By James Murphy / SportsInsider.com
As any economist can tell you all transactions and interventions produce unintended benefits and/or harm to third parties. These are called ‘externalities’ and it’s a good term to know. If you want to simplify the concept: sometimes bad things come out of situations we originally perceive as good and sometimes good things come out of bad situations. One of the positive externalities of the COVID-19 pandemic has been the suspension of numerous rules and regulations at the Federal, state and local level in response to the situation. There are at least 621 examples of this (and counting) which begs the question “why did they exist in the first place?”
The Trump administration and state and local governments wisely suspended regulations to help fight the coronavirus.
Many of these rules and regulations were not necessary in the first place, given their tendency to reduce innovation and access to care, not to mention their restriction on American liberty.
Actually, you can make that 622 needless regulations (and counting). The state of Illinois has suspended the requirement for in-person registration for online sports betting accounts. As we’ve said any time a state makes the boneheaded decision to require in-person registration it does nothing positive while creating several ‘negative externalities’ for both players and the gaming industry.
To wit: gaming companies that have seen their source of revenue shut down by state and/or local mandate in the interest of public health need to bring in as much money as they can. In Nevada, Colorado and other states one of the few sources of gaming revenue has been via mobile sports betting apps. In Colorado, players can sign up online from anywhere in the state. In Nevada, players have to register in person at the sportsbook. That created a conundrum: how can players register inside a casino when that casino is shut down?
Gamblers in Illinois will be allowed to open online sports betting accounts without having to visit a local casino under an executive order signed by Governor JB Pritzker late last week.
The executive order is in response to the ongoing COVID-19 pandemic and resulting closure of land-based casinos in Illinois, which prevents players from registering online accounts in person, as required by the state’s sports betting legislation.
Lest we give too much credit to Illinois state government for taking this action the article notes that the state’s casinos have been closed since March 16. That’s nearly two months during which players could have enjoyed the much needed–and consistent with social distancing–diversion of sports betting. It’s also two months during which the state’s casinos and racetracks could have had at least a trickle of revenue. Alas, it took Illinois all this time to figure out that since casinos are closed it makes ‘in-person registration for online sports betting accounts unviable’.
Better late than never. At least two of Illinois racetracks are back in business. The Hawthorne harness track resumed racing this past weekend while Fairmount Park near St. Louis will resume live racing on Tuesday. Arlington Racecourse is still spinning their wheels but have at least changed their tune of late to consider an abbreviated 2020 meet without spectators. The racetracks won’t have live customers for the indefinite future and there’s no real indication as to when casinos could reopen. Illinois is currently in ‘Phase 3’ of their reopening plan and casinos are unlikely to open until ‘Phase 5’. So did Illinois learn a lesson about the ‘negative externalities’ of their pointless regulation requiring in-person registration for mobile sportsbook accounts? Guess again. The suspension is only good for the duration of the state’s disaster proclamations related to the coronavirus pandemic.
NEVADA NEEDS TO GET RID OF THEIR IN-PERSON REGISTRATION REQUIREMENT
It doesn’t reflect well on the State of Nevada that one of the worst managed states in the country have taken an action that they should have taken long ago. At the very least, they should have taken this action during the gaming industry shutdown. Nevada gaming revenues in April suffered a drop of 99.6% from the same month a year ago. The state unemployment rate is just under 30% and higher than that in the Las Vegas metro area. In fact, the Las Vegas metro area has suffered more unemployment than any large metro area in the US. The second highest unemployment rate–Detroit at 22%–is a vibrant labor market by comparison. It’s not good when your city is in worse shape economically than the city that is a metaphor for Rust Belt obsolescence.
The ‘in person registration’ requirement is based on the outdated rationale that anything that forces people to physically come into a casino is a good thing. This mindset should have died a couple of decades ago and it is definitely an anachronism in the COVID-19 pandemic era. Now the imperative is to get as many revenue streams as possible that don’t require being physically present inside the casino. Mobile sportsbetting is a perfect example of this. The in-person registration requirement does nothing now except make it more difficult for gaming companies to market and grow their sports betting apps. It’s also not good that a pointless regulation hurts gaming businesses’ bottom line unnecessarily. With gaming being such an integral part of Nevada’s economy it’s seriously self defeating.
