The state is widely seen as one of the most industry-friendly states in the U.S., and Trost tells CoBets that the regulators have been “lovely” to deal with in that span.
But as his company continues with plans to launch in Indiana this fall, the way that legal, regulated sports betting has played out in the country frustrates him on a number of fronts.
“I wish this was all regulated on a federal level — Adam Silver was right,” Trost said of the NBA commissioner who in 2014 famously wrote in a New York Times op-ed article that he supported legalizing sports betting — on the condition that Congress intervene. “So instead, we have everything state-by-state, and it’s a challenge.”
But there is another aspect of the sports betting industry that confounds Trost, a former UBS trader.
Casinos as sportsbook partners? Smarkets boss asks why
Trost, an American whose company is based in London and which has a larger presence in the United Kingdom, said he is “disappointed” that so many states have forced marriages between casino operators and sports betting apps.
“I wish they had taken a better approach than that,” said Trost, whose 2019 deal with casino company Full House Resorts opened the door for his company to offer a sports betting app in Colorado and Indiana. “It’s like a ‘pay-to-play,’ and the consumer loses out.”
Full House Resorts $FLL laying out the terms of their recently announced sports betting agreements … they are with Wynn, Smarkets, and Churchill Downs… here are links to those deals icymi… https://t.co/kuOuM1MZS8https://t.co/CfS0luuexyhttps://t.co/fRkjYNk7jp pic.twitter.com/LfXM2HMWpr
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) October 31, 2019
The partnership concept has its roots in the 2006 casino openings in both Pennsylvania and New York. Lawmakers in New Jersey and especially Atlantic City casino operators underestimated how devastating a loss of business would occur almost immediately in their state.
While Atlantic City’s casinos collectively saw total revenue rise every year from the Resorts casino opening in 1978 through 2006 — peaking at $5.2 billion — the next nine years produced declines that didn’t bottom out until 2015, with a 50% decline to $2.6 billion.
The woes of the casinos had a ripple effect, because in the early 2000s those operators were paying the state’s racetracks a $30 million annual purse subsidy to help the tracks compete with neighboring states that sent a slice of slot machine revenue to the horsemen. New Jersey’s horsemen agreed at the time to forego lobbying for their tracks to be turned into “racinos” in exchange for the purse subsidy.
A number of incremental laws were passed to try to help both ailing industries in the next few years, since the casinos could no longer afford to subsidize the horsemen. In 2011, residents across New Jersey overwhelmingly backed a referendum to allow sports betting at the Atlantic City casinos and the three racetracks.
Atlantic City’s role in the issue
The NFL and four other sports organizations sued New Jersey — most specifically, Gov. Chris Christie — in 2012 to seek to enforce the terms of Congress’ Professional and Amateur Sports Protection Act of 1992.
That law gave Nevada a virtual monopoly on legal, Las Vegas-style sports betting — until New Jersey’s quixotic quest to topple PASPA succeeded as the U.S. Supreme Court nullified the law as unconstitutional in May 2018.
The Supreme Court has overturned PASPA, opening the doors for states to legalize sports betting. Per the ruling: "Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own." https://t.co/6CvZqEre67
— Ben Fawkes (@BFawkes22) May 14, 2018
So it made sense for New Jersey, at least, to ensure that casinos and tracks benefited from sports betting – right?
“Why does one industry or another have to be favored?” Trost said. “It’s not written anywhere that Atlantic City has to have casinos for the next 500 years. If the casinos close, they close. Now, take the airline industry — anybody can create an airline.”
But in Pennsylvania, Colorado, Indiana, Iowa, and West Virginia, the partnerships with casinos and/or racetracks are mandatory even though those states don’t have the same conditions that existed when New Jersey chose its ground rules.
Trost sees the shotgun partnerships as “closed-minded,” preferring a free-market approach. Colorado has much of that, with more than 20 sportsbooks now in operation, but it does have the casino tie-in.
Other state strategies skewered
New Hampshire goes to an opposite extreme — all legal sports betting in the state takes place with DraftKings, under a 51%-49% revenue-sharing deal with the state lottery there.
Asked what he thought about that concept, Trost said, “To be honest, it’s awful.” He also doesn’t think much of plans in New York, which this year will develop some sort of a deal with one or two operators and as few as four subcontractors to offer mobile sports betting.
Still, Trost said his company “doesn’t have a choice” but to play by the rules of each state, and he said he plans to bring his company to as many more states as possible in the next three years.
A “better mousetrap” idea by Smarkets is offering better lines than the traditional +110 or -110 by large operators.
“We let market dynamics determine exact prices, but our odds are generally better — and the goal is about a ‘5-cent line,'” Trost added, meaning that the “vig” — the operator’s share — is only about half.
Trost said that setting such lines is feasible for Smarkets because of its business efficiencies, such as needing only about 100 employees who Trost said “are mostly engineers” and also managing odds “in-house” and thus avoiding having to partner with an outside oddsmaker.
Thoughts on sharps, fixed odds, and exchange wagering
And while some large U.S. operators face a steady stream of criticism for limiting “sharp” or expert bettors to sometimes absurdly low limits, Trost said his company does not.
“We embrace [skilled bettors],” Trost said. “We’re not going to kick anybody off our platform for winning. It’s a sign of weakness when you have to limit trading.”
Trost’s company does big business in the United Kingdom with exchange wagering, a spin on the stock exchange in that one bettor or “punter” can offer odds of, for example, a team not winning an NBA or NHL title. If another bettor prefers the opposite site of the wager, the battle is joined. He wants to see that offering flourish in the U.S.
Fixed-odds wagering, meanwhile, means that a horse-racing bettor can get 10/1 odds on a horse to win 15 minutes before a race — and collect at that number if the horse prevails. With traditional parimutuel wagering, the final odds sometimes don’t lock in until the race already has begun.
Monmouth Park has dabbled with fixed odds, but major operators such as Churchill Downs oppose the concept, mainly due to fears that those bets would cannibalize parimutuel revenue. Supporters say that’s the same sort of mistake that casino operators used to make regarding online casino revenue, before reversing course and welcoming a new set of customers who weren’t going to visit the casinos anyway.
“Even if it does cannibalize, so what?” Trost adds, underscoring his free-market philosophy. “There’s always this idea that we have to protect certain industries.”