Legal betting makes sports more fun. But it’s still risky business

In June, when the Blue Jays played the Boston Red Sox, Michael Naraine bet a dime on every throw in real-time (Getty)

Like many Canadians, Michael Naraine watches as many Toronto Blue Jays games on TV as he can. But, while he wants his team to win, he’s also got his eye on the ump to see if it’s a ball or a strike. Naraine, an associate professor in the Department of Sport Management at Brock University, is an avid sports bettor and he’s got money riding on not just the game, but also on what will happen with each pitch.

There was one particular game in June—the Blue Jays versus the Boston Red Sox—when Naraine bet a dime on every throw in real-time. A ball here and a strike there. It was fun until he saw he was down a bit, which is when he decided to up his game. “I’m going to bet three bucks on the next pitch,” he recalls saying to himself. “It was going to be a ball.” Sure enough, the throw went wide and Naraine netted himself $3, enough to make up for all the lost dimes.

Naraine has been betting on sports since high school. He and his wife often bet on Formula 1 races, and he puts money on hockey games, too. But it’s only been since April 4, when Ontario legalized Internet gambling, that he, and his fellow Ontarians, have been able to use Canadian-based websites and apps to bet on individual games or specific plays. Before that, bettors had to use U.S., U.K. or Australian-based websites to make bets. And, while bettors can still place money with foreign operations such as DraftKings that can now legally operate in Canada, they can also wager with theScore Bet, launched in 2019 by theScore, a former sports channel turned Toronto-based media and gaming company.

“Betting makes sports more fun and more engaging, which is what sports leagues want,” he says, explaining why more people are placing their hard-earned cash on who wins games and prop bets like betting on the colour of Gatorade that will be dumped on the winning coach of the Super Bowl.

But experts also caution that betting can lead to addictive behaviours and significant financial loss for some. By allowing betting on single games, these micro transactions can quickly add up. And because of growing access to sports betting sites, this can lead to irresponsible gambling as players try to make up for losses on one site by jumping to another.

Opening up the field

Legal sports betting isn’t new. In 1992, the Ontario Lottery and Gaming Corporation (OLG) launched Proline, which allows people to wager on the outcome of three to six sporting events at a time. Other games created by the OLG, such as Point Spread, let you put money on the point differential between a game’s winner and loser or what might happen on certain plays.

On August 27, 2021 though, the Canadian government amended the criminal code to allow single-game betting, which paved the way for provinces to start issuing gaming licences to private companies. Until then, the sports betting industry had been government-controlled, with OLG making a reported $300 million in revenue every year from its various games. Forcing players to make a three-bet minimum stacks the odds in favour of the house, which serious gamblers are likely to avoid. But single game bets can attract big money—and by extension, big losses—which can be lucrative for the house.

Since single-game betting became legal in the U.S., leagues such as the NBA have forged partnerships with gaming companies (Getty)

Since the new iGaming law came into effect on April 4, sports betting in Canada has exploded. More than 70 businesses have purchased licences that cost about $15,000. Many have also set up websites that encourage everything from choosing single-game winners to making in-game prop bets.

Today, Ontario is the first province in Canada to legalize this kind of sports betting, but more jurisdictions may follow suit, in which case an entire industry would be born. “Canada’s gaming and entertainment sector is on the cusp of a significant transformation that could unlock new growth opportunities, reduce illegal betting activity, and generate new revenue for governments and organizations across the country,” Deloitte wrote in an article published on its website, adding that the single-game sports betting market could grow to $28 billion within five years.

Riding a monetary high

In some ways, the legalization of gaming is not unlike the legalization of cannabis, which was done in part to curb the illegal drug trade. But legalizing cannabis also allows governments and private enterprises to make money off consumers who were already spending a mint on pot or, in this case, betting. For many years now, Canadians who wanted to make in-game bets or place money on single games have either had to do so on the black market through criminal networks or with gaming companies overseas. According to the Canadian Gaming Association, Canadians spend about $10 billion annually on single sporting games through criminal networks and another $4 billion in the “grey market,” which includes placing bets through offshore sites that are not provincially regulated.

When Canada amended the criminal code, legal gambling was exploding across the U.S. In 2018, the U.S. Supreme Court struck down a 1992 federal law that banned commercial sports betting in most states, which then allowed individual states themselves to decide whether to allow single-game betting. Delaware was the first state to introduce this type of gambling under the new rules, but 30 states have since followed suit.

Partnership deals

As the sports betting markets evolved so, too, has the way people interact with sports. Many fans are no longer content with simply watching a game. They now want to be an active participant in the action, says Jared Beber, a CPA and CEO of Toronto’s Sports Venture Holdings, which owns Bet99. To him, sports betting is no different than going to see a film. “Why does someone go to the movies? It’s an experience,” he says. “With betting, it’s a way to experience the sport on a deeper level. You can interact with athletes in an indirect way and root for your favourite player because you have something riding on it.”

Online betting may also be changing sports themselves. Since single-game betting became legal in the U.S., leagues and teams have forged several partnerships with gaming companies—something that would have been impossible to fathom years ago, when any kind of association between teams and gambling would have raised some serious red flags.

DraftKings, one of the largest online sports gaming companies in the world, for instance, has signed deals with the NBA, Major League Baseball and Nascar, to name a few of the big players. In April, Maple Leafs Sports & Entertainment, owners of the Maple Leafs and Raptors, among other teams, signed a multi-year agreement with PointsBet, an Australian company that entered the Canadian market when iGaming became legal. The NHL has an equity stake in the company, too.

