European-Style Sportsbooks: Bad for Everyone

Types of Sportsbooks and the Right to Refuse Action

Both directly and indirectly I have been refused action by at least dozens and probably hundreds of sportsbooks in my lifetime. I think this is the case for anyone who has made any decent amount of money in sports betting.

I don't begrudge most of these books and frankly feel lucky that some of them actually even paid me. I am not too proud to admit that most of what I beat these books on were things that are among the easiest to beat in sports betting - props, tiny sports, and early lines in medium-sized sports where everything moves 2 points or equivalent. For the big stuff I bet at the usual major books that are comfortable booking the action, and have no problem getting down to this day although I have been limited to some degree at a couple, unfortunately in the few larger sports that I really like.

In my opinion, sportsbooks don't have any sort of ethical obligation to take a bet, especially unregulated offshore sportsbooks. With regulated sportsbooks there is a little more of an argument to be made, but even regulated sportsbooks are quasi-private businesses that exist to make money, and can't be expected to take a beating from sharps and do nothing about it. And it is a very tough industry in which to make any money, especially nowadays; if you look at the earnings reports of the major regulated books, they are not all that profitable. Most only make a pathetic percentage of the net win after paying for taxes, marketing, and expenses, and some actually lose money.

Of course, I have no pity for these books at all; the fact of the matter is that these regulated books theoretically should lose money. They offer a worse product than their competitors at a higher price, with no differentiation, and only do any business at all due to their natural monopoly that has come as a result of regulation. In fact if you look at the industry today, both legal and unregulated, sportsbooks all fall into three groups, only two of which would have any economic reason to exist in a free market:

Three Types of Sportsbooks

The sharp sportsbooks are great - I have infinite respect for these operators, who somehow manage to make money while taking on the sharpest sports bettors in the world. Every form of sharp angle and attack has been used against these books, yet they still make tons of money often from wannabe "professionals", and pay absolutely everyone.

The semi-sharp sportsbooks are also worthy of respect. They may not be able to take huge bets on anything one would want to bet due to their liquidity being limited due to regulations or a commitment to anonymity, but they offer a great, straightforward product often with very good value. The Vegas books listed are especially commendable given that they do this while staying in compliance with onerous gaming regulations. And even most of the well-known bitcoin operators offer a very solid product - the only time I have ever been stiffed by these is when I probably deserved it.

European Books: Bad for Players

While other sportsbooks are worthy of praise and respect, "European-style" sportsbooks will only kill the sports betting market. They are not good for almost anyone in the long-run, players and governments alike. The only group they benefit are possibly the leagues and others looking to sell ads, and even that is questionable.

First, obviously they are bad for the players, both recreational and professional. One could argue that the recreational bettor is well-served by these books, because they may not have known about another, lower-price option that is better for them, and these books provide a service that the bettor presumably feels provides a good enough entertainment value for their money. But if it were not for the heavy advertising that is part of their business strategy, as well as "legality" imposed by our friendly authoritarian corrupt crony governments these bettors would have likely ended up at another, more player-friendly sportsbook instead. At these sportsbooks, the recreational bettor would likely receive better odds or promotions, making their gambling dollar last longer. Presumably this would lead to more gambling enjoyment and a better experience.

For example, in Asia, where gambling is mostly illegal, but prosecution of mere sports bettors is extremely rare, none of these European books do any significant business. Part of this is just the better education system in Asia, meaning many recreational sports bettors better understand the importance of getting better odds, and have no interest in playing at books like these that offer poor value. This means that the Asian recreational gambler gets much better value for money and loses less; or more accurately in the case of Asian bettors, bets more and loses more or around the same amount, but gets more excitement as a result.

I shouldn't have to tell anyone why these books are bad for the professional sports bettor - obviously if you have a book that is the only game in town that is not going to let anyone win, that is not going to be conducive to professional play. While there are always going to be ways to get action down through beards, most people who win get tired of exploiting books like these after a while and would prefer to instead be able to bet at solid books with less hassle, even if it means making less.

