The Gaming Industry Association Board of Directors took the first half hour of their Nov. 1 meeting to explore the possibilities surrounding the fantasy sports league pari-mutuel wagering legalized under HB616, passed during the last legislative session.
John Tooke, a GIA board member, explained he was originally invited by Gov. Brian Schweitzer to participate in a Horse Racing Task Force to craft a solution to revitalizing what is a dying sport but one with a long tradition in Montana.
There have been a few proposals over the years from horse racing interests and enthusiasts to levy additional taxes on gaming machines, or license machines to the racing interests or race meets, and to push for "racinos," race tracks that offer casino gambling–all in order to provide an income stream for that industry.
Rather than upset the delicate balance of gaming machine tax rates, Tooke said he thought it optimal to develop an entirely new, reliable source of revenue; one that would offer a currently legal form of gambling, fantasy sports leagues, on a different delivery platform, "a horizontally integrated totalizer system," while at the same time "offer the racing industry a vehicle to develop a new player base with an understanding and comfort level for betting through a tote system.
"This computerized tote system," Tooke explained, "is essentially a 'dial-up' system that has existed for over 20 years in Montana. It would maintain a history of each transaction, provide a meaningful and precise audit trail, manage the collective betting pools, and provide the necessary accounting information to assure prompt and correct distribution of winnings as well as the take-out per HB616."
He said Montana legalized fantasy sports league betting back in 1991, and pari-mutuel wagering on horses has been legal for decades. Also in 1991, the state authorized simulcast, which is a system that provides broadcast of live horse races from around the country as well as a wagering and payment mechanism or "tote" system.
Tooke said he reasoned the three legal activities could be married to allow participants in fantasy sports leagues to use simulcast-like systems to place pari-mutuel type fantasy sports wagers.
Thus, with the backing and help of the Horse Racing Task Force, HB616 was crafted, passed by the legislature and signed by the Governor.
Tooke said much remains to be learned about the concept and its potential or lack of it. He said there are no other models in the nation to measure or mimic and that Montana could be pioneering a success or a flop.
Considerable risk is involved, but this could solve the problem of insolvency for the horse racing business in Montana, Tooke said.
Tooke told the GIA board, "Getting a law passed is one thing, writing the rules to implement that law is something else and it is that step that will determine the efficacy of the concept."
He said a committee of the Board of Horse Racing is working on a rules draft that could be out in early January. Until then, he said, it is difficult to discuss any specifics with real certainty but that some broader concepts were fairly clear.
First, he said, the Board of Horse Racing will have to identify and license an entity that can put together and manage a fairly complex system involving a substantial outlay for hardware (a terminal will be required at each location licensed for alcohol or gaming that opts to participate), some kind of distribution and service network will be needed to get it set up in participating licensed locations, an extensive round of training for location operators and, in turn, potential players.
Tooke said such an entity might be the industry Gaming Research and Education Fund which is supported by and comprised of gaming businesses and their associations. It primarily researches, funds and promotes treatment for problem gamblers and provides other services such as a 24-hour help-line.
The group also researches tavern business issues and Tooke reminded the group the smoking ban will be implemented in less than two years and work needs to be done researching and developing strategies to counter the potential business disruption.
A company with considerable resources and experience in horse racing totes will have to be found to design the system software and furnish hardware, Tooke said.
Other entities will have to be brought into the program that could actually do installations at participating locations, and Montana's current gaming route operators could fill the bill, Tooke said. He added that any location licensee who determined the fantasy sports league pari-mutuel was a good fit with their business would need to be given the opportunity to participate, whether that location was vended or not.
Further, Tooke said, educating location operators as well as their customers in how to use the system and play the game would require some considerable expertise. Route operator representatives might accomplish that requirement, too, he said.
"We are a long way from pulling all this together," Tooke said. "And it might be awhile before we know if it is truly viable and will produce the cash needed to sustain horse racing, let alone cover operating expenses for the licensees, vendors and system provider."
