Keeping an eye on the ball, and tracking the rebounds

Legal Sports Report recently reported on a study first published in the Journal of Prediction Markets that looked at NBA scorekeepers and the possibility the some of the data being recorded was subjective. The study suggested that there was pressure to produce some specific types of data.

The study focused on rebounds, but other measurables intrinsic to sports might also be subject to the same subjective bias, according to the authors.  Prior to the dramatic expansion of sports betting, those biases might not have been important, but the situation is now rapidly changing, due to the increasingly larger number of bettors and the amount of money being wagered.

In September, bettors in New Jersey threw down some $748 million on sporting contests and the myriad prop bets tied to those contests. In August, the amount wagered nationally on sports was $2.1 billion.  And in the new and growing world of prop bets, the number of rebounds by a player or a team, for example, are common betting propositions.  Statistics of uncertain provenance would corrupt the process.  Because the accuracy of the data is critical, the source of the data is important.

Those sources have long been part of legislative debates.  The leagues, naturally, would like to be the exclusive provider of data pertaining to their sport and to be remunerated by any entity that wishes to use that data for wagering.  Not everyone agrees: getting an exclusive data source written into legislation enabling sports gambling has not been easy.  The leagues argue they are the only safe source and that the games belong to them, so the statistics should be theirs to disseminate as they see fit. The data, of course, are valuable; bookmakers have to have it and are therefore willing to pay.  There are plenty of other willing providers which legislators have thus far been hesitant to codify.  Regardless of the source, the accuracy, integrity, and reliability of the data is of concern, since the integrity or outcome of the wagers placed is the foundation of all legal gambling.

Nelson Rose, in his 1986 book Gambling and the Law, wrote of three waves of gambling expansion in the United States.  The first was in the country’s infancy, the colonial period; the second came just after the Civil War, with legalized state lotteries; and the third wave began with the legalization of casino gambling in Nevada in 1931.  The first wave faded out as taxation replace lotteries for raising public funds.  The second wave was broken by myriad scandals, which ultimately resulted in the imposition of anti-gambling legislation in nearly every state.  It has taken more than a century to overcome the anti-gambling sentiments of the 19th century.  Professor Rose warned that if the gambling legalized in the third wave was not honestly conducted and scandal-free, it too could suffer the fate of the second wave and lead to another wave of anti-gambling legislation.

As the first state to legalize casinos in the 20th century, Nevada set the tone for the nation for integrity with its legislation. The Nevada Gaming Control Act, section 463.0129, says, in part: “The gaming industry is vitally important to the state economy… the continued success of gaming is dependent on public confidence and trust that licensed gaming is conducted honestly and competitively…and that gaming is free from criminal and corruptive elements.”  In one way or another, every state that has passed some form of gaming legislation has embraced that concept.  The game must be fair and honest, whether that game is a slot machine, blackjack, craps, roulette, baccarat, poker, keno, or a basketball game. Nevada puts a great deal of effort into ensuring that Nevada gaming operators meet those standards and conduct honest games.

In the last two years, sports betting has transformed into a major industry.  Twenty-one states now have legal sports betting, and several more are set to legalize it in the next year.   In the legislative debates preceding the enabling legislation, there was surprising little discussion dedicated to the possibility of game fixing, such as happened in the 1919 World Series.  Game fixing was part of illegal, unregulated gambling, not modern, regulated, corporate gaming.  Lawmakers were more concerned with quickly taking advantage of the opportunity.  They focused on adding to the state’s revenue sources through taxes and licensing fees.  Legal sports betting would be protected from illegal activities in the same manner that casinos are protected, through regulation.  The bookies, whether casino companies, English betting corporations, or fantasy sports operators like FanDuel and DraftKings, would have to be licensed.  That process would protect the state from scandal and corruption, it was thought.

The data was discussed, but only the ownership and the right to sell it seemed important.   However, the aforementioned Diemer, Kim and Kneavel study of NBA scorekeepers suggests that the integrity of the data cannot be unilaterally accepted without question.  It is an important issue: false or inaccurate statistics would have the same impact on wagering as an inaccurate score, a false lineup, or corrupt officials.  The potential for subjective data also opened an opportunity for criminals and corruption – and, if that happens, it undermines the general public’s confidence and trust in the honesty of the game.

In Nelson Rose’s three waves model, criminals and corrupt officials led to scandals, and those scandals led to anti-gambling statutes that swept the nation, ending the expansion of gaming and making most gambling illegal in every state.  It destroyed a nascent industry.

