Q&A: Navigating sports betting regulations in the US

When the Supreme Court ruled to overturn PASPA in May 2018, it fired the starting gun on the most challenging period of US regulation since gambling began in the US. But as regulators have been challenged by the need to get sports betting up and running in their respective states, so have sports betting operators been challenged to roll out their offerings in a way that ensures expansion into new markets while also conforming to regulations.

EGR Compliance spoke to Keith O’Loughlin, SVP Sportsbook for SG Digital, about the challenges of expanding the company’s regulated sports betting operations into the states which have opened up to sports betting since the repeal of PASPA.

EGR Compliance: What has been the biggest regulatory challenge for SG Digital in sports betting and how do you solve it?

Keith O’Loughlin (KOL): I don’t think anybody has definitively solved the regulatory challenge—it’s an ongoing process. As I look at the US, there are only a handful of states truly open at this stage, each with its own unique flavour of regulation. And so ultimately the challenge is around the various flavours of regulation throughout each of the states. In addition, the Wire Act is something that lies on top of everything, which means you end up putting separate infrastructures in every state.

It doesn’t add to the complexity of regulation, it just adds to the complexity of deployments. I think the real challenge is making sure that we engage with regulators in the right way. For example, some regulators lobbied very hard for the repeal of PASPA; they are pushing hard and are very excited about embracing the sports betting opportunity. We want to make sure our offering adds to that excitement by ensuring it complies with all regulation while simultaneously upping the game for everyone.

So, you have all these different motives between regulators, each one has its own testing standards, different approaches and ultimately different deployments. What we’re trying to do with our customers is give them a modular and scalable product that allows them to win in each market, but ultimately keep the product as uniform and well-rounded as possible. Again, the challenge is on the release process. You have very different release processes with each regulator, which means you can be out of date with one product, which might be a couple of weeks behind something else, because you are in a regulatory queue for testing. When you’re building a product of such scale and flexibility, a keen eye for detail and a deep knowledge of regulations becomes more than just a benefit—it’s a necessity.

From a trading perspective there are challenges because there are different nuances in every state, for example, in some jurisdictions you can’t bet on certain college football teams, whereas that restriction doesn’t apply in other states. In some states you may not be able to place a bet on the Oscars, but in others you can. The Academy Awards Ceremony will not be the biggest betting event of the year, but whether we take one bet or a million bets on something, it’s the same challenge, making sure you have a little different flavour of product that you are able to manage.

The other challenge is that regulators often have very different approaches to things like palpable errors. We will offer 300,000 events per year, and each of those events probably has an average of let’s say 50 markets, with each of those markets having 10 selections. There is a huge number of selections, and each of those can have a price change, some of them may have one price change in their lifetime, but there are others which can change nearly every second. We’re doing 130,000 price changes per minute at peak times, and if you take that scale of business and that scale of change there is a natural error rate because somewhere there is a human at the other end of this.

Human errors happen. The point is, each state will have a different view on something like palpable errors, and that naturally is going to impact us, and as a B2B supplier and partner we are keen to ensure we have robustness in our offering.

It may, for example, mean that in the future we may end up having to curtail an offering in individual states because if you have 130,000 price changes every minute the error rate may be too high to be able to take that risk or it may end up limiting bets, but there are ways that you are able to get to a near perfect offering which is very hard. As a partner to operators, we have to tailor our product to their needs, and in the States, this means a fairly modular offering that can adjust to the different circumstances of each state. Those are all real challenges.

EGR Compliance: Would SG Digital welcome federal regulation of sports betting?

KOL: I think that it would bring several challenges. The existing state by state casino/lottery regulatory models have worked well in the US and can easily incorporate sports betting.

While federal law would be helpful in some respects, in allowing people to plan on a much wider basis across the US, that may or may not nullify state regulations, so there are more complications than one might initially think.

EGR Compliance: What challenges would federal regulation present for the businesses that are not currently present with the state level regulation?

KOL: Everybody would be swamped. All of the magazines and the TV would just get clogged up, marketing departments and operators wouldn’t know what to do, the budgets wouldn’t have been approved because people wouldn’t have factored it in. It would put inordinate pressure on every single facet of the whole sports betting and gaming ecosystem.

If you open up the federal laws, businesses are going to have to apply their individual marketing strategies across the US, throwing up a lot of questions that businesses are going to struggle to answer. Each state carries its own marketing and strategies that will work in some markets but not in others. Moreover, each geography could have different betting preferences, different populations, and various other factors at play. Those are real challenges. It’d be impossible to plan your entire strategy in a week; you would have to devote serious time to this issue and unpick every layer of the process like an onion. There’s an incredible amount of nuance there, so ultimately, state by state roll out is better for everybody.

EGR Compliance: Do you think the two methods of regulation can successfully co-exist?

KOL: I think it would be challenging. You just have to look at the US political landscape. They still have the scars of the match-fixing scandals of many years ago. So, while they’re embracing sports betting, they’re doing it in a very controlled and cautious way, because those scars and memories still run deep. If you bring that in with competing regulation at federal and state level, I think it will be a real issue that presents many challenges.

EGR Compliance: In your opinion, will legalised sports betting entirely stamp out the unregulated sports betting market?

KOL: I think that over time there will be a huge flow of business to the regulated market, mainly because of the ease of use. That involves providing amazing customer experiences, having official data that illegal operators won’t be able to get and a full sports betting offering from a regulatory perspective. This will be a quantum leap above what the unregulated sports betting market can offer. The illegal market might still exist past this point with some sharp money, but that’s all it’s going to be, especially as more jurisdictions go live and new punters adopt the regulated technology. In that regard, “stamping out” may not be the best term. Instead, I think the regulated market will grow much faster, thanks to stability and reliability, and the illegal operators may struggle to keep up.

Our focus always remains on pushing our product to the next level, and if we stay honed in on that goal, we’ll continue to see growth in regulated markets—particularly new ones.

EGR Compliance: How much do your interactions with state regulators shape the way that SG Digital approaches sports betting expansion into new states?

KOL: We have exceptionally good relationships with regulators, but you can’t get complacent with them. When you develop good relationships with regulators, you need to ensure they are maintained on an ongoing basis. We’ve got a lot of regulators which ask for guidance or information, as our OpenBet sportsbook is used by the biggest operators in the world.

If you look objectively as a regulator and say where can we get some intel on sports betting, then I think Scientific Games would be be one of the first companies they’d want to speak to. We work extensively with regulators and give feedback on upcoming regulations. We give them information and insights into the operator side of sports betting, ensuring that they are fully briefed as they are making decisions. It’s a very collaborative approach, primarily because of the size of Scientific Games and the depth of our relationships in the US. We’re here to push the industry forward, and we aim to do that through these relationships and interactions.