US sports betting has spread like wildfire. Before 2018, it wasn’t even possible to legalize it anywhere outside of Nevada. Soon, over half of the 50 states will have online sports betting, and several more have at least retail betting. So gambling advertising overload may already have consequences.
Because by comparison, other forms of online gambling have languished. Online casinos have been a legal possibility for much longer, yet only six states have authorized them.
Many industry analysts expected that iGaming would follow closely on the heels of online sports betting. But what if the opposite is true? Could the behavior of the sports betting industry be hurting its own chances of getting to offer online casino gaming in more states?
There are several possible reasons online casino expansion has been slower than many expected. However, public sentiment is paramount when it comes to political decision-making, and the industry has not been doing itself any favors in this regard.
Gambling Advertising Overload
Opinions about gambling itself vary widely. However, you’d be hard-pressed to find many examples of people who are enthusiastic about the number of gambling ads at the moment, particularly on television.
The New York Times recently published a lengthy piece heavily critical of the gambling industry and its lobbying efforts. Its author, Kenneth Vogel, explicitly said on Twitter that he’d been motivated to write it due to being “bombarded with sports betting ads.”
Though the American Gaming Association expressed disappointment with the article’s framing of things, Vogel’s frustration with and skepticism of the industry is shared by many Americans.
Market researchers The Harris Poll recently found that a majority of Americans believe sports betting should be legal, but almost as many think there should be restrictions on how it is promoted.
Are gambling companies’ efforts to promote their respective brands resulting in a self-inflicted wound for the industry as a whole? Quite possibly, but we’re unlikely to see anything change in the near term.
The Wave That Wasn’t
Sports betting isn’t the only online gambling craze to have swept the US. Almost exactly one decade before the repeal of PASPA – the federal law banning sports betting – the online poker boom was at its peak.
That was an unregulated poker boom, however. It was the crackdown on that industry, known as Black Friday, that set the stage for the legislative efforts of the past ten years.
That’s where things sat until sports betting became a possibility in 2018, kicking off a new, bigger boom. At first, it looked as if the same trend might repeat itself, with online casinos getting bundled into sports betting bills since bettors have a strong preference for betting online.
Two big prizes came early in the form of Pennsylvania and Michigan, with West Virginia as an added bonus. Since then, however, there has been a drought. Connecticut, another small market, has been the only other state to join them.
Notably, no state that legalized online sports betting has successfully followed up with iGaming in the following year or two, despite attempts by Illinois, New York, Indiana and others.
The Pandemic Didn’t Help
Some analysts believed that the Covid-19 pandemic would help accelerate iGaming legalization. The shutdown of retail casinos hurt gaming tax revenues badly, at a time when states desperately needed the money. Those which had online casinos fared far better. It seemed like a great example of the benefits of a regulated online casino market.
In practice, however, it probably had the opposite effect. Lawmakers and the voting public were busy dealing with anti-Covid measures and the backlash against those mandates. Gambling was suddenly a lower priority. There were also concerns that online gambling addiction was becoming a greater problem under lockdowns.
There’s hope that iGaming expansion could get more attention in 2023, as the world learns to live with Covid. But has the mood soured in the meantime?
Advertising: a Negative Sum Game
The amount of advertising it’s doing is hurting the industry in at least one way: It has been extraordinarily expensive.
Between ads, direct promotional bonuses to entice players, and other marketing, companies are finding it difficult to turn a profit. Some, like BetMGM, have called for the industry to collectively rein itself in. Others, like DraftKings, have defended their spending and stressed the need to build customer databases and market share.
Even at the best of times, advertising tends to be a negative sum game. Each company, individually, is better off for having spent on ads than it would be not doing so. But many of the customers acquired through advertising come from competitors, while some existing customers are lost as a result of those competitors’ ads. Ultimately, a lot of the money just ends up going to counteract the effects of others companies’ ads.
Advertising can only be positive sum if it helps grow the total market and not only the company’s share of it. And US online gambling is indeed growing. But it would probably be doing so anyway, and the growing resentment over repetitive ads may mean it does more harm than good in the long run.
The trouble is, so long as competitors continue to advertise at a high volume, shareholder pressure makes it hard for anyone to take their foot off the gas. Though investors have been expressing alarm at the level of spending and lack of profitability, they would react just as badly to any loss of market share.
Lawmakers Are Human and Subject to Annoyance
It isn’t just public sentiment that the industry has to worry about. The success of any legislative effort depends on the willingness of lawmakers to advance a bill and to vote for it, and ultimately for the Governor to sign it.
In principle, those politicians should be making decisions solely on the basis of public interest. However, they’re all human beings with personal feelings and biases. And they watch television just like the rest of us.
We all understand that it’s in our best interests not to annoy our boss, the police officer who has pulled us over, or anyone else whose decisions are likely to impact us. Even if they’re not deliberately trying to abuse that authority, it’s likely to influence their decision-making.
When a fence-sitting lawmaker in a sports betting state considers an online casino bill, it’s hard to imagine them not taking ads into consideration and asking themselves if they want to vote for several more years of the same gambling advertising overload.
Could the Industry Lobby in Favor of Ad Restrictions?
Perhaps the industry needs to be saved from itself.
Economists often talk about the tragedy of the commons. This refers to the phenomenon where multiple parties with access to a common resource end up overusing it until it is entirely depleted. Even when everyone understands what’s happening, self-interest demands that they continue to get as much value as they can from whatever it is before it’s gone.
Here, the resource in question is public goodwill and patience.
What prevents the tragedy of the commons from occurring? Good regulations. When individual self-interest doesn’t align with the collective good, rules are needed.
It’s odd to imagine an industry asking the government for stronger restrictions. However, it wouldn’t be unprecedented, even in the gambling world. The Irish betting industry – eyeing the disaster unfolding in the neighboring UK – recently asked its government for help controlling itself.
It would probably be in the US industry’s interest to ask regulators to limit the time, volume and content of gambling ads. Unfortunately, the odds that it will do so are close to nil.
There are a couple of reasons we shouldn’t expect this to happen.
An Allergy to Mea Culpas
For one thing, it would mean admitting that the current situation isn’t great.
The game of politics is invariably vicious. There’s nowhere in the world that one wants to give their political opponents any leverage. In the US, especially, admitting to wrongdoing tends to be seen as a sign of weakness rather than responsibility.
To the extent that the industry is willing to admit that ads are a problem, it’s to shareholders and with respect to the impact on the companies’ bottom lines. It would be a huge risk to state publicly that those ads are a public nuisance or – heaven forbid – a possible contributing factor to gambling addiction.
Keeping Out the Little Guys
Perhaps more importantly, the cost of advertising doesn’t hurt everyone equally. Smaller operators have recently begun dropping like flies due to the high cost of doing business. Bigger ones, however, have war chests that will last them for years until the market has thinned out.
Moreover, those with deep pockets for advertising are also those with the ability to spend vast sums on lobbying efforts.
There is one common case where big business does lobby for stronger regulation. This is when it creates barriers to entry for newcomers and smaller competitors. High licensing fees, complicated testing requirements, and similar rules can serve an anti-competitive function and create a protected market for established companies.
The need to advertise and spend heavily on promotions isn’t a regulatory restriction. It is, however, a significant barrier to entry. As much as the big players complain about it, the last ones standing will ultimately benefit.
More than anything else, that’s why the ads won’t slow down. It’s sad, because it probably means 2023 iGaming bills, such as the effort in New York, will face more of an uphill battle than they really have to.