On its face, the number of rebounds seems like a minor issue. Teams don’t win games off rebounds, after all.  But there are many judgment calls in sports – balls and strikes, for example. In the era of call challenges and ultra HD, when a call is reviewed, the ultimate decision is a judgement, not an indisputable fact.

As minor as the issue might be, one major scandal that results in gaming wins or losses in the millions of dollars could have a dramatic effect.  It could reverse a century of progress and expansion and bring back the suspicion and distrust that was prevalent until the 1990s – a time when the common wisdom held that all gamblers were crooks, and all games were rigged.  If there is a solution, I don’t know what it is, but we need to keep our eye on the ball.

King James will abdicate, the Crown will survive

Media mogul Kerry Packer, the father of Australian casino king James Packer, was a gambler, and, when he died in late 2005, Australia’s richest man. Packer was famous for his gambling junkets. He was a high roller, a whale, willing to win or lose 30, 40, even 50 million dollars at a time. It is said he once offered to flip a coin – winner take all – for $100 million with a Texan who had bragged that his net worth was $100 million. Packer was a no holds barred, winner-take-all kind of gambler. Kerry liked London, Las Vegas and any other place he could find someone willing to book his bets. Gambling operators loved him when he lost and feared him when he was winning – when he won, it tended to strain the finances of the unlucky casino. Sometimes he took his son, James, with him on these jaunts. The excitement and the attention his father generated must have impressed the young Packer; it has seemingly been one of his life’s goals to be like his father, rich and respected. With one caveat: James Packer didn’t want to risk losing. He wanted to stay on the other side of the table.

When Kerry Packer died, his media empire transferred to his then thirty-eight-year-old son. James had been watching the growth of online media and advertising. He felt that newspapers and television networks were going to die out. He sought to unload the elder Packer’s existing business interests and to invest instead in his father’s advocational interest, gambling. With the money from the sale of his father’s media empire, James invested in casinos in Australia, London, Macau and Las Vegas.

In London and Macau, Packer looked to the children of gamblers his father knew; in Macau he formed a partnership with Lawrence Ho, son of the legendary King of Asian Gaming, Stanley Ho. In London, it was the son of equally legendary John “Aspers” Aspinall, John Damian Androcles Aspinall. Both of those companies – Crown Aspinall’s, which operates casinos under the name Aspers, and Melco Crown – have been wildly successful, although Packer is no longer part of Melco, which has since dropped the Crown name.

In Las Vegas, however, Packer did not have any of his childhood playmates to rely on, leaving him very much like his father after a bad trip: in essence, a loser. James invested in two resorts in Las Vegas that were then under development; neither was completed, and he is said to have lost over $500 million. In addition, he bought stock in three casino companies and is reported to have lost some $547 million on those investments. For as much as Packer wanted to succeed where his father had been toasted, hosted and welcomed, James has only lost on his visits to the Strip.

Australia, on the other hand, has offered him winning opportunities time after time. Crown Resorts has been the jewel in the Packer crown, and its success has left James significantly richer than his father ever was. But it has not all been smooth sailing. In 2016, Chinese authorities arrested 18 Crown employees, 3 of whom were Australian citizens, for gambling crimes; they were promoting gambling to Chinese citizens in China, encouraging them to visit Crown casinos in Australia and Macau. The arrests stopped Crown dead in its tracks. The company, under Packer’s guidance, had been moving to a high-roller, VIP strategy; at one point, Asian gamblers accounted for 30 percent of Crown’s revenue. 2016 was not a good year for Packer personally, either: he began the year riding high and engaged to Mariah Carey and ended it single, resigned from most of his official positions, and in retreat from the public eye.

In 2019, The Age, the Sydney Morning Herald, and 60 Minutes all published information relating how Crown consorted with Chinese organized crime organizations to launder money. According to the reports, gangs from China sent junkets of high rollers to visit the Packer casinos, bringing with them bundles of cash; they were literally said to carry cases stuffed with dirty money that would then be loaned to gamblers to bet on Crown’s tables. Following these revelations, the New South Wales Independent Liquor and Gaming Authority announced a series of public hearings to determine Crown’s suitability to continue holding a casino license. Crown has built, but not yet opened, a $2.2 billion resort in central Sydney. To open the property, of course, Crown needs a license.

Last week, James Packer was called to testify and questioned for three days. Given the times, he was not required to appear in person; he Zoomed in remotely from his yacht floating somewhere in the South Pacific. But even at a distance, the questions made Packer sweat. Before the three days were over, he was forced to admit that he suffers from bipolar disorder, that as a result he requires high doses of powerful medications, that he could not remember lots of things but that he knew the junket organizer might be connected to criminal gangs, that he had not only looked the other way but had pushed the company to keep pursing the junkets, and that it was time to sell down his stock and step away completely from management and control.

