Join the OSGA Progressive Pick'em! Check the Contest standings!


What effect will the PASPA repeal have on offshore sportsbooks?




Harltey examines some reasons why offshore sportsbooks will continue to service U.S. bettors, despite the recent change in U.S. sports betting laws.

Six reasons why bettors will still play offshore

While many U.S. citizens, states and casino operators were rooting for the Supreme Court to overturn PASPA, the same can’t be said for some offshore sportsbooks who were hoping to maintain their monopoly. Offshore companies like Pinnacle, The Greek and Bodog had already cut off U.S. customers, but numerous other companies still take U.S. action and while it’s almost certain they will lose some bettors, it’s not certain just how much that will be. I reached out to several U.S. facing companies for comments about the companies’ futures, but only one, Diamond Sports International, was willing to comment. Scott Cooley, the media rep for DSI stated the following:

“For now, it's business as usual at BetDSI. The company has been working behind the scenes for years preparing for this day, but nothing immediately changes from an operations standpoint.  

Offshore books such as BetDSI that almost exclusively cater to U.S. clientele will always have a place in the industry because there will always be a sector of gamblers that wish to remain anonymous and/or shop for the best odds. Even Las Vegas, which has been a longtime destination for sports bettors, can't offer certain odds that BetDSI can. Live wagering, a multitude of props, bonus incentives, reduced juice, etc. will always be attractive enough to some, and available offshore.”

Cooley of course is correct and there are numerous reasons why Americans will continue to choose betting on sports offshore rather than at local sportsbooks. I’ll highlight a few of them:

Taxes

reasons to play offshoreWhile U.S. law states that citizens must pay taxes on all gambling winnings, the truth is very few players do unless the gambling company submits a form to the IRS. A person from FanDuel told me that they lost a few players in the early years for that reason alone. Many DFS players just assumed winnings were tax free, even though the rules on the site stated otherwise, and at the end of the year when American customers received a form W2G from the company stating the amount they had to include as income it was quite the shock and a few players closed their accounts. Even non-U.S. players receive a 1042-S to be declared as income, albeit if those players are in countries that have a tax treaty with the United States there is no need to declare the winning amounts as foreign income. The same holds true for anyone who wins big at a casino or racetrack (based on the amounts that have to be declared per tax laws) and the same will hold true for local sportsbooks. Naturally, for the small player who doesn’t bet enough to matter, or for those who don’t win, this isn’t a big deal, but for wiseguys or players who win five figures or more every year this will be a large deterrent. Every offshore site puts in a disclaimer in the rules stating that it’s up to the player to know their tax laws and act accordingly, but no offshore company will ever hold a percentage of winnings to remit to Uncle Sam nor will they send a tax form to the player indicating they have told the IRS how much money their clients have won. And for sports bettors who wager professionally it will be hard to justify giving up 25% or more of their income to the government when they can continue to wager offshore on the same games and keep all their winnings.

Privacy and Anonymity

Related to the above reason is the desire for anonymity as Cooley mentioned. People likely don’t want to be identified as gamblers for various reasons, including perhaps concerns about the business they work for finding out about their activities or worse yet, their spouses. But most importantly they may simply want remain private for reasons of their own which is really nobody’s business. While offshore books have some very basic know your customer (kyc) requirements such as name, proof of address and age verification, land-based local sportsbooks will probably want a lot more and possibly may even question the source of funds used for deposits if it’s part of anti-money laundering laws. And in today’s world where everyone is worried about identity theft a lot of people just aren’t comfortable giving local casinos that kind of information. Someone I spoke to from one of the larger New Jersey casinos told me that there are a lot of requirements people must agree to before they can play online in the state and she said that more than a few simply gave up their applications because it got to the point where they believed the amount of information they were giving to the casino just wasn’t worth it.

“We really have no choice in the matter as it’s a DGE requirement and it’s in the best interest for all involved. Still we also know we would have more customers if they could remain anonymous,” she told me.

Actually, that’s why cryptocurrency is becoming such a popular method of payment even for non-crypto based sportsbooks. Places like 5Dimes, Heritage Sports and BetOnline take bitcoin or other currencies as payment and there are no questions asked given the anonymous nature of crypto. Players get funds deposited into their accounts at the current USD buy rate and when they withdraw they are sent BTC back to their anonymous accounts. And you can bet dollars to donuts that Monmouth Park racetrack or companies like MGM and William Hill U.S. will never accept crypto currency as a payment method.

Ability to shop for the best lines and different sports offerings

Contrary to popular belief there are still a lot of online sportsbooks that take U.S. action and many bettors have accounts at several of them and shop for the best lines. One only need go to Don Best or Vegas Insider to see how many U.S. facing web sites have lines up on games and the lines do fluctuate between sportsbooks. And for professional sports bettors it’s all about the lines.

People like Billy Walters became successful because his company had a line in mind that made money and if they didn’t get that line they would pass on the games. Las Vegas used to be the place to play for professionals, but as the lines tightened, as the vig increased and as the limits declined a lot of professionals started looking offshore because there was no money to be made in Vegas. And for sure if Vegas had uncompetitive lines, certainly smaller sportsbooks in New Jersey, Michigan and Pennsylvania will be worse. This is especially true if the sports leagues get their 1% integrity fee and/or if the licensing fees and taxes on sports bets are too high. Sportsbooks will have to account for the extra costs somehow and the only real place to do so is by adjusting the lines they set. So, it wouldn’t be surprising to see 30 cent baseball or football lines with land-based sportsbooks, which could be hard to justify if the bettor can get 20 cents or less offshore. Moreover, while there are dozens of sportsbooks to choose from offshore, it’s hard to see any state that will have more than two or three operators, which cuts down on the options to shop for lines.