These partnerships present a huge opportunity for sports teams to increase engagement with their audience and for sports betting operations to get casual sports fans—a massive market opportunity—to make bets, says Beber. The two industries are working together in a number of ways, including sharing valuable data, which leagues and teams have started to collect over the last few years, and by creating sportsbook-branded experiences, such as special sections for bettors. At this year’s RBC Canadian Open, theScore Bet created what it called Skyline Seating—22 seats suspended 100 feet above the 18th hole. Only theScore Bet clients with an active account could secure seats.

Competing for dollars

There’s another similarity between the online betting and weed industries: a massive oversupply of options. Just as Ontario is now issuing cannabis store licences to seemingly anyone who will pay for it, the province is also letting almost anyone set up an iGaming shop. This has led to intense competition for people’s dollars and it’s made it difficult for companies—and their investors—to make any money. “These companies are losing so much money near term on the marketing, which is one big reason stock valuations have really collapsed,” says Chad Beynon, an analyst with Macquarie Group. “Nobody wants to invest in unprofitable companies right now.”

Penn National Gaming Inc., the Wyomissing, Pennsylvania-based company that owns Barstool Sportsbook and bought theScore for $2.4 billion in August 2021, has seen its stock price drop by nearly 40 per cent this year. The company reports that Penn Interactive, its digital sports betting division, will likely lose US$50 million in earnings in 2022 as it continues to scale its “operations and infrastructure in anticipation of bringing our technology in-house and launching in new jurisdictions.” On July 1, Penn National Gaming Inc. shut down theScore Bet’s U.S. sports betting operation because, according to some analysts, it failed to gain traction south of the border. It now plans to focus its Barstool brand in the U.S. and theScore Bet in Canada.

Beber, whose Bet99 is not as deep-pocketed as DraftKings or Penn National Gaming Inc., and who can’t advertise as freely as its competitors, is concerned about how much marketing the industry has done and how it will be perceived by people who haven’t yet made their first bet. Beber believes there will be a “reckoning” regarding how companies advertise and the impact spending millions of marketing dollars could have on the industry. “There will be revisions to how things are displayed and the quantity and frequency in which they are happening. A lot of our competitors are doing everything they possibly can, but you have to be more strategic.”

Regulating the industry

Indeed, some of the more mature online gaming markets are trying to reduce the amount of marketing companies can do, in part because problem gambling is on the rise. A 2021 report from YouGov, a London-based market and data analytics firm, found that gambling addiction rates could be nine times higher than what the betting industry has stated. Over the last several years, the U.K., which reformed its sports betting laws in 2005, began restricting certain types of marketing. In 2018, a “whistle-to-whistle” advertising ban was introduced, which forced companies to stop advertising during sporting events. On April 5, it banned companies from using sports personalities, reality TV stars and social media influencers to sell their wares, partly as a way to stop kids from getting interested in online gaming.

Beynon adds that some places are even restricting the number of bets one person can make at a time. “There are some markets where, if you’re betting $10 on every game and then all of a sudden you’ve put $200 on three games, you’ll get a warning,” he says. “There could even be someone in risk management who would not allow you to do that.”

There is evidence to suggest that sports betting does potentially lead to more addictive casino gaming (Getty)

Naturally, these rules are making it harder for companies to maximize profits, says Beynon, adding that Canadian and U.S. companies should be paying close attention to what’s happening overseas. “This has hurt the valuations of some of these publicly traded companies in the U.K.,” he says. “We haven’t seen it yet in the United States, but these kinds of restrictions could be a little part of the reason why we are seeing a retrenchment in valuations.”

What could be more worrisome—or lucrative, depending on which side of the gambling industry divide you’re on—is that increasing people’s spend on sports betting isn’t the end game for most of these companies. All the major sports betting players also have traditional online gambling operations like blackjack, poker and roulette. For instance, users of theScore Bet can play all sorts of popular casino games and a variety of online table games.

Big money

Unlike with cannabis, which most experts agree isn’t a gateway to harder drugs, there is evidence to suggest that sports betting does lead to more addictive casino gaming, says Naraine. Many companies are using their sports arms—and celebrities such as Wayne Gretzky, who’s a brand ambassador for BetMGM—to encourage people to sign up, after which they might get a $25 credit to use on a virtual slot machine. “I can tell you anecdotally I’ve played roulette and blackjack on these apps and they’re live 24 hours, seven days a week,” says Naraine. “You've even got a camera focused in on a live dealer who deals you live cards.”

With sports betting, players have to wait until a game happens before they can place bets, unlike at casinos, where they can play at any time. “That’s where the money is made because there are a ton more micro transactions that happen with slots, roulette and blackjack, and I don’t have to wait until 7 p.m. ET to see what’s going to happen,” he says.

It’s still too early to tell exactly how the Canadian gaming industry will evolve, but there will likely be more consolidation as the big players get bigger and the smaller ones fall behind, says Beynon. Beber’s goal is to grow Bet99 responsibly, which to him means finding the right balance between marketing and growth, while focusing on the long game.

“Longevity is critical,” he says. “We don’t want to spend money for the sake of spending money. We want to balance the need to be profitable against the need to grow.”

Exactly how he’ll do that is not yet public. “I don’t want to open the kimono from a competitive standpoint,” he says. Focusing on the needs of local markets, perhaps by focusing more on the sports and teams people like in different cities, is one way he thinks Bet99 can succeed.

While Naraine is carefully watching how the industry evolves and observing from an academic standpoint, at the moment he’s got his sights set on something else: whether his first bet post-legalization will pay off. “I bet that the Toronto Blue Jays would win the American League East,” he says. “It’s not looking so great right now.”

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