Pari-mutuel fantasy sports – catch 22

Dec 22, 2015 3:00 AM

First off, innovation and entrepreneurship should always be encouraged, applauded and in some cases even admired, and it is in this light Vic Salerno should be commended for putting his money, time and energy into advancing his vision of a Pari-Mutuel Fantasy Sports betting platform.

For those unfamiliar with pari-mutuel wagering, the notion is very simple. A wagering event is specified, then bettors make their wagers; the operator of the pari-mutuel pool takes a percentage of the total money wagered for providing the service, then the winners of the event get a pro rata portion of the money left in the pot after the operator takes out their fees.

For example, if there are 1,000 people betting $1 each on an event, the total wagered would be $1,000 and if the pari-mutuel provider charged 15% then the pool available to win would be $850. If one person was the only winner they would receive $850 but if everyone picked the winner of the event they would receive 85 cents each, less than the amount they wagered. Generally, as long as the number of losing bettors wagers exceed the amount of money taken as fees by the pari-mutuel service provider, the winning bettors will win an amount higher than their bet.

Pari-mutuel fantasy sports is basically what every private fantasy pool is except there is usually no fee taken out. On the other hand, commercial fantasy businesses generally operate on the premise of a defined prized pool and the commercial operator just needs to get enough participants to wager more in total than the defined prize pool.

This means if the website offers a fantasy contest with a million dollar prize pool, they need to get more than a million dollars wagered in the contest to make money. The commercial pools could offer a pari-mutuel based pool and have no risk of loss, but that would run afoul of the exemption for fantasy sports wagering contained within the permitting federal law that requires a defined and pre-announced prize pool. Therein lays a portion of what may become a Catch 22 for Mr. Salerno’s vision.

While Mr. Salerno’s vision will work nicely and neatly within Nevada law and there should be no issue in his receipt of licensure next year and similarly there is really nothing stopping a Caesars, MGM or Stations group of properties from activating a similar offering basically now, there are a few potential challenges for the broader vision.

In an interview aired on KNPR Mr. Salerno shared that he is looking to link his pari-mutuel system with other states as they would so permit and noted he was going to be making a presentation to the California Horsemen’s Association to advance that part of his vision. It is the right plan as the bigger the pool the bigger the chance for large bettor wins and the grander the excitement – logical, sensible and again the right plan.

Unfortunately federal and state law often have very little to do with logic and sensibility. The federal banking law the various commercial fantasy sports operators use to claim legal justification could be argued to not permit Mr. Salerno’s vision to cross state lines. As mentioned above, the law requires a pre-announced prize pool, which goes against the definition of a pari-mutuel pool. To get around that stickiness, it would have to be argued that wagers in the pari-mutuel fantasy pool are not permitted under that exception in the law but are either sports wagers or some other defined area of gaming like a table game or slot machine wager.

If argued they are sports bets, then the federal ban on the expansion of sports wagering and the Wire Act could come into play as potential obstructions from the pari-mutuel pool crossing state lines. If argued or defined by various state laws to be another class of wagering akin to poker, then it stands a chance of getting around the issues raised here, unless of course the Restore Americas Wire Act were to actually pass, then it would have yet again another barrier to cross.

I do hope Mr. Salerno is successful in his efforts, because if he is than some form of rational sanity has to have come to clear out bizarre confluences of conflicts between various state and federal laws.

Once the legal barriers are resolved the real commercial test will be acceptance by the betting public. Bon chance, la vitesse de Dieu!!!

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Contact The Analyst at [email protected].