Sports books growing in stature at casinos

Race and sports books may not bring in as much money as slot machines or table games, but they are an essential part of the overall casino experience.

That's the message casino executives heard from two American Wagering Inc. officials at a recent Casino Management Association seminar.

"I'm not naive enough to believe that I don't know where the money comes from," said Bob Smith, director of operations at Leroy's Race & Sport Book, the multi-location book owned by American Wagering. "We aren't the biggest money maker, but we are important to the entire casino package."

Indeed, in the one-year period that ended Oct. 31, win from race and sports books accounted for only 2.1 percent of total gaming win, compared to 32.3 percent for table games and 64.8 percent for slots, according to Gaming Control Board figures.

Books are expensive to build and maintain, but they play an essential role in a casino, drawing people in and creating a level of excitement crucial to giving patrons a perception that they are in a place people want to be.

"Look at a race and sports book about 12:30, 1 o'clock on a Sunday," said Smith, noting that most books are filled with people cheering each small play of every professional football game.

At many casinos, the slot and table game departments pay for sports book marketing, said Smith. The logic is simple: once a patron has placed a bet on his or her favorite team or horse, casino executives reason, they are likely to drop a few coins in a slot machine or play a few hands of blackjack. At the very least they'll grab a beer or sandwich and watch the game.

"It's bringing people in," said Smith. "The people want it."

A prime example was the first Mike Tyson-Evander Holyfield fight in 1996. When Holyfield, a 25-1 underdog, won the fight, sports books lost millions. But those book losses were more than made up for by the rooms, food and pit drop at casinos packed with gamblers in town for the fight.

"Maybe the books did lose, but the casinos won," said Smith.

Books haven't always been an essential part of casinos. As Victor Salerno, American Wagering's chairman, president and chief executive explained it, in the old days hotels were not allowed to have books, and books were not allowed to serve food.

Books were allowed in casinos for the first time in 1975. Prior to that time, sports and race betting was seen as pedestrian, beneath the level of "classy" gambling that takes place in casinos. Early Las Vegas books included Jackie Gaughan's Derby Race Book, Jimmy 'The Greek' Snyder's Hollywood Book, Churchill, Santa Anita, Del Mar, the Rose Bowl and Leroy's Horse and Sports Palace.

In 1976, the Stardust spent $2 million on its book, the first on the Las Vegas Strip. That heralded the beginning of a period termed by Smith the era of the mega-book. The 1980's saw major race and sports book openings at Caesars Palace, the Las Vegas Hilton and the Mirage.

But while books were attractive as an excitement center at large resorts, they didn't make financial sense for smaller properties until the Nevada Legislature allowed book networking in 1989.

"Networking is one of the most important things that has happened to the books," said Salerno.

Networking allowed books to cut costs by centralizing management at a main "hub" location, freeing them to hire only ticket writers to staff satellite books.

"It's economies of scale," said Salerno.

Networking also allowed pari-mutuel sports betting, where wagers from multiple locations are pooled, allowing bigger payoffs for winners and removing any risk for the books. In pari-mutuel betting, all wagers are placed in one pool, the books take their percentage, and the winners split the rest.

These days, pretty much every casino has a race and sports book. The reasons for this "explosive growth" are manifold, said Smith. The regulatory changes allowing networking, reducing the federal excise tax from 10 percent to 2 percent in 1974 and from 2 percent to a quarter percent in 1983 were factors. Also important were 1986 regulations increasing book reserve requirements and mandating that all books use computer systems to record wagers.

The 1986 regulatory changes increased public confidence in the books, said Salerno. Before computerization, he said, all tickets were written by hand and cheating was as easy as adding numerals to the front of a hand-written wager.

"The cheating was just incredible," said Salerno.

But by far the most important factor in the growth of books was the increase in television coverage of sports in the 1980s, said Smith. The cable sports network ESPN was largely responsible for this, broadcasting seemingly insignificant basketball games that eventually drove the public's appetite for extensive sports coverage. Now, with satellite coverage, it is possible to see pretty much any game being played, Smith said.

One regulatory change that didn't help books was the federal cash-reporting requirement known in the industry as regulation 6A. The law, requiring the reporting of any cash transaction of $10,000 or more, sharply curtailed sports and race book betting, said Salerno.

"When 6A came and they had to show who they were, it really went down," said Salerno.

Some of those bets went off-shore, but others went underground, said Salerno. The illegal betting industry handles annual wagers of $100 billion, compared to annual wagers in Nevada of $2.4 billion in the year that ended June 30, said Salerno.

The modern sports book is an expensive proposition, said Smith. Books need lots of expensive equipment that put their casinos deep in the hole before they even accept their first bet. For instance, computer systems cost anywhere from $300,000 to $500,000, a set of electronic score boards can cost $1 million, a satellite system can cost thousands of dollars, and that doesn't include programming subscriptions that run $20,000 to $40,000 per year.

On top of that, throw in a bunch of 50-inch televisions at $1,700 each, and a computer router to split and transmit the satellite signal to each TV, at $25,000 to $100,000. It's easy to see why a casino executive might question the efficacy of even offering a book.

But lest an executive think that way, Smith and Salerno quickly direct their attention to a survey of book gamblers American Wagering recently conducted. All things being equal, the survey found, the No. 1 answer any book gambler gives when asked why they gamble where they do is convenience.

"How close are you to my house?" paraphrased Smith.

The message there is clear, said Salerno. Sports books bring people in. If you don't have a sports book, those same people will go someplace else.

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