Supreme Court's gambling ruling worth billions to payments industry
The Supreme Court has sided with states in a dispute over sports gambling, a double victory for payment processors, which can use largely existing tools to serve an entirely new market.
The Supreme Court this week ruled 6-3 to strike down a 1992 federal law that had banned most states from legalizing sports betting. For payment processors, this new ruling can greatly improve the ROI of systems they already have built for non-U.S. markets.
Worldpay, which has its main offices in London and Symmes Township, Ohio, already has a gambling payment processing unit with an international profile and plans to put that to use as state gaming operators launch sports betting platforms. Vantiv, which merged with Worldpay, has developed payment technology for payment operators for years, supporting payments for debit, credit and ACH.
"The SCOTUS decision opens up yet another new revenue stream for that states to drive tax revenue and expand upon a framework that has been time tested and well-proven for decades," said Joe Pappano, senior vice president of Worldpay Gaming.
The new sports gambling platforms will likely have some of the same requirements as other gambling platforms, such as "know your customer" money laundering regulations, authentication and other compliance service that payment processors often handle as part of general merchant acquiring.
"Payments is the key to a frictionless experience, for consumers to get money in and out of wagering accounts, or to manage if it's online, mobile or a card-present payment in a casino," Pappano said.
Sport betting is legal in a few U.S. locations, with almost all of the revenue coming from the Las Vegas casino sports books. Despite that narrow opportunity, sports betting sets records almost yearly, reaching $5 billion in 2017. The exact overall growth to come from the Supreme Court ruling is unclear, since states will have to individually regulate sports betting, though ESPN reports the investor behind the fantasy sports betting site FanDuel predicts the valuation of his investment could increase as much as 500%.
FanDuel investor @BradleyTusk on rising value of his investment due to sports gambling decision: “We think it doubles the value of our equity. And once states start legalizing sports betting and it becomes common practice, it could be more like 5 times.”
— Darren Rovell (@darrenrovell) May 14, 2018
The case originated with a suit by former New Jersey Gov. Chris Christie, who predicted sports betting will begin in New Jersey within weeks as a result of the Supreme Court ruling. New Jersey's current governor, Phil Murphy, also celebrated the decision. New Jersey originally tried to legalize sports betting in the state in 2011 via a referendum, but the NCAA and professional sports leagues thwarted the measure.
DraftKings and FanDuel expect to have gambling platforms in place by the start of the NFL season in the fall. Fantasy sports is a huge business that has been walking a tightrope on gaming for years, positioning itself as a fantasy sports daily contest amid charges the category is an illegal gambling operation.
That resulted in large financial companies such as Citigroup deciding to back away from fantasy sports. The Supreme Court ruling would open the market for traditional payment processing companies and banks to serve sport betting operations in certain states.
Other payment processors are active in general gambling and would stand to benefit from an expanding sports betting industry. First Data, for example, offers a suite of gambling products called PayLucky, which packages the Clover point of sale system, prepaid, loyalty and other payment products tailored for casinos. PayPal resumed support gambling payments for about four years, after dropping the category alongside its 2002 acquisition by eBay.
The Supreme Court ruling "should take the negative stigma out of the gaming payment equation," said Thad Peterson, a senior analyst at Aite Group. "Processors supporting the gaming space have the knowledge and experience to capitalize on this opportunity, and they can move quickly."
That existing infrastructure and market makes sport gambling different from cannabis, which is governed on a state-by-state basis but is often avoided by mainstream financial services companies. In the case of sports, many states already have an established gambling base to build on, according to Pappano, who adds gambling isn't illegal on the federal level, as cannabis is.
"The gaming industry is already highly regulated so there's a framework wit lotteries and other localized gaming that has existed for some time," Pappano said.
But gambling payments are not total smooth sailing, according to Zil Bareisis, a senior analyst at Celent.
"Even in markets where gaming has been legal, there has been a deliberate friction in payments. For example, if a user tried to use a credit card to fund their gaming account, many issuers would treat it as a cash advance [rather than a purchase], and some would decline the transaction altogether," Bareisis said, adding that a recent U.K. government review called for a ban on using credit cards for online gambling.