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June-01-2009,
Is Parimutuel an Option for the Delaware Sports Lottery?...By Jay Graziani

Since the recent legalization of a sports lottery in Delaware, much speculation has arisen regarding what form such betting might take. A ruling Thursday by the state Supreme Court allowing straight betting has greatly widened the possible options.

The only indication thus far of the state's plans is a comment by the governor suggesting Delaware would attempt to install Vegas-style sportsbooks. But what works for private enterprise in Vegas is probably not the best model for a government-administered state "lottery", and the limited time remaining before the September start of the NFL season doesn't leave a lot of room for debate or new ideas.

A parimutuel system for Delaware's sports lottery has been raised as a possible option. Parimutuel differs from traditional "fixed-odds" betting in that the exact payout odds are not set in stone when a parimutuel bet is made. Instead, all wagers go into a betting pool, the house skims its vig from the top, and the remainder is distributed to the winners. Parimutuel betting presents a number of advantages and disadvantages when used for a sports lottery.

Consider a sports lottery offering $10 tickets on straight wagers and with a house take of 15% (probably close to what we can expect from a government-run parimutuel sports betting operation). For a Monday Night Football game of the Cowboys at the Giants, the sportsbook might receive 75 tickets picking the Giants to every 25 selecting the Cowboys.

Since there's $1000 in the wagering pool, the house takes its $150 cut and the remaining $850 is distributed to the winners. If the Giants win, each winning ticket is worth $11.30 ($850 split among the 75 winners). If the Cowboys win, each ticket is worth $34.

Examining the payouts demonstrates one major problem with parimutuel betting: the house vig is very tough to overcome. The odds on the Giants game described above, in sportsbook terms, are a pathetic -770/+240. For a 50/50 proposition, the equivalent odds after the house vig is considered would be -140. For a clientele used to dealing with -110 in Vegas (or even -105 offshore), this represents a very steep cost to placing wagers in Delaware. When taxes are considered (since sportsbooks will certainly be required to report winnings to the IRS), this becomes a very difficult game to beat, indeed.

Another disadvantage is that the precise payout odds are not known for sure until the event has started. The shifting odds inherent in parimutuel betting plays havoc with the minds of gamblers. Even the most recreational of bettors are a fickle folk, and they want to know exactly what their payout will be before they make the bet. Not knowing the return will lead to a lot of "but I should have won more"" griping and general customer dissatisfaction.

Parimutuel betting does have some advantage over fixed-odds for government-run gambling operations. First, it requires minimal input from a linesmaker. Payout odds are determined simply by the amount of money wagered on each team. Gamblers wager against each other and the "house" merely acts as a middleman, calculating odds and distributing winnings in exchange for a percentage of the overall wagering handle. So there is little for an incomptent lines manager to screw up (or surreptitiously manipulate to his own benefit).

Another advantage is that the "house" will rarely lose money in a parimutuel system, as their profit is guaranteed as a percentage take of the total wagering handle. The only way for the house to lose money on wagers is if a minimum win payout amount is required by law. In cases where there is an overwhelming favorite, the wagering pool may not contain enough money to pay out the minimum amount to all players who backed the favorite. But this is a rare case.

Parimutuel betting would probably not be advantageous to the players, who will be likely be betting at worse odds than offshore or with their local bookie. Such a system would quickly drive away profit minded high-limit sports bettors. But the target audience of the Delaware sports lottery is the everyday recreational gambler, and Delaware may be able to sell a parimutuel system to the general public if it's marketed correctly.

Parimutuel betting is more suited for sporting events with a field of competitors, like NASCAR or golf. For a parimutuel system to be most attractive to NFL bettors, it should offer both pointspreads as well as moneyline ("pick the winner") options. Moneyline bets tend not to attract a lot of action when there is a heavy favorite, and the introduction of the point spread was a major innovation in the growth of football betting. Offering pointspreads allows for close to even-money payouts, something that is generally attractive to recreational gamblers.

Also, offering moneyline wagering adds an extra feature, allowing large payout odds on multi-team underdog "exotics" (parlays). Using moneylines rather than point spreads will allow multi-team parlays heavy on the underdogs to get into astronomical amounts, and paying out on a few huge "jackpots" is great advertising. For totals, sportsbooks can set a "universal" total at 40, the approximate midpoint of NFL scores, and let the odds float from there. This will allow for even bigger jackpot values when totals of 32 and 56 start popping up.

Delaware can make parimutuel betting work to its advantage with a tote board sporting "exacta" and "trifecta" parlay payouts, daily doubles matching the 1 PM and 4 PM showcase games, and other lottery-style promotions. The sports lottery can drive a lot of business growth by following a Vegas casino-style marketing plan, even without the cooperation of the sports betting "whales".

Parimutuel betting may well be a viable possibility for Delaware, but implementation is everything. The right planning and marketing could lead to the next big innovation in sports betting, a model others might ultimately follow. But with government bureaucrats in control, the chances of this being implemented intelligently and efficiently are slim to none. Serious sports bettors should avoid getting their hopes too high for this Delaware experiment.

06-01-09
Jay Graziani
MajorWager.com
graziani@majorwager.com

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