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Calvin Ayre
 

Of Good Companies and Bad Countries (Or Is That the other Way Around?)

8 January 2004

I am astonished every time I read in a forum or on a watchdog site when some in our industry suggest that somehow the country a company operates in is the primary determinant on corporate performance and strength. This is not true for the industry in general and is even less true for online sports betting. I do agree that this is a factor that can be considered, but it is certainly not the starting point and should never be used in isolation.


. . . For our industry, many of the largest and most dominant companies are located in the least regulated markets with the lowest cost of operations.

To explain this, I looked around for a good mainstream industry model. I think the Nike business model is a good comparison to how all the international sports betting companies are structured. Anyone who owns a pair of their shoes knows that they are manufactured in a number of countries in South East Asia, including China and Vietnam. They are designed in the United States and Taiwan with manufacturing being managed from Taiwan. Is Vietnam a name that naturally springs to mind when you are asked for a jurisdiction that manufactures world-class brands (even though they actually do)? Most likely you think of the United States or maybe Germany if you need a premium car or a good pint. Does anyone reading this article go into a shoe store and turn their noses up at the Nike section as they hunt around for a good pair of "Made in the USA" running shoes? Of course not, you are very happy to take what experience has taught you is a well manufactured product that was specifically designed for you as a consumer, the Nike model.

The reason Nike manufactures anyplace is entirely based on costs and availability of a core set of essential resources specific to their industry. The more optimized the jurisdiction, the more competitive the company will be that is using this jurisdiction verses what the competition is using. Yet when it comes to online sports betting, there is some concept that the rules of the rest of the world's industries do not apply. But this is simply not true. Not only do the same rules of competitive economics apply to our industry, but those that understand this and take advantage of it will have competitive advantages over those who do not. What I am arguing here is that the exact opposite is true from what is being sold by some in this industry. The less regulated the environment a company operates in and the lower its cost base, the more competitive it will be if it has good corporate governance and fiscally responsible management. In plain English, for our industry, many of the largest and most dominant companies are located in the least regulated markets with the lowest cost of operations.

As an example, I established the BoDog.com group in Costa Rica back in the mid '90s entirely because of the criteria that I suggest Nike uses. It has a natural cost advantage over all other markets and has good quality resources, including people, for this cost. In addition to us, Costa Rica also has two other post-up (prepaid wagering) sports book monsters in Sportbook.com and BetonSports.com. I believe we are the three largest post- up sports betting operations in the world, and it is no coincidence that we are all located in the same jurisdiction. To create competitive advantage, all of us combine North American and European technology and management with the cost advantages of the best legal base of operations in this time zone. Other big and well respected operations that are in pricier jurisdictions like Olympic (www.thegreek.com) in Jamaica and Betwwts.com in Antigua were established early enough, are large enough, and have experienced enough management that they can compete strongly as solidly well run organizations. There are also a number of other competitors that should be mentioned here, but that I know less about.

There is a corollary to this; low-cost jurisdictions like Costa Rica also offer lower barriers to entry and will attract a higher number of start-up operations, and this is where you will find higher risk of failure. So while there might be more failures in absolute terms from cost-competitive jurisdictions like Costa Rica, it is not a coincidence that the largest and most spectacular blowup in our industry (Aces Gold) happened in the Dutch protectorate of Curacao, one of the most costly jurisdictions to operate from. Also if you look at the trends over the last five years, there has been a steady migration from higher-cost jurisdictions to lower-cost jurisdictions, and specifically Costa Rica such that San Jose, Costa Rica is now the center of U.S.-style sports betting worldwide. It is also not a coincidence that it's promoters of the sports books located in the high-cost (read uncompetitive) jurisdictions who are most vocal in selling the meme that the jurisdiction is the sole determinate of corporate viability!

So if players cannot rely on this particular (mainly self-serving) rule of thumb to make decisions, what are they to do? I would start with another rule of thumb that actually does have some validity and is what is really happening, but being misinterpreted by those who want to give Costa Rica a black eye. The rule is that the longer a business has been in operation and the higher its profile in the industry, the safer your money is! This rule is independent of jurisdiction for reasons mentioned above. But since the weaker companies will likely have some smoke and mirrors in their marketing material, and since this is not the only factor to consider, players will need help and for this you need to get in contact with the guys who make a living reporting on our industry, typically known as watchdog sites. But remember, the most important part of the preceding statement is the "make a living" point.

Players looking around this space will quickly find themselves in a game of snakes and ladders since, as mentioned above, all the watchdog sites take advertising from our industry and are therefore very likely to be self serving. Even the ones who say they don't take advertising will in fact be getting paid. How else do they keep the lights on? As you can imagine, there is lots of room for abuse in this area, so it's the classic case of "caveat emptor" (buyer beware) and not likely to change much any time soon. Start by finding one that admits that it is being paid by the books it recommends. Then find out how much travel they do. For any self-proclaimed watchdog site to be able to really give true advice, it is necessary for their top management to actually go to the gaming companies offices and do physical inspections. The competency of management and fiscal solvency of the gaming companies are the main issues that they should be focusing on, and this is not easily judged by sitting in their office behind a computer alone.

What kind of relationships does the management of the watchdog sites have with top management in the gaming companies (including ones that don't advertise with them) to help you solve problems if any should arise? Try to find a few good sources sites and then rely on them to help you sort out the fact from the fiction. By having more than one you can get consensus opinions. The better of these guys can also help after the fact if there is a failure in getting another book to assume your account making you whole in the process.

By reading material on these sites and talking to their management, you will get a better idea of who the strong (safe) companies are in today's market. Last word of advice is to be careful what you read in posting forums. Though they can be another useful source of information, there is no system in place to confirm the integrity of anything posted by the anonymous posters. This is often used to float agenda driven misinformation that can be very costly to anyone blindly following anything from this source. Forums are best left for industry knowledgeable sorts who can easily tell fact from fiction. By following these simple rules, a player will protect himself much better than by simply black holing large swaths of the industry as some are trying to suggest you should. You will also be in a better position to find the gaming companies that offer the best value for your style of wagering. As the industry matures, there should be less of the Wild West and the top companies will become common knowledge to all. The more mainstream the industry goes, the better protected the consumers will be. This is what we are pushing for as an organization and is why I write these articles.

For more articles by Calvin Ayre, go to www.calvinayre.com.

Of Good Companies and Bad Countries (Or Is That the other Way Around?) is republished from iGamingNews.com.
Calvin Ayre
Calvin Ayre