Since the inception of online gambling nearly two decades ago, there are always big stories, every year. This past year saw the advent of legal online gambling in the U.S. (finally) and the end to an iconic racetrack. Hartley Henderson lists his top 10 stories of the year. This is second of two parts.
6. Toronto Casino Debacle
In 2012 Ontario Lottery and Gaming (OLG) announced its plan to modernize gaming in the province of Ontario. Included in this plan was the cancelation of the racetrack-slots program, which OLG called a subsidy but the racetracks called a partnership, the introduction of an online gaming website, and the introduction of up to 29 new casinos with the crème de la crème being a casino in downtown Toronto. The suburbs of Markham, Richmond Hill, Mississauga and Vaughan were also able to compete for the rights to that casino but it was accepted that the preference for all parties was a casino in the downtown corps. The OLG and city laid out 3 potential locations for the downtown casino, namely the port lands, the Exhibition Grounds and the Metro Convention Centre. Under rules of the province private companies could own, manage and oversee the casinos and related hotels, restaurants, entertainment etc. but regulation would fall to the Ontario government. The city that allows the casino to be built would be compensated with a hosting fee provided to them by the province under an indeterminate formula while the province and casino operators would keep the gaming profits. Ontario already has 2 such casinos with Casino Rama in Orillia run by Penn National Gaming and Casino Windsor owned and operated by Caesars. The other casinos in the province are completely run by the government.
MGM's CEO James Murren made a strong bid for the casino at a gaming conference in Niagara Falls in 2012 suggesting that MGM would prefer to put up the casino on the Exhibition Grounds while Caesars, the Las Vegas Sands Corporation and Oxford Properties all made a bid for a casino at the Convention Centre. The port lands were deemed not viable and were dropped as a potential destination almost immediately. The interest in a Toronto casino shouldn't be surprising since Toronto is the 4th largest city in North America behind only Mexico City, New York and Los Angeles. When the announcement of the casino was made the usual anti-gambling forces came out to oppose the building of a casino such as religious groups, gambling help groups and left wing politicians and in response OLG President Paul Godfrey stated that the government would not force a casino on a city that didn't want it and that comment effectively was the death knell of a casino in downtown Toronto. Toronto's city council is made up of largely left-leaning politicians who made it clear from the beginning that they would not support a casino and would vote against it if given the option, while the mayor of Toronto, Rob Ford came out in favor providing even more fodder for the councilors to vote against the casino. The majority of Toronto councilors have done everything in their power since the time Ford was elected to make him look weak and foolish and this was just another opportunity to achieve their goal. It didn't take long for the casino operators to realize they would be fighting an uphill battle to convince Toronto councilors to change their mind and MGM tried everything in their power to sway council including holding a mock job fair, providing an elaborate transportation plan and making provisions to allow the CNE (Toronto's fair) to continue on Exhibition grounds in the future. MGM's last plea was to the people of Toronto asking them to petition their councilors not to allow 10,000 high paying jobs to go the way of the dodo bird but council's minds were made up and in the end the vote wasn't close. Both a downtown Toronto casino and one at Woodbine Racetrack were voted down.
With the Toronto casino dead, Markham, Richmond Hill and Mississauga indicated they had no interest in hosting a casino and the city of Vaughan initially voted in favor of hosting a casino but later backed out. The only option left for a Greater Toronto Casino is in Durham Region (an Eastern suburb) and Pickering has made a strong bid to host a resort casino but if the current plans stay in place, that casino would be too small to attract the interest of the casino companies. There is a good chance that the Toronto casino option could be reopened after the next municipal election, but it's doubtful many casino companies would be interested in going through the costly mess again . . . unless they are assured a Toronto casino will indeed be built.
Harltey examined the Toronto casino story throughoughly, including attending several of the meetings involving MGM and Ceasars. To get his most recent view on the subject, click here.
7. The closing of Hollywood Park
When one discusses iconic racetracks in the United States, names like Churchill Downs and Belmont Park immediately come to mind but so too does Hollywood Park. The Inglewood California racetrack was built in 1938 and has been the companion track to Santa Anita Park. Hollywood Park hosted 3 Breeders Cup races including the inaugural 1984 event and Citation became the first million dollar horse in 1951 after winning the Hollywood Gold Cup. The track was sold to Churchill Downs Inc. in 1999 for $140 million who in turn sold it to Bay Meadows Land Company for $260 million in 2005. Terms of the sale required Bay Meadows to continue offering racing at the track for at least 3 years but the sale also was an indication that the land was more valuable than the amount made from horse racing. Bay Meadows agreed to continue offering racing after 3 years if slots and other forms of gambling were added to the track to make horse racing there viable, but Bay Meadows also sold some of the land at Hollywood Park to developers indicating that the end of racing at Hollywood Park was just a matter of time.
