When Sports Media Marries the Sportsbook

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1:30Congratulations, you made the varsity of the podcast. My name is John Aranda, and I am Pucks, a sports correspondent and the host of this pod. And today, I asked Danny Funk to join the podcast. Danny is a contributor for the Washington Post, and he covers sports betting. And he wrote a book published by Simon & Schuster just this week on all the chaos in the sports betting world. It's called Everybody Loses, the tumultuous rise of American sports gambling. So we're going to talk a lot about the recent sports betting scandals and where the business is headed from here. But before we get to Danny, today is Sunday, January 25th, and here's what I'm watching.

2:11It's the NFL, of course. Today is a day that we're going to find out who's going to make the Super Bowl. And while I am interested in who's going to Santa Clara, I'm also interested in the future of NFL Sunday Ticket. Yes, it was 11 years ago that a class action suit was filed against the NFL over a Sunday ticket. The case is still winding its way through the courts. The plaintiffs argue that the NFL broke antitrust laws by pulling out-of-market TV rights and selling them at an artificially high price. So a year and a half ago, a jury agreed with the plaintiffs and awarded them$4.6 billion dollars.

2:51But then another judge overturned that. And now the case is going to be argued again on March 9th. That's the exact moment that free agency opens. Now, it's possible that the full award will be reinstated. It's possible that the damages will be recalibrated. It's possible that the case will be sent back for a retrial. I talked about the case with Puck's legal expert, Eric Gardner, and he thinks the NFL faces some peril here. After all, this is the same appellate circuit that revived the case a few years ago and sent it to trial in the first place. So a loss here could send the NFL media rights situation into chaos.

3:30Remember, the NFL is about to break the bank on its next round of media rights coming either this year or next. And if it loses the case, there's a scenario where the NFL would have to allow individual teams to work out their own media rights deals. That could lead to the Cowboys having its own deal and the AFC South selling a media rights package of its own. If there are teams that truly struggle to find a deal, then there might be some pro-competitive justification for allowing the division to team up like that. Okay, now let's get to Danny Funt. Danny, first of all, thanks for joining us. And I want to do something a little bit different for this uh i want to start with sort of my last question my get out question of sorts and and that's you wrote a book uh that's called everybody loses about uh the really the you outline the perils of sports betting and and a lot of the problems associated with sports betting um i've been covering uh sports betting since it became legalized and even before then.

4:32And, you know, there's a real sense of like, it's going to be hard to put the toothpaste back into the tube. What's the future? Like, you outlined a lot of the problems that are inherent with what sports betting is. It's starting to be talked about a lot like in DC, which is where you're going to see a lot of changes potentially happen. But if you and I have this conversation in five years? What's this going to look like? What's the whole market going to look like? Well, one of the surprises to me, and I think when people read the book, is that sports betting is not quite as profitable as you might think.

5:11There's this assumption that if you're running a gambling operation and you run it competently and you pay your bills, the house always wins. It's kind of a slam dunk business. Even for these market leaders, FanDuel and DraftKings. It's a tough margin. They're under pressure to become more and more profitable, find more and more things to get people to bet on. So I think they're going to be pushing higher hold products, products that have higher margins on customers, whether that's types of bets or pressuring more states to legalize online casino gambling, which is something FanDuel and DraftKings and their competitors offer where it's legal.

5:57About a half dozen states now, but that's so much more profitable than sports betting. I think there's going to be a lot of pressure across the country to open the doors to that. And then all these companies are going to say, hey, you like betting on sports while you're waiting for your bet to resolve or during this commercial, why don't you go play slots or blackjack or whatever? So that's a big business. I think that'll grow in the US. The other thing I'll say is in Europe, in Australia, all over the world where online betting has been around a lot longer than in the US, they've sort of eventually realized you can't trust the industry to self-police.

6:37when they do proper studies of gambling prevalence, they're often aghast at how out of hand things have gotten. And there's been like a wave of re-regulation in those places where they say, we were wrong to not install more aggressive consumer protections, tighter guard rails on this industry. So I think that's in store here. I think even the industry knows that. And in some respects, their attitude is, let's get as much as we can out of Americans before we face that crackdown. So not a good prognosticator, but I think that's pretty quickly over the years. All right. So let's look at consumer protections that would come in.