It must have been difficult for him to admit those things under oath, yacht or no yacht. It is not the way he was raised. His father taught him that a Packer is always right and, when in doubt, always double your bet. But times have changed since his father faced a similar tribunal over his media holdings in the 1990s. Then, his father was able to back the investigators down.

James Packer inherited a bundle of money, but he also inherited a reputation. He is part of one of Australia’s most well-known and notorious families: the most prominent member of the third generation of a family of media moguls. He was meant to wear the crown for a while and then pass it on. But it’s now unlikely that James will remain king. The Australian is suggesting that it might be time to sacrifice the king to save the crown, and that, sadly, is the most probable outcome of these hearings. Australia does not want to deny a license for the Crown resort in Sydney; the investment has been made, the property is built, and the city is eager for it to open. The only solution seems to be abdication.  The king is dead, long live the Crown.

The Game that showed the game is changing

Monday Night Football has been an institution now for fifty years.  For football fans, it is almost sacred: few things are more important on Monday night than watching The Game. For players and teams it is just as important; a game well played is often the highlight of a player’s career and of a team’s season.  That was certainly true last Monday, September 21, the night the newly christened Las Vegas Raiders played the New Orleans Saints, at home, on national television.  It was the Raiders’ first home game in their new Las Vegas home, the $2 billion, 65,000-seat Allegiant Stadium.  There were no spectators in the stadium, due to the pandemic, but there was a huge television audience: an average of 15.5 million people watched nationally.  In Las Vegas, the rating was 22.1.  The game and moment will certainly be etched into the memory of all the Raiders, as well as those of the people of Las Vegas and Nevada.  It was a game changer, and not because of the score or the strategies.

The game was a watershed moment for the city and the state because it was the end of an era.  Nevada, at last, was admitted to the Union.  The actual event that created the opportunity for the change was the decision by the National Football League to approve the Oakland Raiders’ move to Las Vegas, although there were other events that preceded the move that helped set the stage.  The NHL’s Vegas Golden Knights began play in the fall of 2017 and shocked virtually everyone by going to the Stanley Cup Finals in its inaugural season.  The Las Vegas Aces of the Women’s National Basketball Association moved from San Antonio and began playing in Vegas in 2018.  The Las Vegas Lights, a professional soccer team, also began play in 2018.  Until that year’s watershed, all professional sports more or less avoided Las Vegas.

The city’s size was part of the reason.  Las Vegas did not reach a million permanent residents until 1996, although the town grew quickly from there, passing 2 million in 2012 and 2.5 million in 2018.  To have a major league sports franchise, a city must be able to fill a stadium or arena.   Las Vegas did not really meet that criteria before 2018, although, beginning in 1997, Las Vegas has had more than 30 million tourists a year.  Theoretically, it would have been easy to fill a sports stadium; after all, the city filled 150,000 hotel rooms every weekend for decades.

That proposition was never tested for moral and political reasons. In the minds of the professional leagues, Nevada was seemingly unfit to house a team – or even to host a game. Professional sports looked down its noses at Nevada, Las Vegas, casino owners and gamblers in general. The NFL was apparently particularly offended, infamously refusing to let the Las Vegas Convention and Visitors Authority air a commercial during Super Bowl XXXVII in 2003; the league finally relented in 2010 and allowed a Vegas ad to air during the game.  As late as 2017, NFL commissioner Roger Goodell disapproved of the Las Vegas move, because Sheldon Adelson would have been a part owner of the stadium.  As a casino owner, Adelson was deemed unfit to be associated with the sacred game of football.  The NFL’s policy was one of no advertising, and no association.  It was an insult to an entire state.

Nevadans were used to the insults.  The national media had started to condemn Las Vegas and Nevada in the 1950s.  Before the Kefauver hearings, the media found Nevada despicable because of its liberal divorce laws; in most of the country there were only three causes for divorce: cruelty, incurable mental illness, and adultery.  The charges had to be proven, and the process was lengthy.  Nevada granted divorces after six weeks of residency for reasons of incompatibility, and the residency and grounds requirement were easily met.  Rich women flocked to Nevada, followed by reporters and cameras. state of sin was featured on the covers of national magazines.  However, in the 1960s national divorce attitudes and laws began to change. Divorce was no longer a Nevada exclusive.  Nevada’s bad reputation might have ended there, except then the press discovered the Las Vegas casinos, the evils of gambling, and the ever-present mob, which the whole world believed controlled everything in the state.   In the nation’s eye, gambling was immoral and illegal, except in the deserts of Nevada.