Experts in the California racing industry agreed that Santa Anita was simply a better track for racing and that it made no viable sense for both tracks to operate in the Los Angeles area especially with the continuing decline of interest in horse racing. Cities like Miami, Chicago and Toronto closed popular smaller racetracks in the past to concentrate on one venue and it was inevitable that Los Angeles would do the same. Even in New York some racing experts have expressed questions as to whether Aqueduct will close at some point in the near future and that all racing in the city would occur at Belmont Park.
Hollywood's destiny was prolonged for a short while when Betfair, which owns TVG Network, purchased the naming rights to Hollywood Park for 5 years in 2012. Betfair hoped to turn around the customer experience and the way people bet on horse racing in the U.S. by employing their well known and popular form of exchange betting and planned to use Betfair Hollywood Park as the test site for the project. Betfair believed that being able to bet against horses to win, rather being forced to bet on a particular horse and being able to bet while the race was being run would enamor younger betters. They also noted that because one customer puts up odds they want on a horse and another customer accepts it, it almost resembles poker which of course is quite popular among the young adults in the U.S.
Initially the California Racing Association agreed to allow exchange wagering but later reversed that decision expressing concerns about the possibility of cheating and cannibalization of the current pari-mutuel form of betting and put off for one full year any discussion of the topic of exchange wagering. Unfortunately, recent talks made it clear that exchange wagering is still a long way off. With that decision the inevitable took place and in May 2013 Hollywood Park announced it would be closing at the end of the year. In a letter to employees Hollywood Park's President stated that the land was simply too valuable to continue offering horse racing in the current climate and "in the absence of a favorable change in racing's business model, the ultimate development of the Hollywood property was inevitable." Hollywood's dates will be transferred to Santa Anita Park and Del Mar.
8. The monumental rise in the value of bitcoins but the lack of interest by traditional gambling companies
When I first wrote about bitcoins in 2012 the value of the virtual currency was about USD$6 according to the bitcoin trading site MtGox. The value of the digital currency fluctuated somewhat but generally remained in the range of $3 to $12. The currency saw a brief rise to $25 when it was determined that people could buy contraband and illegal drugs with bitcoin using the torrent site Silk Road but eventually bitcoins settled back down to the $6 range. The value of the currency of course is speculative since it doesn't trade like a traditional currency exchange. My interest with bitcoin at the time was for the use of offshore gambling. With the United States government cracking down on EFT and credit card payments to and from offshore websites and with the ineffectiveness of other payment options it seemed that bitcoin provided a reasonable alternative that would almost allow offshore websites to regulate themselves. Bitcoin only gambling websites were up and operating successfully including BTCSportsbet, Seals with Clubs, Satoshi Dice and Bitzino but only one real money gambling site, Switch Poker, offered clients to deposit and withdraw with bitcoins. In fact, Switch Poker required players to deposit and withdraw only with bitcoins.
Throughout 2012 and 2013 I spoke to numerous traditional offshore betting companies that indicated they were very interested in offering bitcoin for trading but they also generally said they didn't understand the digital currency well and they were very concerned about the fluctuations. After all how can they book a 20/1 future bet at say BTC2 when it's worth $6 but be expected to pay back BTC120 if it's worth $50. They felt there was no way to really hedge the virtual currency like they could with US dollars or Euros nor did they want to hold a large amount of bitcoins for that purpose. They also stated that it seems that actually trading the currencies at places like MtGox is very difficult. In fact when the currency rose from $12 to $60 overnight (at least according to the value listed on the MtGox website) one traditional bookmaker told me that the more he studied the currency he was convinced bitcoin was just a big ponzi scheme aimed to make the initial holders wealthy. Another traditional bookmaker also noted that he can't actually use it to buy any real products with it. "If I want to buy heroin or guns I suppose I could get those with bitcoins but if I want to buy computers, electricity or products I can actually use in my business there is no one willing to part with those products for bitcoins." As such he deemed bitcoins to simply be something "which looks good on paper but is useless in real life." Personally I tried to buy a few bitcoins when it was $6 which I planned to play on some bitcoin gambling sites to provide a logical write-up about the digital currency but I gave up after I was constantly getting error messages and virus warnings on my computer. Nevertheless one thing that was very appealing to all gambling sites was the fact that bitcoins were impossible to trace to a user and that sites couldn't be blocked by any government.