But there is another reason these books are bad for professionals, that is actually more important in the long run, and is the reason why I am very down on the future of high-level sports betting. By siphoning away much of the recreational action from the sharp books, they limit the ability of these books to make money with their current business models. After all, to be a professional sports bettor for long, the professional must make money on his or her bets. This money has to come from the sportsbook. The way the sportsbook manages to make money in spite of this is to get enough action on the "wrong" side of the game, which smart sportsbooks use professional players to find. But to get this action, they need losing money to come in and take the other side - with some exceptions, you are never going to see two-way professional action on many games. This money comes from the recreational sports bettor. While one might think this is bad for the recreational sports bettor, the fact is that they are still getting a better price betting the "wrong" side at a book like Pinnacle than they get at any recreational sportsbook. In fact, often they get a much better price, since many recreational books deal dual lines where the wrong side is offered at an inflated price, then refuse action to those that take the right side.

We have seen this happen already at Pinnacle Sports, who has cut back on limits and added vig in market after market, with the exception of some e-sports markets and soccer. The first big change came when they truly shut out the US agent market following the whole Cantor/Jersey Boys bust - I understand limits dropped huge then, although I was not betting heavily at that time so I don't have first-hand knowledge of those changes.

More recently they have continued with limit cuts and vig increases in many smaller sports, and even some medium-size sports. For example, they no longer take decent-size bets on college basketball at all until March Madness. Those who have agent accounts at Pinnacle through brokers would know that limits have been further cut to 30-50% of the normal post-up account limit, for accounts where the agent will not share the action (winners). While I don't have insider knowledge about Pinnacle, I doubt they are doing this out of sheer greed or a lack of desire to book big action - instead, they are getting pounded by sharps, who find ways to either get an agent account or a real account in another country, but they longer get the recreational action they need to compensate for these sharps, because regulation has kept these players from betting at Pinnacle.

With BetCRIS/Bookmaker it is not as bad - if anything they have increased their limits and betting options - but if these legal states begin to crack down on their agent business, and it is likely they will, things could go downhill for them as well.

In any event, as someone who has pounded them for years, it is very important to me that Pinnacle and these other sharp books continue to make money. In some smaller markets, they are basically the only game in town, to the point that you can bet 10x the amount at Pinnacle at a better price than you can get elsewhere. And in larger markets, their lower vig and unique lineset may actually be more important given the smaller margins we all have in these sports.

European Books: Bad for Governments

Obviously European-style books are awful for players, but in the long run, they are bad for governments as well. Their high-margin, high-acquisition cost, player-unfriendly business model will kill the sports betting market in the long run, and is the exact opposite of what has been successful in gambling markets in the past.

To start out, let's take the example of a successful gambling product where the market exploded, the game of blackjack. In blackjack, a true "virtuous cycle" scenario came about following the release of the classic Beat the Dealer in 1962. Beat the Dealer was one of the truly unique books in gambling, as it gave away a strategy for free that wasn't all that hard to learn, that would beat a game offered almost everywhere. One would think this would have killed the game of blackjack. Instead, casinos began making several times more on the game than they had ever made in the past, even though they were forced to cheat players far less than they did before. Somehow, instead of following the system and learning to count cards, players read the book then decided to play pretty much the way they always had before, only now they thought they would win in the long term. The below scenario followed:

Blackjack Virtuous Cycle

The boom continued for several years, dying off as recs eventually realized they still couldn't really win, only to come back when a new book (Million Dollar Blackjack) or gambling jurisdiction came out. In the meantime, casinos and governments all made tons of money, professionals made tons of money, and the recs got skinned, but at least they got to play a fair game with good odds and win big from time to time, which is about all they can ask for.