Don’t get me wrong: Nevadans were conflicted by casinos, gambling, and the mob, too.  Our long history as a bad boy that embraced divorce and gambling left its mark on our conscience.  The downsides to an economy based on gambling were apparent, the existence of organized crime figures in Las Vegas was well known, and the risk of gambling addiction could be seen; people with an addiction suffer, and their families suffer, too.  A friend of mine was a casino manager in the 1980s. After his father died, his mother visited him at work daily.  She also played the slot machines; she was lonely and bored.  In the casino, she found friends and solace.  Within a couple of years, she had lost everything her husband had left to her.  Her son had been unaware of his mother’s playing. When he found out he was ashamed enough to quit his job and leave the industry entirely.  It was a tragic tale, one that all Nevadans have likely felt in one way or another.  We Nevadans aren’t aliens; we share the same religions, values, and political philosophies as our fellow Americans.  We have always known the casino industry was not a perfect industry.

But the casino industry in Nevada has done much more than harm widows.  It has fueled the state’s growth and provided the jobs and taxes that are the foundation of the state’s economy.  The building of Hoover Dam was the initial catalyst for the growth of Las Vegas, but the truly phenomenal growth of the city in the 20th century was due to the emergence of the Las Vegas Strip and a vibrant casino industry.  With the growth of gaming and the Strip, thousands of creative, ambitious, and entrepreneurial people migrated to Las Vegas, bringing with them ideas, excitement, talents, and creativity in theater, dance, song, food, resort design, hotel management, sports handicapping, magic, botany, and more. The city proudly proclaimed itself to be the entertainment capital of the world.  It might not be quite the capital, but few other cities have 150,000 hotel rooms and attract 40 million visitors a year.  Las Vegas is a force is nearly every field of entertainment, except sports. That is, until recently.  Now Las Vegas takes a seat at that table as well.  “Hear! Hear!,” they’re chanting from the backbenches.  The backbenchers are the rest of the state of Nevada.

In the past, we backbenchers – those of us who live elsewhere in the state – have often resented Las Vegas’ outsized reputation and its place in the spotlight.  But no longer. Not after Monday night. Last Monday’s football game was a huge moment for all Nevada.  Finally, after 90 years, Nevada is no longer an outlaw state, a despicable place inhabited by degenerates. It was a long, and at times, painful nine decades.  But now we have been accepted and joined the rest of country with our own football team.

As everyone knows, 48 states have joined us over the last five decades with their own form of gambling. Gambling is legal and accepted everywhere, except Utah and Hawaii, where it is prohibited in any form.  But their citizens don’t seem to agree, or at least a lot of them don’t, since Utah and Hawaii are major sources of visitors to Nevada’s casinos.  The latest indication of the changing mores nationally is sports betting.  It is now legal in some 18 states, with another 4 pending implementation and 9 more with bills under consideration. Welcome to the club, guys.  There are still reasons to be concerned over some of the societal risks of gambling, of course, and the industry continues to need responsible management and regulation.  But it is nice to no longer feel alone.  The game has indeed changed. Go Raiders!

Doing the impossible, predicting the future of the stock market

Trying to understand the ups and downs of the stock market, or any individual stock, is never easy. The explanations that analysts offer to attempt to explain the fluctuations in the market are always after the fact, and although some market soothsayers do attempt to predict the future,  no one can successfully and consistently predict what the market will do tomorrow or next year.  There are long term trends that make it possible to say with confidence that the market will recover, or that there will be a major downturn, because the market has always recovered, eventually. And beyond that, there is always another downturn on the horizon.  Complexity notwithstanding, however, there are scores of people who make money trading stocks – and scores of people who make money analyzing the market and advising other people about what to do with their money.

Recently, Roth Capital analyzed the four public companies that operate casinos in Macau and concluded that all four – MGM, LV Sands, Wynn Resorts and Melco – are too highly dependent on Macau.  Roth said that the companies were not good investments at the moment and opined that the Macau gaming market was going to take a long time to recover from the coronavirus, saying explicitly that they do not expect Macau gaming revenue to return to pre-pandemic levels before late 2021.  To add to Macau’s current downside, all of the city’s gaming licenses are coming up for renewal in 2022, and no license is guaranteed.  The stock price of those companies dropped between 3 and 5 percent each.  Big drops, albeit small potatoes compared to the calamitous drop in their stock prices in mid-January, February, and March.