Things changed dramatically in the middle of 2013 as bitcoins went on a monumental rise. The stock rose in implied value from around $40 to $100 then back to $50 then up to $200 then down to $80 then up to $150 finally settling at $100. This was all in one day!! It seems the massive change was caused by Chinese investors who have turned to the digital currency in droves spiking the price. After that the rise just continued and in less than 2 weeks the stock rose according to the MtGox exchange to over $1000. Yet for every person outside of China that seemed interested in buying a bitcoin there were thousands anxious to get rid of them. This had many in the industry wondering what exactly bitcoins were and what their real value is. Stories did make the news including one in December of a person buying a $100,000 Tesla for around 100 bitcoins but it was still difficult to find many retailers that were willing to sell their product for bitcoins. In fact the dealer that did sell the Tesla said that BitPay locked in the price of the bitcoins taking the risk away from the Tesla dealer but other parties interested in buying a Tesla for the same deal were turned away. This had many wondering if the Tesla sale was just a bitcoin industry publicity stunt.
More concerning, 4 events have occurred that have completely turned most of the traditional gambling industry away from bitcoin interest. First, the U.S. government was able to track down the owners of Silk Road (the drug and contraband bitcoin site) and Liberty Reserve (the bitcoin bank for criminals) and close those sites. Plus they were able to block a U.S. subsidiary of MtGox forcing that company to stop processing payments for U.S. currency for some time. This had many offshore gambling companies wondering just how anonymous the currency really is and whether the government could target them for accepting bitcoins. Second, the monumental rise in the currency is just an indication that offshore betting sites likely can't hedge the currency and the value of bets will vary drastically over the time a bet takes place and is settled plus one offshore bookmaker told me he wasn't thrilled at the prospect of dealing in fractions of bitcoins which would have to be an option at the current value. Third, someone with thousands of bitcoins threw away an old computer which had the bitcoin numbers stored on them and because "the record" was lost he had no way of claiming those bitcoins. This is concerning to any company that could see potentially millions of dollars just disappear into thin air if there is an unrecoverable error of some sort or if there is ever a break in. And last the Chinese government announced that they won't accept bitcoins as a real form of currency which caused the value of bitcoins to plummet. Bitcoins are still technically worth around $700 but if the government of China sticks to their decision that bitcoins aren't legit and if no other government accepts the currency as legitimate the price could plummet dramatically. As one offshore sport betting manager said to me "right now I consider a bitcoin more like a Pokémon card than I do as real currency." Until that attitude changes don't expect any traditional gambling sites to jump on the bitcoin bandwagon.
Hartley first wrote about bitcoins in 2012. His latest piece titled "There is Still Criticism from Bettors about Bitcoins and Virtual Currencies" can be found here.
9. California Poker and the pending agreement with the tribes
It was always assumed that when online gambling is first implemented it would start with poker in California. As we now know Nevada, Delaware and New Jersey beat California to the punch since the California government has been unable to reach a deal with the Indian tribes and horse racing industry. The native group feels that they have the exclusive right to offer gambling in the state and they are concerned online gambling would cannibalize their business. This seemed to cause a large stalemate so 3 parties introduced bills to break the standoff. Lou Correa introduced Bill SB 678: "Authorization and Regulation of Internet Poker and Consumer Protection Act of 2013," Roderick Wright introduced bill SB 51:"Internet Gambling Consumer Protection and Public-Private Partnership Act of 2013," and Joe Barton re-introduced a variation of his federal bill HR 2266: "The Internet Poker Freedom Act of 2013." All 3 bills try to give some power back to the tribes to get them on board but Joe Barton's bill is aimed almost exclusively to appease the Indian groups. Under Barton's bill the native groups have the right to put up rules for online gambling and the native groups have indeed taken the bait.
