Against the Rules with Michael Lewis

Episode 7: Little Big Short
Release Date: December 3, 2024
Host/Author: Pushkin Industries

Introduction to Sports Betting’s Evolution

In Episode 7 of Against the Rules with Michael Lewis, Michael delves into the burgeoning world of legalized sports betting in America. He recounts his personal foray into sports gambling at Circa, a relatively new casino in Las Vegas, highlighting the initial excitement and subsequent challenges he faced when attempting to place bets through popular platforms like FanDuel and DraftKings, only to discover that sports betting remained illegal in his home state of California.

Michael Lewis (00:49): "I downloaded FanDuel and DraftKings on my phone at home in California, but they wouldn't accept my bets. That's how I discovered that sports betting was illegal in California, which in and of itself was weird."

The Moral and Legal Battle Against Sports Gambling

Michael explores the resistance against sports betting in several U.S. states, primarily rooted in moral objections. He interviews Reverend Joe Godfrey, a lobbyist for Alabama's Southern Baptist churches, who articulates the religious and ethical arguments against gambling, citing biblical commandments that condemn covetousness and greed.

Reverend Joe Godfrey (06:28): "Gambling is a form of covetousness and greed. But the Bible says in Exodus 20, verse 17, you shall not covet your neighbor's... anything that is your neighbor's."

Despite these strong moral stances, Reverend Godfrey expresses a sense of impending defeat, acknowledging the relentless push from gambling forces and the weariness it causes among Christian communities.

Reverend Joe Godfrey (09:01): "The gambling forces never stop. They come back every year... churches get tired of the fight."

Tribal Casinos and the Federal Legal Landscape

Transitioning from moral opposition, Michael provides a historical overview of casino gambling on Indian reservations. He explains how tribes like the Seminoles in Florida and the Chickasaw Nation in Oklahoma have leveraged gaming to generate significant revenue, often outpacing expectations and altering local economies.

Steve Ruddock, a sports gambling industry analyst, sheds light on the strategic maneuvers of tribes in the casino business, emphasizing their foresight and adaptability.

Steve Ruddock (12:40): "The San Manuel tribe... started making billions of dollars over the years. They donated to that hospital that was doing that. That's the difference of it."

However, the 2018 Supreme Court ruling that allowed states to legalize sports gambling introduced new challenges. Major companies like FanDuel and DraftKings aggressively entered the market, often sidelining tribal interests and establishing a dominant presence.

Gus Garcia Roberts (14:22): "These companies backed by Wall Street basically swooped into California, I think, kind of confident that they could do what they did in every other state."

The Duopoly of FanDuel and DraftKings

A significant portion of the episode focuses on the oligopolistic control exerted by FanDuel and DraftKings over the sports betting industry. Michael interviews Jim Chanos, a renowned short seller, who initially bet against these companies based on their unsustainable business models. Although Chanos faced setbacks when DraftKings defied his predictions by thriving, he highlights a critical flaw in the companies' strategies: their reliance on encouraging bettors to make increasingly risky parlay bets.

Jim Chanos (25:04): "We made a fundamental error in that we modeled out the business based on it being the same economics as a typical Vegas sports book."

Michael explains how FanDuel and DraftKings have perfected the art of enticing gamblers into making multiple-leg parlays, thereby increasing their profit margins exponentially with each additional bet.

Jim Chanos (25:38): "What really has changed is because of the ease of gambling... people are making dumber and dumber bets."

Despite fierce competition attempts by traditional casinos and other new entrants, FanDuel and DraftKings maintain an overwhelming market share, buoyed by massive investments in marketing and proprietary data systems that outpace their rivals.

Sean Kelly (30:51): "It's 2 billion in marketing and 1 billion in technology."

Tribal Resistance and Future Prospects

Victor Rocha, chairman of the Indian Gaming Association, discusses the strategic resistance by tribes against the encroachment of big sports betting companies. He underscores the tribes' suspicion of these corporations, viewing them as predatory entities intent on undermining tribal sovereignty and economic interests.

Victor Rocha (17:27): "We saw those pricks right on the horizon... We're going to plan it. We're just riding along."

Despite efforts to introduce tribal-led sports betting initiatives, such as partnerships with the Seminole Gaming's Hard Rock brand, tribes struggle to compete with the entrenched dominance and technological prowess of FanDuel and DraftKings. Rocha remains skeptical about overcoming the duopoly without substantial support and innovation.

Victor Rocha (21:21): "If you go out, kind of imagine out 20 years... What they're doing is a different business from the old sports book at a casino."

Case Study: The Seminole Tribe’s Struggles

Michael narrates a case involving Danny Moses and his experience with the Seminole tribe's Hard Rock betting app. Moses identifies erroneous betting odds that could have potentially provided significant returns, only to find that the Seminoles voided his bet without sufficient explanation. This incident highlights the operational shortcomings and customer service issues within tribal sports betting platforms, further cementing the tribes' inability to challenge the market leaders effectively.

Danny Moses (36:06): "They canceled, didn't reach out to me, didn't call me... They didn't honor it."

Conclusion: The Unstoppable Duopoly and Its Implications

Michael concludes by portraying FanDuel and DraftKings as formidable villains in the sports betting landscape—not merely because of their aggressive and sometimes unethical tactics, but because of their unparalleled efficiency and market control. He warns of the profound societal impacts of this duopoly, including its effects on athletes, college sports, and fan experiences.

Michael Lewis (39:13): "They make great villains because they're so incredibly good at what they do... The damage is already inflicting on athletes, on college sports, on how fans feel about the whole thing."

As the episode wraps up, Michael hints at future discussions involving gambling legends and old-school Vegas bookies, promising deeper insights into the evolving sports gambling empire.

Key Takeaways

• Dominance of FanDuel and DraftKings: These companies have secured an 80% market share in sports betting through aggressive marketing, technological innovation, and data acquisition.

• Tribal Challenges: Native American tribes, despite their initial success in casino gambling, find it difficult to compete with large corporations in the sports betting arena.

• Ethical and Moral Opposition: Strong opposition from religious and moral groups continues to shape the legal battles over sports gambling legalization in various states.

• Economic and Social Impacts: The duopoly’s practices have significant implications for consumers, athletes, and the integrity of sports, raising concerns about addiction and exploitation.

Notable Quotes

• Michael Lewis (00:49): "I downloaded FanDuel and DraftKings on my phone at home in California, but they wouldn't accept my bets."

• Reverend Joe Godfrey (06:28): "Gambling is a form of covetousness and greed."

• Jim Chanos (25:04): "We made a fundamental error in that we modeled out the business based on it being the same economics as a typical Vegas sports book."

• Victor Rocha (21:21): "If you go out, kind of imagine out 20 years... What they're doing is a different business from the old sports book at a casino."

• Michael Lewis (39:13): "They make great villains because they're so incredibly good at what they do."

This episode of Against the Rules offers a comprehensive exploration of the current state and future trajectory of sports betting in America, highlighting the complex interplay between corporate dominance, tribal sovereignty, and ethical considerations.