In the throes of March Madness, sports betting is just about omni-present in Las Vegas. States across the nation are legalizing daily fantasy sports. Locally, speculation about possible NHL tenants of the T-Mobile Arena or the wisdom of building a UNLV stadium that may host an NFL team is dominating much conversation. That makes this a good time to consider the evolving relationship between Las Vegas and sports betting.
Bookmaking was decriminalized in Nevada in 1941 with a law that allowed the establishment of “pool rooms” in casinos. The operation of these rooms, which almost exclusively offered betting on horse racing, figured heavily into the Kefauver Committee’s 1950 hearings in Las Vegas. Two years later, Congress passed the Wagering Tax Act, which levied a ruinous 10 percent excise tax on all race and sports wagers. For a business that ran on a profit margin of 5 percent or less per wager, this spelled doom.
After the 1952 tax became law, Nevada casinos exited the race and sports book field, giving way to small turf clubs that, through a variety of means, managed to stay in business despite the tax. But, after Senator Howard Cannon, D-Nev., succeeded in 1974 in lowering the tax to a more manageable 2 percent, casinos returned to the fray. Bob Martin at the Union Plaza and Frank Rosenthal at the Stardust pioneered the “modern” race and sports book, which accepted bets on a variety of amateur and professional sports.
These new casino books, which grew progressively larger over the ensuing decade, gave Nevada casinos a great deal of character—think “Big Game” parties—but contributed little to the bottom line. As late as 1993, sports betting represented less than 1 percent of the total combined win of the state’s casinos.
Since the recession, however, sports betting has become a larger slice of the casino revenue pie. Still yielding only about 1.3 percent of gaming revenues in 2007, last year sports betting contributed 2.1 percent of that total. That’s a 62 percent increase in the proportion of sports betting win in just eight years—a period in which overall casino revenue shrank by 14 percent.
Further, sports betting may be the final frontier for casino expansion in the United States. While there are certainly urban areas that gaming companies would like to move into, there are few regions that represent the kind of untapped potential that fueled the 1990s boom. It is no accident that the American Gaming Association, the national industry’s advocacy group, has been front and center on sports betting, sending out in recent months news releases advising the total estimated bet on the Super Bowl ($4.2 billion) and March Madness ($9.2 billion) as well as the number of Americans who bet on the Super Bowl (47 million, including President Barack Obama).
Should sports betting be legalized more broadly, even if it only adds about 2 percent to the combined performance of the nation’s casinos, it would yield about $760 million in additional revenue, without substantial
investment in new facilities.
Likewise, with states from New York to Indiana moving to create frameworks for an unambiguously legal regime of daily fantasy sports (DFS), Nevada casinos cannot be disinterested. Like traditional sports betting, DFS may be an adjunct, rather than a direct threat to or as replacement for slot and table gaming, but it is expanding rapidly.
As sports betting and daily fantasy sports expand nationally, Las Vegas casinos may look to amp up their offerings in order to appeal to those bettors. After all, most of the 47 million Americans who bet on the Super Bowl didn’t come close to Las Vegas; but there is something special about doing it legally, on the level that only Nevada’s sports books can provide now. By the same token, the AGA estimates that 70 million Americans will fill out an NCAA tournament bracket. That may satisfy many, but the uniquely Vegas brand of betting—and enjoying everything else the town has to offer—is still in high demand.
So, even if efforts to expand legal sports betting in the United States don’t pay off in the short term, it will not be surprising to see Las Vegas casinos continue to invest in sports betting. If played right, it’s a win-win for casinos: Either they maintain their near-monopoly, or they emerge as the epicenter of a growing legal wave of sports betting.
With such sure things in short supply in today’s Las Vegas, the growing importance of sports betting to casinos is a near-given.
David G. Schwartz is the director of UNLV’s Center for Gaming Research.