There’s also the issue of ‘perception’. Nevada likes to think of itself as the ‘gold standard’ when it comes to gaming industry regulation. With the gaming industry still the primary catalyst of the Silver State economy that’s the way it should be and at various points throughout history it actually has been ‘the gold standard’. No secret that legal gambling is ubiquitous in the US now and Nevada is in serious danger of damaging their reputation as the country’s gaming capital. For an image conscious state that depends on tourism that’s not good. New Jersey now has a thriving community of companies that serve the gaming industry operating in the state. Upstart Colorado is already getting companies moving into the state due to their vibrant sports betting marketplace. There’s still a lot to like about Nevada in general and the Las Vegas area in particular but being ‘behind the times’ in regard to gaming regulation sends the wrong message.
MARKETS ROUTE AROUND OBSTACLES BUT IN THIS CASE THEY SHOULDN’T NEED TO
When the Nevada gaming industry shut down several sports betting apps were quickly up and running. MGM Resorts, Caesars Entertainment, William Hill and Circa Sports were the first four back online and they were joined by the Westgate and South Point near the end of May. Several of these companies figured out a way to satisfy the in-person registration requirement despite the casino closure. South Point, Circa Sports and William Hill all offered ‘drive thru’ registration leveraging the properties’ valet parking areas. Unfortunately, these three companies ran into another pointless regulatory barrier–they couldn’t cash winning tickets due to a regulation prohibiting employees to carry cash outside of the casino. In addition, deposits had to be ‘exact change only’.
No surprise that at least to some extent South Point, Circa and William Hill found a way to get around the ridiculous in-person registration requirement. That’s what markets do–they route around obstacles regulatory and otherwise. On a macro level, the fact that the national economy isn’t in worse shape than it is can be credited to the adaptability of markets:
A funny thing happened on the way to the next Great Depression. The government forcibly halted economic activity, shutting most Americans indoors and robbing millions of people of their chance to earn a living as a means to prevent the spread of coronavirus. Yet many of the nation’s economic indicators remain remarkably steady.
The market is rapidly adjusting to—and I despise using this term— the New Normal. Everything is volatile, but there’s no indication of a repeat of 2008’s meltdown.
Reason Magazine goes on to remind us what markets are and the purpose they serve:
In reality, markets are simply the sum total of the myriad decisions made by individuals. In a relatively free economy, people adjust their behavior based on their own priorities. We bid for things we want. If I’m eyeing a house that is worth $400,000 to me, but someone is willing to pay $425,000 for it, then that buyer gets it. If I’m selling a house for $400,000 and the best offer that I get is $375,000, then that’s what it’s worth in the market.
“Underlying most arguments against the free market is a lack of belief in freedom itself,” wrote free-market economist Milton Friedman. It’s not about greed, but freedom. “Is there some society you know that doesn’t run on greed?” Friedman asked. “What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests.”
When government tries to ameliorate “greed,” it only distorts individual choices by artificially limiting (or increasing) supply or demand. Even with such distortions, markets are amazingly nimble. Plus, government officials and the groups that elect and lobby lawmakers are just as greedy as anyone else. More so actually, given that these groups will use the power of government, rather than the principles of free exchange, to get what they want.
Markets are indeed beautiful things. But lest we forget, Nevada’s gaming industry is still the center of their economy. It drives tourism, fills hotels and supports countless ancillary businesses. The marketplace did it’s best to ‘find a way’ but given the critical role that gaming plays in the Nevada economy that shouldn’t have been necessary. The Nevada Gaming Control board has shown impressive flexibility and responsiveness during the pandemic. Hopefully, that will continue now that their licensees are trying to retool their business to enforce social distancing. Of course the state’s gaming regulators might not need to act if Governor Steve Sisolak could change this with the stroke of a pen. No matter how it happens it needs to get done and Nevada needs to eliminate the in-person registration requirement and allow players to sign up remotely as soon as possible.