Five days after the Roth report, The Motley Fool published a piece expressing the precise opposite opinion.  In the Fool’s mind, now is the time to buy the stock of companies with casinos in Macau.  The stocks were down now between 20-40 percent, the Fool said. Bargain prices for bargain shoppers.  The Fool expects the trend to change in October, and for the stock prices to concomitantly go up.  The first week of October, of course, is the Golden Week, a seven-day holiday that is the second biggest travel/spend time for the Chinese after Chinese New Year.  The Fool thinks it may be the beginning of a turnaround in both travel to Macau and gaming revenues.

Both analyses are right, even though their conclusions don’t match.  Macau in 2020 is wholly dependent on China, in much the way that Ireland depended on potatoes in 1845.  If a broad swath of China’s population gets sick, or the central government changes the rules, Macau becomes like Ireland in the midst of the famine.  And the casinos licenses are up for renewal, as Roth pointed out, and no one knows what the criteria for granting or denying licenses are. That alone is enough to give a person indigestion.

At the same time, relations the United States and China are going through a difficult period, to put it delicately.  China could choose to punish American companies, much as the U. S. is currently doing with Tik Tok and WeChat. That, too, is downside.  On the other hand, the license renewal is over a year away, and there are signs that it may be postponed.  The Chinese economy is recovering nicely, travel restrictions from China to Macau have been lifted, and this year is mercifully approaching its final day. 2021 could be better, much better, than 2020 has been. That is the upside.  Make your choice, and buy or sell accordingly.

The companies with casinos in Macau are not the only ones suffering at the moment.  Every casino stock, more or less, has plunged since the pandemic started.  In January and February, the gaming industry was looking at a normal year and the prognosis was good: stock prices were up, and the analysts had positive outlooks.  In Macau, by February, it was clear that the casinos would be forced to close. Worse for Macau, all of China was being shut down, which that left the casinos without any customers even when their doors were open.  Macau’s casinos were only closed for two weeks.  Casinos did not start to close here until March, but once they did, they remained closed for months.  The closures hit the stock prices hard, but as casinos began to reopen and business appeared to be brisk, there was some recovery.

The third quarter is nearly over, and the quarterly results of gaming companies will still be impacted by the pandemic.  But there is reason to join the Motley Fool here.  The year is nearly over. The fourth quarter will likely be another quarter that suffers in comparison with the previous year, but better than the second or third quarters of this year.  And beginning with the first quarter of next year, most companies will have good news to report.  2021 is almost certain to be better than 2020.  The numbers will probably not be back to 2019 levels, but publicly traded companies are compared to the same time period in the previous year, not two years ago.   The following year, 2022, needs only to get back to 2019 levels to be another good year for public gaming companies and their stock prices.  To give Roth its due, if you look at the long term, there are some dark clouds on the horizon here, just as there are in Macau.  However, the stock market is famous for being shortsighted, looking only at one quarter at a time.  For casino stocks, the next two years should be fairly good. Who said it was impossible to predict the course of the stock market, anyway? Grain of salt, anyone?

Making A Bet in Number 23’s House

Basketball legend Michael Jordan has been in the news recently, you might have heard. It started in April, with the premiere of the first episode of a documentary on his basketball career, The Last Dance.  Jordan played basketball for the Chicago Bulls in the 1980s and 90s and, as any sports fan knows, wore jersey number 23, except for a brief period just after his return in 1995 when he wore 45.  He was always more popular than virtually any other athlete of his time.  His name and his smile sold shoes, Gatorade, hamburgers, cars, and breakfast cereals.  Jordan apparently has not lost his charm; the documentary was in 10 parts and each episode averaged 6.5 million viewers.  The second Jordan storyline came earlier this month when an agreement between Jordan and DraftKings was announced.  Jordan is to be a special advisor to DraftKings’ board of directors and has an unspecified equity position with the company.  The deal is a sign of our times and the changes taking place in the sports betting landscape.

Keeping up with developments in sports betting of late has become difficult, to put it mildly.  Before the US Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) on May 14, 2018, legal sports betting in this country was confined to Nevada; gambling online through offshore bookies was at least two decades old by then, of course, but it was not really an option for the average sports fan, and it was absolutely not an option for the media, advertisers, or organized sports leagues.

The PASPA repeal was a watershed moment in the history of gambling.  It opened the door for possibly the most dramatic shift in attitude that the gaming industry has ever seen.  All of a sudden, gambling – at least sports gambling – is acceptable to both do and discuss in public.  Previous expansions of gaming have always been loudly met with objections to the fact of gambling itself.  In the debates years ago on possible legalization, gambling was described as a destroyer of lives, an activity that increased crime, poverty, and divorce.  It was only when a state desperately needed the tax revenues, jobs, and economic activity that gaming could provide that legalization became a real possibility.  The expansion of casino gaming from just Nevada and New Jersey that began in 1988 has resulted in commercial casinos in 23 states and Indian casinos in 30 states, but it took a long time.

