Mercator Blog

Sports Betting: A Risky Gamble or Winning Bet?
Date: November 10, 2021
Rachel Gore
Sr. Staff Writer, PaymentsJournal

What is sports betting?

Sports betting, or sports gambling, is when wagers are placed on the outcome of a sports game. There is nothing new about sports betting. In fact, it is thousands of years old, with ancient Greeks betting on athletic competitions and ancient Romans wagering on the outcome of chariot races and circus events.

Of course, modern betting does not revolve around chariot races. Instead, sports bettors place wagers on amateur and professional sports including horse racing, soccer, tennis, football, baseball, basketball, boxing, and many more.

 

The repeal of PASPA

The Professional and Amateur Sports Protection Act (PASPA), which took effect on January 1, 1993, hindered the growth of legal sports betting in the United States. PASPA made it illegal for states to authorize sports gambling on professional and amateur levels, with exceptions for states that already had betting markets (Nevada, Oregon, Delaware, and Montana). The law did not cover animal races, such as horse racing.

The law, however, did not stop U.S. consumers from placing bets. An overwhelming majority of betting that occurred while PASPA was in effect was facilitated through illegal bookies. The American Gaming Association (AGA) estimated that Americans illegally bet at least $150 billion annually on sports.

PASPA was repealed in May 2018, when the Supreme Court of New Jersey ruled that the law was unconstitutional. It is important to note that the end of PASPA did not legalize sports betting. What it did do was open the door for states to draft their own legislation.

Since PASPA's repeal, states have taken several different approaches to the legalization of sports betting. As of 2021, sports betting is legal in over two dozen states while other states have not passed any legislation. Even in the states that have legalized sports betting, mobile betting may or may not be available. States with legal operators have largely seen an increase in legal betting and a decrease in spend with illegal bookies.

 

Common types of sports wagers

There are several different types of sports wagers. According to William Hill, the most popular sports bets are based on point spreads. These are wagers based on the margin of victory in a game. Other types of sports wagers include:

  • Straight bets - Betting on a single selection to be the winner.
  • Parlay bets - Betting on a series of selections all winning.
  • Futures bets - Betting on an event far in the future (e.g., which teams will make it to playoffs).
  • Propositions - Betting on the outcome of events within a given game.
  • Round Robins - Betting on a collection of Parlays; not all selections have to win to get a payout.

 

What is e-sports betting?

E-sports betting is the act of placing wagers on e-sports, or professional video games. Rather than betting on the NFL, MLB, NHL, or NBA, e-sports bettors will place wagers on the outcomes of professional video game matches or tournaments. Popular games for e-sports bets include Call of Duty, Counter-Strike: Global Offense (CS:GO), Fortnite, League of Legends, and Overwatch. Wagering on e-sports is becoming increasingly popular as competitive video games gain recognition as legitimate sports.

E-sports betting was not clearly addressed when the Supreme Court repealed PASPA, and most states with legal sports betting do not explicitly address e-sports, but a few do: New Jersey passed a bipartisan bill to legalize e-sports betting, and Pennsylvania passed a bill that amended the definition of "sporting event" to include e-sports. Over time, more clarity will be necessary for legal e-sports betting to flourish within U.S. markets.

 

Key market players

There are several key market players in the sports betting space:

  • Sportsbooks.FanDuel and DraftKings dominate online sports betting but have dozens of smaller competitors.
  • E-sports sportsbooks. While some traditional sportsbooks offer e-sports betting, some sportsbooks exclusively serve that space (e.g., GG.BET, LOOT.BET).
  • Casinos. Nearly every online sportsbook is tied to the gaming license of a physical casino (e.g., Caesars Entertainment, MGM Resorts, WinStar Casino, Penn Gaming).
  • Payment providers and banks. Most of the payment players involved in this space are those that specialize in high-risk merchant accounts (e.g., BankCard, PaymentCloud, and SecurionPay).

 

Regulatory challenges remain, but the future is bright

While the regulatory environment of sports betting is undeniably friendlier than it was during the era of PASPA, there are still risks for banks, fintechs, and payment providers looking to service this industry. Even so, there are compelling reasons to consider entering this nascent arena.

Mercator Advisory Group's recent viewpoint, Acquirer Market Spotlight: Sports andE-sports Betting, offers deeper insight into this topic and provides recommendations to payment players interested in serving the industry.