The big thing gambling operators can learn from blackjack is the importance of presenting your product in such a way that it is not a "sucker bet" but rather a game of skill where with enough effort, the gambler can actually win, and not just by luck. The best way to do this is to offer a product where there actually are long-term winners (through having good odds), then advertise the shit out of the existence of these individuals. If I ran a big sportsbook I'd offer incentives to my biggest winners to come on some kind of YouTube video / podcast ran by the book to talk about how much money they have made. Even better is if they can portray these individuals as ordinary guys, although most are not. The DFS industry tried to do this, so I'll give them credit - the problem is that their product was so shitty, with such high rake and such a huge bias against recreational players, that it took about half a season for recs to figure out that they were getting skinned to death.

With the European-style model, instead of the virtuous cycle of blackjack, we get the following ruinous cycle:

Ruinous Cycle

The above cycle is already reality with sports betting in Europe - revenues decline every year in most regulated markets.

***EDIT: A few experts have corrected me on this with the valid point that online growth has been very strong in these markets, which I cannot argue with. I would argue that much of this revenue growth has come from migration from retail to online, as well as the opening of new regulated markets and licenses across Europe; obviously revenue is going to grow if you are starting from nothing. But even if you think sports is picking up steam, the same argument I make here is 10 times stronger in horses or poker, and in fact much of the growth in sports betting has come at the expense of horse racing, because no matter how bad these books are, sports is still a way better bet than the horses.***

Part of this is due to the poor economy in Europe, to be sure. The sportsbooks were able to stem this decline in business for a while by offering roulette machines, which were such a scam that even the UK, a country that like most others in the world, doesn't give a shit about problem gambling, decided to shut them down (sort of). And this cycle has already happened in other forms of legal U.S. gambling as well - horse racing, poker, and DFS are notable examples.

The question is why this ruinous cycle starts. The answer, like with most of modern society's economic problems, is flawed government regulation. There are two possible causes. One is a tax rate that is too high. In such a regime, sportsbooks have no choice but to turn to the above high-margin strategy, that is lousy for the player, because they can't make any money otherwise. Since these sportsbooks get a tax writeoff on advertising and promotions, they will spend heavily on these, but the core product doesn't get any such breaks, so it will be priced too high for most players to win.

The other cause is a natural monopoly caused by cronyism and/or excessive barriers to entry. In this type of situation, the few remaining operators increase their price and bar winners aggressively because they can since there are no other (legal) choices. In the short-term, they will make more money, but the damage they do to the market in the long-term is bad for everyone involved, including the sportsbooks themselves.

What is really sad is that unlike monopolies in things like utilities or railroads, where you could argue that the first-mover took a huge risk in making their capital investment and deserves a payoff - there is no justifiable reason where there should ever be significant barriers to entry to opening a sportsbook. Now that the whole "sin" idiocy has died down in most parts of the world, there is absolutely no reason for gambling regulation at all other than to ensure that taxes are paid, the games are fair, and minors don't bet, yet the explosive growth, authoritarianism, and corruption of modern governments have ensured that like everything else, gambling regulation is far more than this.

In any event, it is presumably in the government's best interest to maximize revenues from sports betting, while limiting the negative societal impacts of problem gambling. A free market with limited barriers to entry and a reasonable tax regime is the best way to accomplish this. A virtuous cycle and massive sports betting boom would inevitably follow. The benefits would be further amplified by either bringing the current illegal operators into the fold (most would love to pay taxes and get a license if only they could) or ensuring that the legal product is so good that bettors have no reason to turn elsewhere.

Unfortunately, it seems that the United States has decided that they don't really want a free market and would rather feed the horse/casino donor cronies, while the tax rate situation is more of a mixed bag. This has allowed William Hill to step in, along with a couple DFS operators who don't really know what they are doing, but will eventually figure it out and likely end up like William Hill, killing the market for their product as they have done already with DFS. Everyone will lose in these scenario, including the books themselves, except for a few politicians and their big donors - the way it always works in the United States.