Contrast that with the fact that, in just over two years since the PASPA repeal, sports betting is now either legal or pending in 22 states and the District of Columbia.  And the debates surrounding sports betting are quite different than those around the expansion of casino gaming, as well.  In casino gaming, setting limits on gambling was always an overriding principle.  Time was rarely important to the lawmakers; Massachusetts took 8 years to get three casinos open, and one license is still in limbo.  It sometimes seemed as if lawmakers and regulators took pleasure in making it difficult to build and operate a casino.

By contrast, time is a key element in the discussions over sports betting, not restrictions.  All the parties involved are in a hurry to get up and running.  Limitations, restrictions, and roadblocks have been kept to a minimum.  Bookies are not characterized as mobsters bent on defrauding the public, and the act of making a wager is portrayed as merely an expression of enthusiasm and loyalty for a sport, team, or player, not a moral flaw.  Of course, sports betting is benefitting from the expansion of casinos. The plethora of casinos, and their cultural normalization, has helped to change attitudes toward gaming, making it easier for sports wagering to find acceptance.  Sports betting also benefits from acceptance by the public and lawmakers about using gaming as a source of public revenues.

There is another major difference between casino gaming and sports betting: the number of constituents.  In casino gambling, there are only a few interested parties – casino companies, lawmakers, regulators, and opponents. Sports betting has many more interested and participating parties.   A partial list thereof includes casinos, bookmakers, sports leagues, sports media, the teams themselves, and the hybrid companies formed to take advantage of the opportunities.  DraftKings is an example of those opportunistic hybrid companies.  DraftKings began as a means to take advantage of fantasy sports and the internet. The company ran up against a legal brick wall after a legal brick wall until the Supreme Court handed it a new chance.

Now as sports betting spreads, DraftKings is a major player. It is, however, far from the only player.  The major casino companies have a presence, as well, sometimes by themselves and sometimes in partnership with a betting company, such as the agreement between William Hill and Caesars.  In some states, betting companies can get a license and take bets, but in most states, they have to have a bricks-and-mortar casino license to do so.  Thus DraftKings, FanDuel, William Hill, and others are eager to sign deals with casino licensees.

The betting and casino companies are forming other partnerships as well, with media companies, sports leagues, sports teams – even, recently, with universities.  The leagues have gone from being vocal, litigious opponents of all forms of gambling and all gamblers, to willing, even eager, partners.  And as the leagues have changed their attitudes, so have the individual teams. Both see an opportunity to get a piece of the pie.  Leagues, teams, and universities are selling partnerships, data, and naming rights, in some cases even okaying wagering inside of their stadiums and ballparks.  Illinois, for example, has authorized wagering within the home venues of its pro football, basketball, hockey, and baseball stadiums.  In some states, you will not be able to make a wager at an official book in a stadium, but you will be able to sit in your seat and place a bet remotely through your mobile device. In Illinois, you will have both choices.

And there you are. You can now make a legal bet in Michael’s house.  DraftKings could not have found a more powerful name in sports in Chicago than Michael Jordan.  Being able to now bet with Michael on a Bulls game, in his house, is a stunning development.  In the late 20th and early 21st centuries – in other words, barely thirty years ago – casinos, and gambling, were viewed, by and large, as distasteful, if not outright evil, and, if permitted, they should be hidden away and isolated as much as possible to protect the vulnerable among the citizens. In these days of everything goes sports betting, the exact opposite is true.  I am not arguing for a return to the old moral and legal environment, nor am I condemning the current shift in values. But I must admit to being somewhat shocked by the difference in attitudes.

One Step Forward, Two Steps Back, A Japanese Casino Dance

Japan has been the land of possible opportunity for expansion in the casino industry for roughly six years now. The prospect of developing a casino – the nation’s first – in the Land of Rising Sun has attracted and excited virtually all of the leading international gaming companies. Prime Minister Shinzo Abe has been a driving force in setting the stage for potential casino resorts in Japan; if not the choreographer, Abe has at least been the conductor leading the legislative orchestra. Whenever there was a setback – and there have been many – in the efforts, Abe was the one who pushed the reset button.