7:19Drill down on that. Specifically, what are you talking about? Yeah, there's a whole host of things, whether it's regulating advertising. Some countries have said you can't advertise during sports games, which might come as a shock to Americans. It's all you see practically when you watch a game. But they've said this whistle to whistle, as it's sometimes put, is prohibited. Even rules on ads that are likely to be watched by kids. So saying you can only advertise during certain times of day. New customer promotions, basically throwing free money at people so that they'll sign up for a sports book has been a huge part of how so many fans decided to open up accounts.

8:05That could be regulated, especially when it comes to deceptive language like risk-free promotions that are absolutely not risk-free or even kind of softer language like no sweat bets where you're definitely sweating once you really bet on one of those promotions. The list goes on. I think too often this is like a debate over to legalize or to outlaw. And there are some states, obviously, like California and Texas that have yet to legalize and are still debating that. But there's so much that can be done in between that it seems like lawmakers at the state and the federal level are, you know, they have that in mind and they're pushing that.

8:51And the industry is definitely going to put up a fight. But yeah, There's a whole bunch that could be done. Danny, you know what I love about your answer there is that when I asked the question, I fully expected you to talk about prop bets or in-game betting over unders. And you really focused on the whole marketing of sports betting. Is there a reason that you focused on the marketing over sort of some of the, you know, some, look, all of the scandals that we've been reporting on over the past couple of years have dealt with in-game betting and prop bets. But when you're talking about changes that are going to be made moving forward, you focused on marketing.

9:33Why is that? I think it's an easier sell. So many people who don't know the first thing about betting or might not even be able to define a prop bet can tell you they're exasperated by how much they're seeing ads when they're trying to watch a game. The other thing is that prop betting and parlays, which usually are just combinations of a lot of props, are by far the biggest moneymaker for sportsbooks now. And so if states have grown accustomed to all this tax revenue they're collecting, are they going to cut off a huge piece of that that now comes through prop bets? So I could see a lot of resistance.

10:14I mean, the industry, for one, will put up the biggest fight possible to protect their cash cow. But I think states too might be reluctant to cut that off just because I'm not, you know, this isn't exactly like solving all their budget problems, but the money they get from prop betting is a big piece of it. So not so confident that people like Charlie Baker, the president of the NCAA who wants to ban props on college sports are going to get very far with that. Because if you talk to the NBA or MLB, they are embracing sports betting. The NBA in particular, Adam Silver, it was about a decade ago, I think he wrote that editorial in the Wall Street Journal.

11:03I think it was a journal or was it the Times? One of those - New York Times. The Times, yes. Sorry about that, New York Times. But he wrote the editorial saying, We need to have legalized sports betting. But they are hopeful to get rid of prop bets. And like I said, a lot of these scandals, the John Taye Porter scandal, it's all about prop bets. And so I thought that that would be an easy one to have the sports betting companies move on from. But you're saying they're not likely to. Well, here's the thing. I'm skeptical that even the leagues are going to be very enthusiastic about that. You're right that after a few arrests last year with players in the NBA and Major League Baseball, they said, maybe we should dial this back a little bit.

11:52You know, if you're able to bet and win tens of thousands or hundreds of thousands of dollars on a single pitch in a baseball game, that could be ripe for corruption. At the same time, you might know that one of the big selling points that sold the leagues on embracing gambling was the idea that it would be so good for boosting their TV audience, that people would be on the edge of their seat for all sorts of games they might not otherwise care about if they're gambling. And prop betting is so conducive to that. Specifically, Major League Baseball thought one of the biggest things they have to deal with nowadays is people who think the games are too slow, young people who don't want to sit through a three and a half or four hour game.

12:41And the leisurely pace of play and gaps between pitches, they thought could be flipped and be an opportunity to be placing bets throughout the game on, will the runner on first steal second? Will this batter get a hit or make out? All that was very attractive to baseball. And props in general are a big reason why, people are obsessively watching sports that they might not otherwise care about. So I thought some of the stuff that the league said was kind of window dressing in response to those indictments. I'm not convinced that they're going to give up on those props either. All right. So let me take the side of FanDuel and DraftKings and the leagues for that matter.

13:29And everything that Adam wrote about a decade ago still applies. And it's, you know, sunshine is the biggest disinfectant. I mean, your timing for getting your book out, you know, this week, what better timing? There seems to be a sports betting scandal every single week. And a lot of everybody associated with sports betting would push back on you and say that the reason that a lot of these scandals have become well-known is because it's legalized and they're able to notice irregularities in gambling and it becomes easier to root out. They're going to point to Pete Rose. Gambled for years, and nobody was able to figure that out.

