The SportsFolio Journal - May 6, 2021

May 7, 2021

There is Still Hope

This was an eventful week, at least if you have been paying attention to the intersection of sports and money. DraftKings earnings will probably be out by the time you’re reading this. DraftKings now has a $50 million deal with Dan Le Batard. Action Network, at just four years of age, is being sold for $240 million. Genius Sports is acquiring Second Spectrum, a video analytics platform headquartered in Los Angeles. All of this, and more, just this past week.

What is going on? For starters, the sports betting and media integration trend continues. The jury is still out on whether sports gambling and sports media can be vertically integrated with success, but for now, that’s the direction where most everybody is going. Whether it is Penn/Barstool, Bally/Sinclair, Stars/Fox, MGM/Yahoo, or William Hill/CBS, people are making moves, trying to position themselves as the power couple in the sports gambling space with the hope of lowering customer acquisition costs, among other things.

That said, these moves are predicated on a broader thesis about the future. The ultimate question is what the intersection of sports and money will look like, and the popular belief is that it will be sports gambling.

We obviously disagree and we have a contrarian view on all of this. Let’s put that aside for a moment and think about whether the popular belief that sports gambling will dominate, is actually a good thing for sports. It was refreshing to see the Washington Post running an article that took the view that it won’t be. Below, we reproduced excerpts of the original article and annotated it.

That we have reached a moment in American professional sports when a fan will be able to sit in the stands at a game and bet on just about anything — not just the winner and the loser but the next pitch or the next basket — is undeniable. The merits of that reality can be debated. But put moral arguments for and against betting aside, and consider a different question: Has sports’ relationship with gambling evolved to the point at which professional leagues will make decisions on what’s best for … thegamblers?

Strong opening from Barry Svrluga, the author. One of the first things you learn in the Econ101 class is that people respond to incentives. If interest in sports is considered to be waning in general, and gambling is viewed as the savior, then it is absolutely fair to expect that the sports world will cater more and more to the gambling world.

[W]hen David Stern, then the commissioner of the NBA, testified before a congressional committee that “the interstate ramifications of sports betting are a compelling reason for federal legislation.” The law that resulted — the Professional and Amateur Sports Protection Act (PASPA) — effectively banned betting on sports in all states but Nevada.
It fit thinking that dated back generations, back to the 1919 World Series, thrown by eight members of the Chicago White Sox. It fit the thinking behind Pete Rose’s banishment from baseball; the all-time hits leader is still not allowed on the ballot to be in the Hall of Fame. It fit the thinking that followed college basketball point-shaving scandals: Gambling on sports could corrode the integrity of the competition, and without the integrity of the competition, what are you left with? Professional wrestling?
That’s outdated thinking, just as the prohibition of alcohol is outdated thinking. There’s more sense in legalization and regulation than in sweeping these habits under the rug. People are going to drink beer, and people are going to bet on sports. Let’s get it out in the open and make sure it’s done properly.

We beg to differ. A beer drinker in Los Angeles has zero effect on a person living on the East Coast. He presumably has zero effect on someone who lives in Sacramento. Obviously to drink and drive is a no-no, and there are state rules that govern that action. It is a ‘police powers’ issue.

Sports gambling is not local. It’s national if not global. It is different from alcohol, marijuana or even casino gambling. For starters, our opinion is that sports gambling only appears legal, but its legality is very much in question. We have always maintained, and actually wrote an amicus brief to the Supreme Court about it, that sports gambling is a federal, not a state matter.

Putting the legality issue aside, it is undeniable that the sports-watching experience is changing fast. Look at any highlights on CBS and they generally end with who covered etc. Remember, CBS has a sports betting partnership with William Hill. As far as the outcome of the game’s point spread is concerned, true fans don’t really give a damn about that stuff. But hey, that is exactly the point right? The risk of catering to sports gamblers, which may or may not be fans.

There are big-picture questions here, and they go right to the core of why we like sports to begin with. Do we want the entry point to be how compelling the competition is and how mesmerizing the athletes are? Or do we want it to be whether we could make a couple of quick bucks on whether a ball bounces through the net or off the rim?

The former, no doubt. Sports is special and it should stay that way.

At their best, sports build communities of people who are excited about filing into the same arena and rooting for the same jersey, chanting and singing along the way. Those communities share the same heroes and goats, the same pain from losses gone by, the same hope about what might happen next. They’re unified.

This reminds us of this video we made a few years ago with veteran actor Zack Ward:

Put those communities in those same arenas, but give them divergent financial interests — the guy in Section 101 is invested in the next batter producing a hit; the guy in Section 202 put his money behind an out — and what you’re left with is glorified keno. It’s not morally corrupt or ethically repellent, exactly, but it’s also harder to describe a bingo card as a civic trust.

Barry hits the nail on the head here. The issue is not necessarily fans having a financial interest per se. The key word here is divergent. One person wants the opposing quarterback to throw a touchdown because that’s who he has on his daily fantasy team. Another wants the running back to not rush 40 yards for a touchdown because his prop bet is riding on the running back rushing less than 100 yards. Yet another doesn’t want his team to hit that field goal, because it will mess up the point spread. It is true that people can bet on teams outright, but that’s not where sports gambling is headed anyway.

We have a very different take on this. This spaghetti of bets that separates the fans more and more from their teams is certainly not the answer. Neither is denying that the speculative desire is real, and trying to bury that desire rather than giving it an outlet. What we are offering is the best of both worlds. Give people a financial interest to watch the games; in fact the whole game and not just the highlights. Let them buy shares in their favorite teams. Let sports become an asset class. Let’s do all of this and also maintain integrity in sports. Let fans invest in sports. #LetFansBeFans

He doesn’t know it yet, but Mark Cuban agrees with us. This entire video by VICE Sports is quite interesting. The Mark Cuban clip comes in at around 7:45 and then at around the 9-min mark, he says:

The future … isn’t who will win, it isn’t prop bets. I don’t even think it’s daily fantasy even though that’s going to be strong for a while. I think it’s going to be something we haven’t seen yet because it’s going to be something that hasn’t been invented yet.

It is invented, Mark, and it’s not a different form of sports gambling. That something is sports investing.

If the leagues provide nothing other than just a backdrop on which to bet — indeed, if they contort their products to appeal to hardcore bettors rather than lifelong fans — something is lost.

Bingo. That’s exactly why we want sports to be a source of energy that propels us into a better future. That’s exactly why our mission is to transform society through sports.

Kudos to Barry for his refreshing perspective. Make sure you read the whole thing. While you are at it, read the comments, too, most of which we found overwhelmingly negative. This won’t be obvious from reading the traditional media, which, as a result of all these partnerships is probably not the most objective source on this matter anymore; however, there is still a large part of the country, with all of its Puritan roots, that is strongly opposed to gambling.

That America wants sports gambling is a myth perpetuated by the entities that are incentivized heavily to make that myth appear as a fact. The truth is that America wants to speculate on sports. Once we agree on that starting point it becomes very clear that there is a better way forward.