The following are the rules that the Indian groups have asked for. First they want the right to offer online poker along with the casinos; second they want an assurance that any online legislation that passes will be poker only and that any expansion of gambling (online or land-based) would continue to be the sole rights of the tribes; Third, they demand to be part of the drafting the regulations for online poker operators in the state. And last they want a "bad actor" clause which would prevent any companies that operated in the United States after the passing of the UIGEA from being given a license and they want to exclude any individuals that have shown bad character. The last proviso of course is aimed to block the Rational Group from setting up shop in California since the tribes feel they will have too much power if given the option of running online poker in the state under the PokerStars or Full Tilt name. Ironically the Pala Indians were hoping to use the new tribal agreement to introduce their own poker website with former Party Poker and Excapsa chief Jim Ryan as the CEO. Since Party Poker withdrew after the passing of the UIGEA Ryan is excluded from the bad actor clause and his dealings with Excapsa, (the company which sold the faulty software to Absolute Poker and Ultimate Bet) were deemed insignificant.
Surprisingly, none of the California legislators made any decision regarding the tribal group's demands and it seemed that legislators continued to disagree. By all accounts many of the legislators were concerned about the "poker only" clause since the state believes that someday they may want to introduce online betting for casino games and they don't want to sign legislation that will handcuff them forever.
With the stalemate continuing, Lou Correa made one last ditch attempt to save his bill in the current session reclassifying it in September as an "urgency bill". Under the "urgency" classification the tribes could cross out what they don't like from SB 678, the horse racing industry could cross out what they don't like and the other legislators could strike out what they find unfavorable. As long as something meaningful is left that would allow for the introduction of online poker in California that bill would be voted on. If 2/3 of the House and Senate approve the new bill it would become a law. No word was given on how that attempt materialized but since poker is still not legal in California it's clear the motion never carried. No doubt all groups will make another attempt to legalize online poker in 2014.
10. The end of the social media gambling experiment
In 2012 all the talk was about gambling on social media websites. The G2E summit in Las Vegas had a whole track dedicated to it and the belief was that real money gambling companies were going to be successful by foraying into social media outlets like Facebook. Zynga's revenue stream and 25,000 daily players on its Zynga Poker platform convinced the company to move forward with a real money poker site, which they believed would jump to the top of the charts. Originally Zynga hoped to introduce their real money product in the United States but at the time it was still illegal to place bets stateside so they instead introduced Zynga real money poker in the U.K. The company teamed up with Bwin.Party and introduced the site Zyngapluspoker.co.uk. The initial response from British players was less than overwhelming and got even worse. In fact within a month the number of players was so small that it dragged down Bwin.Party's stock price. It seems that the people in Britain who were playing real money poker had little previous experience with Zynga poker on Facebook so the name recognition didn't lead to the signups Zynga anticipated. Zynga poker on Facebook was still popular although somewhat declining but it was very evident that social media poker is seen as a fun social game where non-gamblers can have fun betting virtual credits to win more virtual credits, but these people aren't real gamblers. Of course this was also confirmed on a US Gaming Survey questionnaire where real money gamblers said they would never play on a social gambling site because they deemed it a waste of time.
While Zynga's foray into real money gambling was a failure, International Game Technology (IGT) saw a huge rise in their profits thanks to a social media app called Double Down. Double Down's revenue has been soaring and the app in the top 5 of all apps downloaded on Facebook. Many Facebook players have stated that Double Down is more realistic and interesting than Zynga and more importantly they enjoy betting on casino games for virtual credits while poker has started to become boring. As one player that plays on both said to me "slot machines always change on Double Down but Zynga poker is the same every day. It's like having a new woman each month vs. being with the same woman every day. Sometimes you just want variety."
But unlike Zynga poker, IGT also has a real reason for optimism with its new app to convert it to real money gambling. While Zynga social media poker can not be applied to real money poker since the two sets of players are completely different, slot machines and other casino games can indeed be applied to both platforms since they are run by random number generators and skill has nothing whatsoever to do with slot machines and other random games. So if IGT can introduce the exact same software in New Jersey and other states that will offer online casino gambling in the future it is quite conceivable that social media slot machine players will try the IGT offers for real money. No doubt many Facebook players will have no interest in ever playing for real money but some indeed may decide to play for real. Playtech and NET Entertainment have made a fortune with their online slot machines at European gambling sites so there's no reason not to expect IGT would follow suit in the United States.
But one thing the revenues do tell for certain is that social media gambling and real money poker are two different animals.
Hartley did several articles in 2013 on the emergence of casino games on social media sites. His article on Internet poker and Zynga can be found here.
Read Part 1 of Hartley Henderson's Top 10 Gambling stories of 2013 here.