GAME CHANGER
With legalized sports betting on the horizon, Sportech, the British company that owns and operates Connecticut’s OTB locations, is betting big on a new frontier for growth.
The choice isn’t sports betting or not; it’s whether to bring the huge black market into the taxable, above-ground world of state policy, and enlarge it.
Tim Carey, president of the Hawthorne Race Course just outside of Chicago, knows plenty about the horse racing parimutuel business. His family has owned the track for 109 years.
Now he’s about to learn a lot more about sports betting, with a trip to Stamford next week. His host: Sportech PLC, which owns the 16 offtrack betting locations in Connecticut and delivers backbone technology, including betting terminals, to 90 race tracks and OTB operators in 37 states.
Like Carey, its customer, Sportech — with its American headquarters in New Haven — is looking to jump into sports betting now that the U.S. Supreme Court has struck down a law prohibiting states from sanctioning wagers on ballgames.
Carey is among more than two dozen customers, regulators and lawmakers set to take part in a one-day crash course on sports betting, followed by a night at Sportech’s marquee location, Bobby V’s Sports Bar and Restaurant. In Illinois, as in Connecticut, legislators are still just talking about it, but the gold rush is on, as states from coast to coast will adopt sports wagering quickly.
“It is real and I think it has a good shot,” said Carey, whose race course offers both thoroughbreds and trotters, attracting 22,000 fans and betters a year. “We’re holding our own, but certainly we need gaming.”
Connecticut as a state can say the same thing, more or less. In Sportech, the state has a company with vast experience in the European sports book market — which is a longtime feature of mainstream, legal culture, many times bigger than Las Vegas.
“I guess it points to the DNA that we have at the board level,” said CEO Andrew Gaughan.
Gaughan, 52, is from Toronto, where Sportech is now based, but the company was in London and is traded publicly there. He spent five years running the predecessor company’s European operations, working in a rich sports betting landscape.
The head of the Connecticut venues, Ted Taylor, hails from the United Kingdom. The company chairman, Richard McGuire, was a licensed sports bookmaker in Scotland starting at age 18, and another board member was a top executive for a different firm with deep roots in sports betting technology worldwide.
Does all that help? Culturally, yes, as the industry looks to take Europe’s widespread betting habits in soccer (yeah, right, it’s called football) along with tennis, hockey, Formula 1 and handball — and apply it to the major U.S. sports.
Who would have guessed that only a dumb gaffe by the Cleveland Cavaliers’ J.R. Smith would keep the team from stealing Game 1 on the road in the NBA Finals? I don’t know, but legal betting would have tightened the tension for a lot of people, for better or worse.
The choice isn’t sports betting or not; it’s whether to bring the huge black market into the taxable, above-ground world of state policy, and enlarge it. That market is estimated to be $150 billion in the United States, with perhaps $20 billion in illegal gross profits for the underground and offshore bookmakers.
In Connecticut, Gaughan estimates the underground sports betting market at $600 million, translating to perhaps $70 million in illegal profits. That number could increase sharply if the bets go mainstream.
Sportech is one of several players vying for positioning in Connecticut, including the Mashantucket Pequot and Mohegan tribes, which operate the casinos; and the
quasi-public Connecticut Lottery Corp.
The tribes may claim they have exclusive right to run sports betting in the state under their historic compact. Attorney General George Jepsen doesn’t see it that way, but under federal law the tribes do have a right to a place at the table and Jepsen, along with Gov. Dannel P. Malloy, is negotiating with the tribes.
Sportech has the physical venues across the state, which is what the General Assembly will probably want to see. And in its pari-mutuel business, Sportech already offers online betting to Connecticut residents.
The company’s strategy is to install a sports betting platform in its own venues in Connecticut, and offer that to its race track and OTB customers around the country. Connecticut OTB
venues, branded as Winners, represent about half of the company’s $100 million in worldwide revenues.
“We love the fact that we have the ability to deploy the product both retail and digital, and get some feedback, which we can convert to our B-to-B customers and say ‘Look, we’re doing it in Connecticut,’ ” Gaughan said. “It’s going to give us a lot of credibility.”
That, of course, depends on the General Assembly passing a bill that Malloy — or the next governor — will sign. If that does happen, Gaughan said, Sportech, which has zero debt, would be prepared to expand to 24 locations, the number of licenses it now holds, and spend significantly in the venues it now has.
That means jobs in Connecticut, where Sportech already has 400 people, and while Gaughan can’t estimate the headcount, “There’s lots of employment opportunity as a result of sports wagering,” he said, including marketing.
The company has software and automation centers in New Jersey and Atlanta, offices that Connecticut might like to see located here.
But many hurdles remain, including decisions on whether the sports leagues should take a cut of the action. The leagues say yes, Sportech says no, because the leagues will make money selling data to the operators.
For customers such as Carey, at the Illinois race track, the state’s tax level will be critical.
The event in Stamford is, in a sense, the start of the industry here. Nationally, Sportech will remain “behind the curtain,” where it is now, in operating systems. But in Connecticut, the sports betting brand would be public — something new, not Sportech or Winners.
“It’s going to resonate with Connecticut, it’s going to have a Connecticut twist to it,” he said.