Cashless Casino Gaming Could Be Part Of COVID-19 Pandemic Legacy
- Many restaurants and other businesses have gone ‘cash free’ in the wake of the COVID-19 pandemic.
- Paper money and coins are notoriously filthy though the risk of contracting a virus from cash is unknown.
- The gaming industry is one of the last strongholds of cash based transactions.
As the US gaming industry begins to reopen following coronavirus caused shutdowns one of the primary selling points for casino customers will be health and safety. The major US unveiling their plans to provide greater protection to employees and guests over a month ago focusing on improved sanitation, social distancing and educating staff on coronavirus detection and response procedures. The question now becomes will this be what brings gaming patrons back to casinos in Nevada and elsewhere?
In a broader context, many gaming industry experts are looking at how the entire ecosystem could change in response to COVID-19. It could cause a long standing ethos of the industry to be flipped on its head. For decades, the general game plan was to figure out ways to attract people to the casino–via promotions, events, comps, buffets, shows and even services like paycheck cashing. The rationale was obvious–the more traffic that comes through the property the more money that ends up in gaming coffers. That is likely to change dramatically in the near future as casinos go in the opposite direction, looking to establish revenue streams that *don’t* require that customers be physically present.
So far, there are a few longtime vanguards of the casino industry that have been resistant to this trend. One is the ubiquity of smoking in gaming properties. This would seem to be an obvious way to address health and safety concerns but there’s been little move to further restrict smoking. That probably has to do with broad anti-tobacco policies in gaming jurisdictions in Las Vegas that have eliminated smoking just about everywhere but the casino gaming floor. In other words, this is a problem that doesn’t really exist and the gaming industry is resisting anti-smoking scolds using the pandemic as an opportunity to advance a pet agenda.
THE CASH FREE FUTURE COMES TO THE CASINO FLOOR
Another vanguard of the gaming industry could be more ripe for change. The casino floor is one of the last environs remaining where ‘cash is king’. Las Vegas residents understand this dynamic completely, particularly when they move elsewhere and realize that it’s not easy to change a $100 bill in the middle of the night. I seldom carry much cash now that I live in South Carolina instead using options ranging from credit cards to my Bitcoin wallet. When I lived in Las Vegas, I seldom left the house without $2,000–usually twenty $100 bills–in my wallet.
The genesis of the gaming industry’s focus on greenbacks is unclear. Some jurisdictions have viewed it in terms of responsible gambling. The thinking is that the added step of physically putting cash into a machine is a deterrent to compulsive gambling that wouldn’t be there if players could simply stick a debit card in a slot machine. How much validity there is to this dynamic is unclear but it has been cited frequently by regulatory bodies nationwide.
Fortunately, this bias against cash free gaming could be eroding in the face of several more compelling trends. The first–and most immediate–is the simple reality that cash is filthy. While the specific risk of transmitting a virus in general and the COVID-19 coronavirus in particular is unknown the role of germ transmission via cash is undeniable. The secondary trend at play is the need for greater social distancing as noted above. Gaming companies are seeking revenue streams that don’t require physically having customers in the casino. This will create an even greater emphasis on mobile casino gaming, sports betting and poker. Obviously, insisting on the use of cash just isn’t conducive to remote betting.
THE MOBILE WALLET COULD BE THE NEXT PHASE IN CASH FREE GAMING
Gaming regulators might be uncomfortable with the physical act of sticking a debit card into a video poker machine but there is less resistance for a technology that is familiar to offshore sportsbook players and Bitcoin enthusiasts: the mobile wallet. On one level, it’s not much different than using cash to buy casino chips–players use cash, debit cards, bank accounts, etc. and convert a specific amount into a financial instrument used for gaming. There’s a lot of ways to facilitate this from using the mobile wallet to generate gaming tickets at already existing casino kiosks to the more elegant solution of just using a cellphone’s NFC or Bluetooth functionality to deposit and cash gaming credits similar to using Google Pay at Starbucks.