Last Friday, however, the 65-year-old Abe resigned, putting the country’s casino plans in doubt. Abe said he was saddened to not finish his term, but his health – he suffers from colitis – would not allow it. Abe is the longest serving prime minister in the country’s history, known nationally as a conservative with something of a revisionist philosophy. Internationally, however, he is known more for his economic policies, sometimes termed Abenomics. One element in his economic plan for Japan was the introduction of casino resorts, in order to stimulate tourism to Japan. He took a trip to Singapore in 2014 and, while he was there, toured the integrated resorts. Upon his return to Japan, he said, “I think integrated resorts will be a key part of Japan’s economic growth strategy.”

Originally, Abe had hoped to have casinos in Japan before the 2020 Olympics. There was a great deal of initial resistance to the idea, with opponents claiming that casinos would bring criminal gangs, money laundering, drugs, corruption, and addiction,  and would weaken traditional Japanese cultural values. Opposition parties fought, and continue to fight, against introducing casinos, and public opinion polls have indicated that casinos were not terribly popular with the general population. Getting casino legislation passed would not be an easy or quick process. Early on it became apparent it would not happen before 2020, and maybe not before 2025. Or later.

On July 20th, 2018, the Japanese Diet, the country’s parliament, voted to authorize three integrated resorts (IRs), a term borrowed from Singapore, in Japan. The legislation called for local jurisdictions to first approve the resort, and then to form a partnership with a gaming corporation and present plans for the intended resort. If more than three locales opted for a resort, the government would decide which would receive the license. That process alone added years to the timeline.

In the final draft of restrictions and limitations, only 3 percent of the total floor space of each IR could be devoted to gambling. Foreign tourists could enter freely, but any large wins would have the applicable Japanese tax taken out at the time of the win, and Japanese customers would be required to pay a $50 entry fee and be restricted to three visits per week, or a total of ten per month. It was not an optimal law.

Still, there were interested corporations. At least 15 international gaming companies expressed interest and opened offices in Japan. Each of them courted one or more of the major population centers and tourist destinations. By 2016, estimates of $40 billion in annual gaming revenue from Japan were becoming common. Resort investments numbers were also huge: Wynn and Sands both danced around an approximately $8-$10 billion number. When Osaka sent out an request for proposals last June, Las Vegas Sands, Wynn Resorts, MGM Resorts, Melco Resorts, and Genting Singapore, among others, submitted a proposal.  But by the time the final legislation was in place, enthusiasm was waning. And then people in Wuhan, China started to get sick. The eventual pandemic caused Japan to postpone the Olympics, crippled the economy, and put all casino plans on hold.

The casino companies started to waver, and so did the locales. Cities in Japan, for the most part, said they were still interested, but thought everything should be delayed. And then Wynn and Sands announced the end of their efforts in Japan. Sands chairman Sheldon Adelson dropped the first bomb in May when he said, “My fondness for the Japanese culture and admiration for the country’s strength as a tourism destination goes back more than 30 years. I’ve always wanted our company to have a development opportunity there. We are grateful for the friendships we have formed and the strong relationships we have in Japan, but it is time for our company to focus our energy on other opportunities.”

Others followed suit soon thereafter, although Melco has since reinforced its interest in developing a world class and uniquely Japanese resort in Japan. It was in this context that Abe, the champion of integrated resorts in Japan, resigned. Japan has long had a reputation of being difficult for foreign businesses, but the attempt to introduce IRs into Japan has been more than difficult. For every small step Abe’s government took toward that goal, the legislature took three steps backward. The biggest backward steps were outside of the Diet’s purview, however: the coronavirus and Abe’s resignation.

So now we wait. Japan’s economy needs time to recover from the coronavirus, and the country needs to choose a new prime minister. The major gaming corporations are certain to use this time to reassess the potential value and costs of developing a casino in Japan and to come to some sort of definitive conclusion. One step forward and two steps backward is an exhausting dance.

The Great Guessing Game, putting your money on the line

Trying to guess the future is an old game, albeit updated in 2020 with some pandemic twists. It is a great game to play, but very hard to handicap. These days, everyone is playing it in some fashion, trying to figure out what they need to protect them from the next disaster. Some are saving money; some continue to hoard toilet paper. Businesses are cutting expenses to be leaner and more efficient and to brace themselves for hard times. Investors are buying into what they believe will be the future trends, products, and services. Whatever your strategy might be, however, it’s all ultimately a crapshoot. The nature of future disasters is unknown and so, therefore, are the things one will need to survive. Equally difficult to predict are the collateral outcomes.

In 2007, stock trader and statistician Nassim Taleb published The Black Swan. The book was both a new way at looking at investing in stocks and a warning that bad things happen unexpectedly. Taleb is Lebanese and lived through the Lebanese civil war. He did not trust the world; in his experience, bad things tended to just happen, with no notice. Taleb carried that belief into investing; his strategy was to invest with the idea that something unexpected will happen to upset the apple cart. His book, and his philosophy, directly challenged the standard notion that things would largely remain as they are, with incremental improvements over time.

