10:40] to one of the worst bets you can make: Not only can you bet on the Yankees to win, of strikeouts and Aaron Judge to hit a home run.

[10:54] And in particular, what they allow people to do and win a very large amount of money all in one game. These bets are incredibly lucrative for the sportsbooks. Why?

[11:07] but also they're very hard to calculate what the right price should be. or negatively correlated events, the math to figure out what the fair price

[11:20] should be becomes very, very complex. Hardly any of us can do it. So the sportsbook can then bake into those bets a very, very big margin.

[11:40] the type of bet that used to be the bread and butter of Las Vegas sports books or barroom bookies, would deliver a 5% to 6% return to the sports book. will typically return up to 30% to the sports book.

[11:57] I don't mean that. They like the parlays and they somehow think that a parlay is easy. Could you please tell people how hard it is to win on a parlay?

[12:11] And, you know, that's kind of why people like it. Because, you know, when they win, they get a big multiple on their money. This makes these bets sort of the credit default swap of sports betting.

[12:23] That's what these are when you're putting together a financial product The chances of you winning, but also how bad the bet you're making,

[12:38] because I think most Americans just assume every bet's a bad bet. Of course, whenever I make a bet, I'm supposed to lose. I'd rather get the biggest possible payout for the few times that I do win.

[12:53] which I think is very prevalent among gamblers in America today, In sports betting, you actually can win and you actually can have an advantage

[13:05] and have the best of it when you're making your bets. and betting on sports to be fair. any real pressure being placed on sports books to be fair to their customers.

[13:21] Their marketing and what they advertise to people is that you can win All right boys, who we bettin’ on? any real ability to effectively handicap a game and beat the sportsbook,

[13:37] they will limit your bets and essentially kick you out of the sportsbook. how sportsbooks treat you once you start winning? If you're in a VIP program, either a VIP host will be nice and tell you, sorry,

[13:53] A lot of the time, they'll just ghost you, Can you tell me about what those VIP programs are like? you get all sorts of perks, whether it's, you know, deposit bonuses

[14:07] or profit boosts or free sports tickets, all of these things. from the sportsbooks, including bet under other people's accounts,

[14:19] Well, I have other friends who have accounts and I have people And I'll have a Google sheet that tracks, PNL and payments Sportsbooks have always profiled their players

[14:34] for people who are sharp or skilled bettors who can win long term. they have so many bets to manage, so many players. At this point, bookmakers are computer programs

[14:50] and not people who are experts in their craft. just to boot the winners and keep the losers. I would get these promotions because I was in their Diamond VIP status.

[15:04] I'll be able to get free tickets, etc., so I was excited about that. and he's like, you know, if you make Onyx, can probably hook that up for you. So I was upping my volume with that goal of hitting Onyx

[15:18] as much as I'd want to on certain tennis related events. there would be a message that would come up on the app that says, You're able to bet up to X amount, which pretty much said to me

[15:34] that they wanted me to bet on the site, then once I was winning on the site, I think the issue for me is one of transparency, right? You shouldn't be able to have advertisements that say sign up and win,

[15:46] You shouldn't be able to allow people to come in You can't restrict winners and then expand limits for losers, That's pretty deceptive in my opinion.

[16:01] I just got this great NFL offer, guaranteed, DraftKings is not able to succeed because of some random guy on the street who's placing a $10 same game parlay,

[16:16] they're able to succeed because 1 in 100 customers is losing sales, the vast majority of it comes from people who drink way too much alcohol.

[16:28] But liquor stores aren't able to prey on those customers in the same way. push notifications that you know, you haven't deposited in a couple of days. I mean, there was recently that case in the Wall Street Journal,

[16:41] Not great. they want, that's the kind of customer who's actually paying their bills. and I couldn't, because the industry kept luring me back in, essentially.

[16:58] That thing that we refer to as “ban or bankrupt,” I believe is the problem. If you're a very good player, that is that you have an advantage over the house, they are going to limit or ban you. It's oftentimes a document,

[17:12] Or we're going to limit you to $1.90, you know. On the “bankrupt” part, if you're not a very sharp gambler, you have failings and you'll go for every,

[17:25] Right, because players they've flagged as being winners, you know, they'll take whatever you want to bet.