Curiously, there hasn’t been much activity on that front at the regulatory level. Nevada has one of the country’s most robust gaming oversight ecosystems and according to Gaming Control Board Chairwoman Sandra Morgan there’s been a surprising dearth of new technology initiatives to reduce the use of cash:
“I’ve been pretty public saying that I’m open to looking at new ways that technology can help attract new customers and be beneficial for not only the industry but even for responsible gaming measures as well. Since COVID hit, I haven’t gotten any more increases to address or discuss new technology for cashless wagering than I did prior to it. But I’ve always been open to discussing it and looking for different ways not only to make gaming and gambling more enjoyable or more accessible.”
This could change quickly once the gaming industry reopens for business and particularly if driven by consumer demand. In a recent Las Vegas Review Journal article Scientific Games gaming division CEO Matt Wilson noted that the pandemic has created more interest in cashless options at the operator level who are now viewing it as part of a broader emphasis on keeping casinos santized:
“These operators are spending a staggering amount of money in resourcing to keep casinos sanitized by deploying employees to wipe down slot machines, elevator buttons, everything you can imagine, to make surfaces as sterile and safe as possible.”
“But when you think about the (fact that the) financial instrument we use to transact on the gaming floors is cash … how many hands have been on a dollar bill? It’s the surface that gets touched the most, and it seems the way for us to circumvent that potential health hazard and do it in a way that consumers in the world already are transacting in probably every other industry in their lives.”
Sam Zietz is the CEO of Grubbrr, a company that develops cashless payment options. He thinks the recent move by many restaurants to eliminate cash transmission could be prescient–particularly among younger generations of consumers:
“The dirtiest thing in a restaurant is cash. Do you want the person who’s touching cash then touching your food? Probably not. Especially in the hypersensitive post-corona world.”
The trend toward cash free dining was gaining momentum even before the Coronavirus pandemic and has only accelerated as consumers are coming to expect an emphasis on reducing the risk of disease transmission. It’s not clear how much of this is a ‘top down’ initiative by the dining industry and how much is being driven by consumer demand. The gaming industry has a tendency to resist unpopular changes until they have no option–for example, the unctuous trend toward charging for parking at Las Vegas casinos. Gaming companies remained steadfast despite countless complaints but the business demands forced on them by the Coronavirus pandemic has quickly brought free parking back to the Las Vegas Strip. On the other hand, there’s been no move to eliminate the equally unpopular (but lucrative for gaming properties) resort fees.
On a practical level, there’s an important distinction to be made between parking fees and resort fees. Parking fees are impossible to miss and immediate. Resort fees are more subtle as they’re hidden in the small print of hotel folios and credit card bills. In a land based gaming establishment, there’s nothing more immediate and obvious than the abundance of cash transmission. Likewise, it’s impossible to not realize that with so many hands touching this cash there’s got to be a more expedient and safer solution. If consumers begin to demand it, you’ll see gaming companies quickly change their ways.
James Murphy | Biography | SportsInsider.com
For more than 25 years, James Murphy has written extensively on the world gaming industry, casino culture and sports betting. The international gambling expert has been quoted in national media from Forbes and the Wall Street Journal to USA Today and Entertainment Weekly. Murphy worked as a Las Vegas based radio and podcasting host broadcasting to an international audience that depended on his expertise and advice. Murphy is an odds making consultant for sports and ‘non-sport novelty bets’ focused on the entertainment business, politics, technology, financial markets and more. He stays immersed in the casino culture of Las Vegas and beyond with a focus on its unique and eclectic offerings. Mainstream media sources rely on Murphy for his perspective on business and political events related to the international gambling industry. He splits his time between Salt Lake City, Utah and Columbia, South Carolina.