The terminals would need to be secure and self-service for players to keep labor costs down, Tooke said.
He said as he envisions the game, professional football might be the best sport to base it on, as it is also run on a weekly cycle and is already the most popular fantasy league sport. He said NASCAR races may also have potential for the same reasons. Other sports could be brought into the system include professional baseball and golf but their potential for play is far less, Tooke said.
Currently, Tooke said, fantasy leagues are run on a seasonal basis and so after several weeks some teams are clearly out of contention and interest–and attendance in taverns–wanes. As the season progresses to playoffs, only the members of top three or four teams retain much active interest, he said.
However, if fantasy league players could play and select teams and player combinations on a weekly basis, interest could be sustained throughout the season, as participants get a fresh shot every week, Tooke said.
Another problem with the current fantasy league structure," Tooke said, "is that the payoff comes only once a year, at the end of the season-long cycle. If we could run this on a weekly cycle, players have a realistic chance to win every week.
"But a potential problem with weekly betting would be fulfilling record keeping requirements and accounting for wagers and payoffs for all the separate pools spread across the state. That's why a pari-mutuel tote system is the answer. These are already highly developed for horse racing and would be easily adaptable for fantasy sports leagues. In fact, the simulcast system already in place in Montana utilizes this technology."
Under his concept, fantasy league players would be allowed to select players from a roster of professional athletes to create teams that emulate different types of wagers, just as horse racing fans now do when betting exotic wagers on horses, Tooke said.
These teams must include multiple athletes to conform to existing fantasy law and rules and thus cannot include win bets on a single athlete, he added.
Fantasy teams could include two-man squads (quinellas, exactas and daily doubles), three-man teams (trifectas and pick threes), and could expand to other multiple exotic propositions as the player base gains an understanding of the activity, he continued.
"For example, a player could select two or three quarterbacks and create a quinella or trifecta," Tooke said. Other wagering propositions could be structured like pick-fours, pick-sixes, and so on. The combinations could be limited or expansive, as could wagers and payoffs.
"Instead of betting $150 up front, as is the current practice," Tooke said, "a participant could pick a new team each week–or pick five teams–and bet $1 or $2 on each one. Then each week find out if they've won instead of waiting until February."
Tooke said that the law specifies 74 percent of wagers would be paid back to players, 16 percent would go to the Board of Horse Racing, 6 percent to the licensed system operator and 4 percent to location operators.
Tooke said much more groundwork needs to be laid and many questions answered before any reasonable estimates of the "handle" could be made. For example, he said, "We can't know the cost of the system hardware because we don't know how many places might want to participate. So neither can we know yet what the player base might be, the average wager or the total handle."
"I guess maybe the only way to get these answers is to find some folks who are not risk averse and are willing to spend some money to see if this will work, to see if it is viable or could flourish. I guess that's the essence of business risk, isn't it," he said.
The 6 percent for the system operator may not be enough," Tooke said. "I guess we'll find that out when someone starts developing the business model. And at just 4 percent for the location, you can see it becomes primarily a proposition for building traffic, building a new customer base comprised of the sports nuts, the fantasy league guys and gals."
"Hopefully, if they're in your joint to bet ten bucks on a trio of quarterbacks being tops that week, they might just buy a couple of beers, too. And they might buy a couple of more when they come in to pick up their winnings and brag to their friends."
Tooke said he believed that the fantasy sports fan is a different customer than video gaming machine players. He acknowledged that some money spent on fantasy sports wagering might come from machine play, but thought it would be almost negligible.
At the conclusion of Tooke's presentation, GIA President Marc Wass appointed an exploratory committee that is to report back at the next GIA board meeting Jan. 31 at the Best Bet in Helena. Appointed were Kent Frampton, Pat Kelly, Mark Ehli, Tom Kenneally, Jr., and Tooke, who will chair the group.
Source: The Montana Tavern Times, December, 2007, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.