Gaming regulators in Massachusetts want to talk about something sports betting operators would rather not: player limits.
Sportsbooks do not routinely explain why they limit who they do. The Massachusetts Gaming Commission intends to bring that conversation into the light.
Any changes to limiting customers could have a business impact for DraftKings and ESPN Bet, both Penn Entertainment and DraftKings said in the “risk factor” section of their annual reports.
DraftKings on sports betting limits
DraftKings explains why limiting some customers is necessary for all customers on page 33 of its 10-K:
“It is customary for sports betting operators to manage customer betting limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall, because if it were not possible, betting options would be restricted globally and limits available to customers would be much lower to insulate overall risk due to the existence of a small segment of highly sophisticated syndicates and algorithmic bettors, or bettors looking to take advantage of errors and omissions on our platforms.
“We believe virtually all operators balance taking reasonable action from all customers against the risk of individual customers significantly harming business viability. We cannot assure you that all state legislation and regulators will always allow operators to execute limits at the individual customer level, or at their sole discretion.”
Penn agrees for ESPN Bet
Limiting certain players is like a credit card company approving individual spending limits, Penn Entertainment explained on page 21:
“Similar to a credit card company managing individual risk on the customer level through credit limits, it is customary for sports betting operators to manage customer-betting limits at the individual level to manage enterprise risk levels. We believe this practice is beneficial overall, because if it were not possible, the betting options would be restricted globally and limits available to customers would be much lower to insulate overall risk due to the existence of a very small segment of highly sophisticated syndicates and algorithmic bettors, or bettors looking to take advantage of site errors and omissions.”
“We believe the majority of operators balance taking reasonable action from all customers against the risk of individual customers significantly harming the business viability. We cannot guarantee that all jurisdictions will allow us to execute limits at the individual customer level, or at our sole discretion, which may in turn impact our ability to manage sports betting risk.”
Palpable errors mentioned, too
Allowing operators to void obvious errors, known as palps in the industry, was mentioned by BetRivers, Caesars and DraftKings.
Sportsbooks need the ability to void bets made on obvious pricing errors, the three said. Caesars tackled the issue on page 18 of its 10-K:
“In addition, the odds that we offer in our sportsbook operations may occasionally contain an obvious error. Examples of such errors are inverted lines between teams, or odds that are significantly different from the true odds of the outcome in a way that all reasonable persons would agree is an error.
“If regulatory restrictions do not permit us to void or re-set odds to correct odds on bets associated with large obvious errors in odds making, we could be subject to covering significant liabilities.”
More Caesars sports betting results
A dip into Caesars’ 10-K shows additional sports betting results that are not included in the top-line handle figures of $12.1 billion.
Caesars Digital generated another $1.1 billion in sports betting handle last year from “select wholly-owned and third-party operations for which Caesars Digital provides services and we receive all, or a share of, the net profits.” That includes $45 million in horse racing wagers.
Those wagers led to about $114 million in revenue with a 10.4% hold.
All of those figures are down from 2022 when Caesars reported $1.2 billion in handle with an 11% hold for $132 million in revenue. That $1.2 billion included $50 million in horse racing wagers.
Sponsorship costs falling off
Part of the expected $550 million in annual adjusted EBITDA expected at maturity for Caesars Digital will come from sports sponsorships and partnerships falling off, CEO Tom Reeg mentioned on the third quarter 2022 earnings call.
Reeg noted at the time that those partnerships cost more than $200 million annually. In the 10-K, the obligations related to sports sponsorship and partnership agreements was $605 million as of Dec. 31.
That is down from $898 million as of December 2022. Some of the contracts run through 2040.