[17:37] It's to eliminate the risk.

[18:23] that we have regulations in place to deal with companies that are, We believe that tobacco companies should be allowed to make money, Their products are going to be taxed very highly.

[18:37] that says you're going to get cancer if you do this. that society is dealing with, whether it's the gamblers being limited, whether it's

[18:49] problem gambling, whether it's not getting as much tax revenue as we thought we were, is creating all these obstacles. book to make money without doing all these things?

[19:02] But it has to be, because there's actually been sports betting in America for 75 years. betting industry was birthed, incubated and perfected over nearly a century.

[19:19] betting business that we’ve but that's not what happened. today is a lot different than the way that they book sports here in Nevada.

[19:50] Circa Casino Resort, home of the biggest sportsbook in Las Vegas, is decidedly old school, and in many ways the antithesis of the modern online sports book. They have set maximum bets for everyone, winners and losers alike.

[20:03] to help them set their prices. like they proposed passing on taxes to the winners. Now they're proposing subscription models they're constantly trying to reinvent this wheel.

[20:18] Meanwhile, we're standing in a city in a sports book that was built on a very simple idea that you deal 11 to 10, you take a bet, you move a number. But to me, it just seems like if it wasn't broke, why are we trying to fix it?

[20:34] It's not profitable yet, but we think we'll actually be the first operator, that gets to profitability fastest relative to when we started. We should really be looking at this as an antitrust issue too.

[20:49] DraftKings and FanDuel hold 67% of the market share. with each other in 2017 until the FTC, the state of California and Washington, D.C. Despite not being able to join legally through acquisition,

[21:05] lawmakers allege they've been colluding with each other to shut out more competition. And now lawmakers from both parties are calling on the government They're really kind of using the same playbook

[21:20] They're spending tons of money to try to conquer their market, eventually turn a profit. And the stock market and Wall Street is rewarding them for this practice.

[21:34] Look at that, up 15% in European trading that showed U.S. gaming revenue growth up 26% year on year.

[21:46] with the sports books themselves. you've got 77 lobbyists telling you something, not knowing

[21:58] I mean, these companies are buying our politicians, I mean, those firms spent 200 million on a ballot initiative,

[22:19] an important responsibility to the public with regard to gambling. Protecting problem gamblers is perhaps the most important one of all. by the patchwork state-by-state nature of the current industry.

[22:36] When you hear a sports book ad on TV or the radio, you ever notice That's because every state has their own hotline.

[22:48] for responsible gambling initiatives, Some states don't require any money be set aside to address gambling related harm at all.

[23:00] by the National Council on Problem Gambling, the average sports betting state has only implemented 32, and no state has implemented more than 49.

[23:12] or the effectiveness of the current responsible gambling measures, the sportsbooks are already working on their next idea to make more money. why not just become a casino?

[23:28] during Covid in a lot of states, because there was this lack of funding but then eventually realized, well, actually, sports They need to get more money. And iGaming is easy way to do that.

[23:44] and far more revenue comes from iGaming than sports betting. In places like Michigan And then also women don't really bet on sports, whereas online

[23:57] casino and casino in general is actually pretty split between the genders. And so by legalizing iGaming, you basically expose this entire wasn't losing money and providing tax revenue that now can do that.

[24:11] in a way that obviously you can still do with sports betting, but the rapidness of it is really, really scary and it just makes it, It feels like you're scrolling through TikTok,

[24:24] Gambling is something that's really all over, It's how we invest our retirement into the stock market when you retire than then more, you know, this is a risk that you're taking.

[24:39] And we assume those risk and just hope for the best. in our country got to where they are because they took some big risk. And their success is their just reward.

[24:56] gambling don't want to take any gamble themselves. They and their shareholders are scared to death of risk. worse for sports, for their customers,

[25:11] But if there's one thing a life among gamblers has taught me, it's this. The strong may prey on the weak, but the clever prey on the strong. fair and fun for everybody involved,

[25:27] I suspect it's going to require somebody sharp to figure out how.

[25:51] We made this video because of your comments asking for it, And don't forget to like and subscribe!