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Calvin Ayre
 

Market Forces vs. Regulation in Online Sports Betting - What The Industry Really Thinks!

21 November 2003

Since the earliest days of our industry, there has been a loud and sustained debate on the relative gains for all parties on Market Forces vs. Regulation. The arguments have run the gambit from the patently ridiculous to incredibly poignant. In many cases the persons making the ridiculous arguments do not in fact believe them, but rather are engaged in the age-old practice of politics. They are either pandering to someone in power or have a hidden agenda they are trying to sell to the world at large. I have been in this industry since its earliest days in the 1990s and have had the chance to discuss this topic with many industry luminaries.

Most of my peers are loath to actually go on the record with this topic, but I think it's an area that needs more balanced discussion. From the perspective of the end user, increased regulation on "verifiable event" wagering, such as sports betting, doesn't provide any increased value unless it is restricted to things that help ensure payouts of winners. Although sports wagering on the Internet gets lumped in with casino wagering in most of these arguments, I can not be convinced that the interests of the end users, the players, is in any way enhanced with regulation in sports betting like I believe is the case with regulation of casino wagering. In casino wagering you have the extra step of not being able to verify if you are getting the odds promised, in sports wagering the only question is if you will be paid if and when you win.

The real-world case study of the sports betting industry and the changes since it went online and got de facto deregulated starting in the mid '90s is the best evidence for the argument. Market forces have led to an unprecedented explosion of innovation and competition since this happened, and the net result is a dazzling array of new wager types along with huge signup and reload bonuses. All of this has created real value for the end user, the player. Additionally the low cost and rapid distribution of information enabled by the Internet creates a genuine barrier to cheating of any kind. Who would play with a documented scam operation? Incompetence is immediately subjected to the mysterious Darwinian forces of natural selection. Notice of business ineptitude can be sent all over the Internet in articles and chat forums and is punished by the ease of players moving their money to competitors who are more efficient.

The competition for market share among efficient companies drives down the profit margins spurring new rounds of innovation offering a greater value proposition to the players as an inducement for them to change their loyalties. This creates a positive feedback loop of perpetual innovation that will never exist in a highly regulated environment like Nevada, to name one example. In highly regulated environments the opposite occurs. Huge barriers to competition are created by regulations that are there for the stated purpose of protecting the interests of the players, but have the additional impact of killing all the market forces that drive innovation and therefore stop any value increases to the very players they are supposed to be protecting.

Even the argument that regulation stops companies from failing and therefore protects players is not entirely correct. Though it may stop some players from losing, the overall loss in value to the market is far greater than the small loss of a few. The Internet's cheap information, should you choose to look, will give you plenty of warnings as to who are strong and who not. Additionally as the industry matures the number of companies going under will decrease, as the strong will get stronger. This year the industry saw the strong getting stronger while the weak found themselves consolidated or collapsing, and there were no real big blow-ups like we have seen in the past.

Today in U.S.-style sports wagering, the international sports wagering companies are the ones that drive not only the products offered but also the odds that are offered for any event. The size of this market now dwarfs what is done in any highly regulated market. It is impossible for a significantly regulated company to compete with less regulated ones and this is in and of itself proof that the general public appreciates the increase in value that is offered by the "invisible hand" of market force. The only areas where there should be regulation is to vet the competency of the management team and ensure proper corporate fiscal responsibility so that minimum liquidity ratios are maintained thereby increasing the chances that if you win you get paid. This scenario is the environment that will create the highest value combination for the guys that really matter in all this, the players.

Market Forces vs. Regulation in Online Sports Betting - What The Industry Really Thinks! is republished from iGamingNews.com.
Calvin Ayre
Calvin Ayre