The pandemic has taught us that things do change, and not always for the better. Taleb is right: unexpected things, Black Swans, happen regularly. Stock market plunges, recessions, wars, international trade crises, flu epidemics, hurricanes and earthquakes, and volcanic eruptions occur. The big ones totally disrupt both the economy and normal, everyday life. They set off a chain of reactions that change society, sometimes permanently. Pearl Harbor, 9/11, and the 1918 flu pandemic are in that category. Other, lesser events, like the 1970s gas crisis or the stock market crashes of 1987, 2008, and 2011, had shorter-term consequences. The economy, and society as a whole, recovered fairly quickly, for the most part, from those events.

The current pandemic promises to have lasting consequences, although it is really too soon to predict what those consequences might be. But that’s part the charm of the great guessing game: predicting future outcomes and, if you’re so inclined, maybe putting some money on your favorite. Early results for the gaming industry indicate that one of the favorites to stick around is online gambling. The first indicator of the potential of online gambling was the complete absence of casino revenue from mid-March through until the end of May, and, in some states, June, July, even August. That absence made every corporation, state, and city dependent on casino revenue acutely aware of their vulnerability.

Two states retained some gaming revenue: New Jersey and Pennsylvania. Those states both have online gaming, and it continued to function and produce cash flow for the casinos and tax revenues for the states during the closure of the casinos. The online activity did not make up all of the lost revenues and taxes, but it helped. It also attracted the attention of casino operators, lawmakers, and investors, and pointed to a possible alternative future for the gaming industry.

Before the pandemic, online gaming did not have broad support, outside of a few major gaming companies and some lawmakers in states desperate for more tax revenue. Now, however, we have seen the Black Swan. No one could have reasonably predicted the extent of the economic impact of COVID-19, but now that we’re here, planning that reflects the lessons still being learned from the pandemic has understandably become the norm. One of the lessons learned is the importance of cash reserves; if you have enough cash in the bank, you can exist for quite a while even without any fresh revenue. The lesson, then, is to reduce your expenses and save more cash.

The second part of that lesson is that a larger and more diverse income stream is essential. The companies that operate in New Jersey and Pennsylvania and have online gaming have seen very clearly just how important that uninterrupted cash flow can be. The lesson is not lost on lawmakers, either; already, several other states are discussing the possibility of online gaming. A lawmaker in Indiana, for instance, has expressed plans to introduce legislation in the next session. And investors are taking the lesson, as well. This might be the time to put some money into companies that offer online gaming. Or at least that is what Barry Diller thought.

Diller, through his company Interactive Corporation (IAC), bought $1 billion of MGM Resorts’ stock, about 12 percent of the company, two weeks ago. Diller and IAC CEO Joey Levin have since joined MGM’s board of directors. “We are energized and excited to make this investment in MGM,” Diller said, adding that his company was interested in an “area that currently comprises a tiny portion of (MGM’s) revenue – online gaming.” In other words, IAC thinks MGM can grow that tiny bit of revenue into something that justifies a billion-dollar investment.

Diller may be right, but the transformation will not be instantaneous for either MGM or the gaming industry in general. The legalization of online gaming will have to happen one state at a time, and it will be a long, slow, expensive, and tedious process. It will have its champions, and it will have its opponents. But the time is probably right to launch a campaign. The economy has been totally disrupted, and consumer spending is changing dramatically. People are spending much more money online and are using cashless payments wherever and whenever possible. And, not incidentally, consumers are now looking for things to do when their world falls apart and they are forced into isolation. They are finding those things online. The stars, as they say, are in alignment. Or are they?

This is what makes the great guessing game so difficult. It is certain that major changes are taking place. But whether the changes are permanent is not so certain. Will people permanently stop going to movies, bars, sports events, concerts, and casinos? Will they forever forego cash for cards? Two, five or ten years from now, will we as a society have returned to all of those public gathering places that were so popular before the pandemic? Barry is betting that more will stay home to gamble than before. He is betting with his head, not his heart. We do not all have a billion dollars to invest, but we do all have the opportunity to play the game. Each of us has that has a choice. You can put your money, time, and effort into what you like and want in the future, i.e., bet with your heart. Or you can bet with your head and gamble on what you believe is the likeliest outcome. Either way, you are playing the game and betting on future outcomes. Get your bets down, folks. The dice are ready to roll.


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October 2020