14:17Tim Donahue was an NBA ref for a full year throwing games, and it took a long time to figure that out. Does that resonate with you, some of those arguments that the betting companies and leagues would make? No, and it's not just me and kind of how I read the situation. I'm talking to people who work in the leagues, agents, athletes, and also people who work at these so-called integrity monitors that are responsible for studying betting activity and flagging a suspicious bet and investigating. They themselves say there are a lot of blind spots, even in the legal era. I'm glad you brought up Tim Donaghy, the NBA ref, probably the worst gambling scandal of this century.

15:03A guy who got caught for colluding with people to bet hundreds of millions of dollars on a lot of NBA games over several seasons. And I asked people who work at those integrity monitors, namely Sport Radar, who's the NBA's partner, and an author named Sean Patrick Griffin, a former cop who obsessively reported a book on the Donaghy scandal. And I said, you know, these were very sophisticated professional gamblers who he was working with. And they were very subtle, you know, about how they place bets. They were very discreet in how they contacted Donaghy. but most importantly, they were betting through the black market.

15:46And there remains a robust black market despite legalization. By some estimates,$50 billion a year in America are bet illegally still. So I asked them, if someone were to try to fix an NBA game like that now, if a ref were that determined to influence the outcomes of games, would you be able to catch it? And they said, no, most likely they're still going to go through the black market. That's still going to be very difficult for us to detect. And we're exposed. But even beyond that, a key thing that I tried to hammer home in the book is that a lot of ways that you're able to bet in the online era, 95 % of this business is now conducted online.

16:34And it's not just a matter of the same things you bet on at a sports book in Las Vegas or through your neighborhood bookie. You can now bet on from your phone. Digital betting has opened the door to so many new ways of betting, including these same game parlays where you're betting on a bunch of things involving one game. It's hard to set the odds on that because these things are correlated. Like if a quarterback throws three touchdowns, it raises the likelihood that his favorite receiver had 100 yards on and on. So it's hard to offer those bets. But these companies are so tech savvy, they're able to do that.

17:13It also exposes the leagues to a whole new category of fixing because take a player like Jontay Porter, the Toronto Raptors player who was busted for removing himself from games with fake injuries so that his props would go under. People were betting to win over a million dollars on a Jontay Porter same game parlay. I asked Nevada bookmakers, and I asked some guys who work offshore who I know have been overseas taking bets from Americans for a long time. and I said, would you ever have taken a million dollar bet on a two-way NBA player like Jonte Porter, the most obscure player possible? And they said, not a chance.

17:59And to get back to your question more directly, a bookmaker in Nevada named Robert Walker, who has been at some of the top sports books for decades, very respected guy. The argument that Adam Silver and his peers laid out that legalization enhances integrity, as he put it, is a ruse. You might say, yeah, you can catch some things, but you're opening the door for so much more headaches that you have to deal with and scandals that you have to be able to flag. No one's buying that who's actually on the inside.

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19:45now it feels to me this is what one of these feel statements that's why i'm glad to have you on but it feels to me that we're seeing a lot more uh of these sports betting scandals just you know a couple weeks ago the ncaa had one the nba the mlb it's they they seem to come every every month there seems to be a new one do you have data is is there more are we seeing more now than than than we have in the past? It feels that way. I don't have data. Again, I would just point out that like with the MLB arrest to Cleveland Guardians pitchers, including one of the top closers in baseball, Emmanuel Classe, they're betting on specific pitches.

20:30Like they told a guy, you know, I'm going to throw, I'm going to spike a slider and bet that I'm going to throw a ball on that pitch, or I'm going to throw an off speed pitch. you can now bet, you know, will a certain pitch be above or below 97 miles an hour, whatever the case may be. So that level of like granular micro betting, as they call it, is another byproduct of online betting. But yeah, I don't know exactly. I do. I've pointed this out before. I think it's an important point. There is somewhat of a have it both ways argument that you hear from advocates for legalization, whether in the leagues or the sports books, where it's like they catch someone doing this and they say, look at how good we are at catching fixing now, or time passes without a scandal.

21:18And they say, all of that concern was overblown. There hasn't been a problem. So I find that a little unconvincing, but I think it'd be an interesting study. The problem with that sort of study is, I guess it'd be interesting to know, are we catching more people? The real question would be, is there more corruption than there was before? And as I get into in the book, and again, this is things that people who work in sports are saying, not just me or outsiders who are trying to interpret it. A big problem with this promise that the leagues will be able to catch bad behavior is they're entangled with the companies that are tasked with blowing the whistle.

