Social sports betting: market is huge but big payout is unlikely

As March Madness, one of the biggest under-the-table gambling event in American sports, approaches, sports site Fanhood is trying to tempt users and their friends into placing tournament pics and other casual wagers online. The site is one of a growing number of “social casinos” like Zynga Poker that offer casual play — but that are also crossing their fingers for a big windfall as states loosen online gambling restrictions.
According to CEO Brandon Ramsey, a former engineer at Yahoo(s yhoo) and Zynga(s znga), Fanhood is aimed at the millions of Americans who make casual sports bets with friends for fun and bragging rights. He claims the site, which relies on Facebook’s (s fb) platform, has 50,000 active users who can use virtual currency tokens to bet on everything from the Superbowl to NHL hockey games.
“It’s the same kind of psychology as taking $5 from a friend,” said Ramsey, claiming that Fanhood’s message boards and ongoing tallies of bet Fanhood march madnessoutcomes will keep users coming back. He adds virtual currency sales can sustain Fanhood because, unlike social games like Farmville, it doesn’t need fresh content — the sports matches supply that.
While Fanhood may succeed with virtual betting and sports chatter (much like the thriving fantasy sports industry), a big payoff would come through real money betting — a New York Times report pegged online betting as worth between $6 and $100 billion. But, for sports, this is a longshot at best.
Like Zynga Poker, Fanhood is only legal because players can’t cash out. If they could, these sites would be violating federal laws that forbid online betting unless states permit it.
In recent months, the prospects for social gaming companies have brightened as Nevada, New Jersey and Delaware have legalized online gambling. The process, however, is far from smooth sailing. Companies still must navigate established casino interests and, in the case of poker, assemble a critical mass of players (you can only gamble across state lines if all states involved permit it).
The legal challenge is even bigger when it comes to sports betting. According to Jim Gatto, a lawyer who specializes in gambling issues, the federal government deliberately excluded sports when they loosened online gambling rules in 2011. The reason, he said, is that sports depend on human action for the result — meaning there is an incentive to fix the results when there’s money on the outcome (history, including the NBA, shows he’s right).
This means Fanhood and other social sports betting sites will have to be content with virtual currency for the foreseeable future. There is also a chance too, of course, that a casino or other large gambling company will acquire them in the hopes of luring casual sports betters to a gambling site.
(Image by Jerry Sharp via Shutterstock)