Offshore sportsbooks also offer sports or events that U.S. sportsbooks can’t (there is a good possibility that NCAA betting may be disallowed in U.S. states) and offshore books have a slew of props and incentives that local sportsbooks will never be able to match.

Ability to bet in-play

In game betting optionsBetting in-play is by far the fastest growing wager option offshore nowadays and several offshore sportsbooks have lines throughout the game. Some offshore books stay on top of the sports from the outset and never really close the odds until the game is out of reach, while most sportsbooks close the lines while play is on and repost updated odds at each stoppage in play. Either way, it’s a great opportunity for bettors to enjoy games, even when their initial bet is in jeopardy and it allows bettors a chance to hedge bets for a sure profit if their team takes the lead. At a local sportsbook whether it’s in a casino, racetrack or bar this would be virtually impossible. Las Vegas has tried it but a sportsbook manager there said that the ability to offer continuously updated lines without getting hit is only viable on a computer and most Nevada books just aren’t set up for that. It’s also quite possible the Wire Act would prohibit internet betting. But offshore in-play betting works and is proven.

Satisfaction with current books

Most offshore players have stated they are quite happy with their current sportsbooks and in fact a lot of them have developed close personal contacts with the owners and sportsbook managers. “I can call Henry at any time and I know he’ll work with me to come up with a line we are both happy with. And I know I’ll never have an issue getting paid,” one offshore bettor told me a few years back about the book he plays with. And most offshore players can talk about friendly and professional dealings with sportsbooks they use. They often are on a first name basis with the book and almost always rave about the great customer service offshore. In Las Vegas and almost certainly at a local sportsbook run at a casino or racetrack this friendly, personal experience will never be an option. In local books, as in Vegas casinos, people will likely just be another name or number on a player points card and to many bettors that lack of satisfaction and sense of being important to the book will be a turn off.

Not all states will offer sports betting

While there has been a lot of talk about states getting in to sports betting as soon as PASPA is repealed. The truth is only six states, aside from Nevada, have a sports betting law in place (Delaware, Pennsylvania, New Jersey, New York, West Virginia and Mississippi) and only 16 states have tabled any bills, although some of those, like Oklahoma, seem unlikely to pass. That means that more than half the states have no immediate intention of offering sports betting and states like Utah, Texas, Arizona, Washington, etc. will never pass laws allowing it. Consequently, residents in almost 60% of the states still have no other option but to play offshore and that will continue for quite some time. Plus, they can’t simply wager online to a neighboring state that allows it since interstate betting is illegal per the Wire Act.

So those are the majority of reasons for U.S. bettors to continue to play offshore. What about the reasons to play with a licensed and regulated local sportsbook instead.

First there will be more payment options. One will likely be able to pay by credit card, debit card or even with cash at the sportsbook as they do in UK betting shops. And, of course, receiving payments will be more convenient since for many offshore books a check, bitcoin or possibly MoneyGram are the only withdrawal options. Still those playing offshore are getting paid somehow as we at OSGA have heard few complaints recently about the inability to receive funds.  Second, I guess one could argue it’s technically legal versus offshore that isn’t ‘legal’, but there are no laws on any state books aside from Washington that makes it illegal for a U.S. citizen to play offshore. That’s about it. There is really no other viable reason to prefer to play at a local sportsbook versus offshore. So, it’s no wonder many offshore books that cater to U.S. citizens are cautiously nervous but aren’t sweating bullets worrying about their future viability.

One thing that should be noted is that the repeal of PASPA will have no effect on the legality of offshore betting or on the WTO ruling for Antigua. The WTO ruled in favor of the U.S. government on their morals argument that offshore gambling opposes U.S. morals, since the United States only allows limited betting within state boundaries.  But at the same time they ruled in favor of Antigua and awarded $21 million a year because the Interstate Horseracing Act allows betting between states (and Antigua said that if Americans can bet online between states they should be forced to allow betting in other countries too). That is why the WTO limited the award to the amount Antigua loses from the inability to offer horse race betting. Since the repeal of PASPA only pertains to intrastate betting on sports, nothing changes since interstate betting has not changed. That said, it's uncertain how the DoJ will act to enforce their laws offshore. There is a chance that as gambling expands in the U.S. the government will see no real benefit to continued prosecution of offshore operators since their businesses will appear less significant as Americans can now bet legally at home. Or, the states may demand more offshore prosecutions to protect their new industry. If that happens jurisdictions like Antigua, Kahnawake and Costa Rica will continue to fight for their sovereignty and not cooperate with the DoJ. And as long as offshore managers do not enter the U.S. or countries with extradition treaties with the U.S. they will be fine.  Larry Walters, a first amendment attorney specializing in online gambling agreed:

“The Wire Act still prohibits use of a wire communication facility for the transmission of bets in interstate or foreign commerce. Therefore, today’s ruling will not have any impact on offshore sportsbooks that accept U.S. players. A change in legislation would be required to legalize that activity. There has been a lot of discussion relative to “integrity fees” being implemented by the professional sports leagues.  It is possible that integrity fees could make for less favorable odds for players, and thus actually push more individuals to play at illegal offshore sportsbooks.  While offshore sportsbooks may lose some customers in states that implement online legal sports betting, it is not a given that legalized sports betting will put illegal and offshore sportsbooks out of business.  Unregulated and illegal sports betting may actually increase in the short term, as potential players search for legal gaming and instead find the offshore sportsbooks.  However, the U.S. Supreme Court decision may generate more proactive enforcement at the federal level against offshore sportsbooks, now that domestic sports betting has become a recognized, U.S. interest to protect.”

My next article will look at the impact of the PASPA repeal on racetracks, casinos and other entities that hope to offer the product across the United States.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!