22:05They have ownership stakes in those companies. The bigger business for those companies, these integrity monitors, isn't integrity monitoring. It's providing the data that makes online betting possible, the real-time data on statistics and what have you that allows all this in-game betting. So it's a major conflict of interest that would they expose... We're talking about John Day Porter or even guys like Terry Rozier in the NBA last year, not household names by and large. As an NBA agent put it to me, if they caught an all-star, like someone who people really care about. That would kill the league.

22:50So is it really in their interest to expose that? And we're counting on them to, you know, it's sort of a self-policing job with the leagues. Like it's up to them to, you know, tell law enforcement or whoever that this is happening. So it's a major conflict of interest. But I've heard that too. You know, if we catch an all-star, we haven't mentioned Otani once, we're about 20 minutes into the pod. And Otani was exonerated. It was, you know, his translator that took the fall for that. That's as close to it. That's certainly the biggest star in MLB that is, you know, within a hair's width of a betting scandal.

23:34Yeah. And to be fair, you know, not everything is the fault of legalization. So in that case, this was sort of an old school scandal. It was a bookie partnering with offshore operations and taking an absurd amount of money on credit, which is another way that you can bet illegally that you can't bet legally from Otani's interpreter. And yeah, there was no evidence that Otani was privy. And yeah. And in fact, as soon as that scandal hit, the message that I kept getting from the leagues and from the sports betting companies is like, if gambling had been legalized in California, they would have gotten this a lot earlier.

24:17It would have been figured out a lot earlier. And again, that's the consistent message every time that there is a scandal that comes out from the invested parties there. Yeah. And not to be too debative, but I do think, you know, After Terry Rozier was arrested last year, this player on the Miami Heat, he's made over$150 million over the course of his career and yet is still alleged to have colluded with gamblers and fixed the outcome of his props. One of the things a lot of people were asking, including the House and the Senate in letters to Adam Silver, was what took so long? The bets that he's accused of manipulating weren't with the Heat.

25:00They were with the Charlotte Hornets two seasons earlier. So if one of the promises is, as you were saying, they'll catch it faster, why would it take two years to track down that and stop him from playing games? So even you were mentioning last week or roughly this college basketball scandal, guys who were implicated in that were playing the same week in games. So it's not always as prompt as you might think. One aspect of your book that I found to be very interesting, we're going to get back into the marketing by the FanDuel and the DraftKings, is the idea of their marketing strategy. And I think this is how you put it in the book.

25:51It's casting a really wide net and you get a bunch of minnows, but you're really just trying to get the one whale. I butchered your prose, but can you walk us through that aspect of the book that I think really illustrates the business behind sports betting? Yeah. So an example of that that I hadn't picked up on until I really got deep into this book was every professional sports team now, at least from the major sports, has one or several official sponsors. And those deals can be worth millions of dollars. You'd think it's a big part of their business. And I always assumed that was just a general advertising motivation.

26:37Hey, have our brand on their court or in the bleachers or what have you. Get the name out and give some legitimacy to these companies. As people inside the betting industry explained to one of the main reasons for those partnerships is because it gives sportsbooks access to all these sorts of ways that they can pamper what they call their VIP customers. People losing tens of thousands of dollars a week, and sometimes much, much more than that, are really the backbone of the money that these leagues are making. The biggest... If you think about it, how much do I have to lose or how much do I have to bet$20 a game to come close to what they're making off a VIP?

27:26So I mentioned they want access to these teams. The reason why is VIPs are throwing out the first pitch at Major League Baseball games, letting their kids take batting practice on a big league field, playing pickup on an NBA court, giving the starting command at a NASCAR race. The list goes on. It's the most dreamlike experiences for a sports fan possible. And so much of this business is about not only finding those people, but keeping them happy and keeping them loyal to a specific company. Hundreds of people at FanDuel and DraftKings, their sole job is catering to those VIP customers. And I devoted a whole chapter of it to my book just because it's kind of irresistible stuff of all of the perks and all of the experiences they get.

28:17And also the dilemmas that it puts these hosts when one of those VIPs shows signs of a problem. Because it's really intimidating to cut off one of your most profitable customers. and people told me like there's sort of an unspoken rule that unless they're saying something really a lot, you know, explicitly, I have a problem or I need help, it's tempting to look the other way because you don't want them going to your competitor and you just don't want to lose that business. So yeah, that whole VIP world was... What was the stat that you had in the book? I think it was like 2 % of users account for...