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Legalized Sports Betting in the US: The Good the Bad and the Ugly

Written by:
C Costigan
Published on:
May/18/2019

John Holden, Assistant Professor at Oklahoma State University, has written a must read paper on the legal sports scene in the United States one year after the US Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA).  Holden holds a JD/Ph.D. in Sports Law / Corruption of Sport.  His historic look back at the sports betting industry over the last century alone is worth the read.  This is required reading you will want to download here

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The Bad - "While New Jersey has been an early leader in capturing the sports gambling market share,there have been several high profile incidents, including sportsbooks  violating  the  ban  on  accepting  wagers  on  New  Jersey  based  collegiate  teams,  which resulted in a fine of a mere $2,000".

The Bad - "The early fines from the Division of Gaming Enforcement have raised questions about the potential deterrence value as Caesars entertainment was fined a mere $2,000 for accepting illegal wagers on a football game between Rutgers and Kansas on September 10, 2018.  Similarly, the Golden Nugget Hotel  Casino  was  ordered  to  forfeit  $390.00  in  wagers  it  had  accepted  on various football games involving   New Jersey teams during the month of September."

The Bad - "Mississippi’s sports wagering revenue numbers have lagged behind other states thathave more robust mobile offerings, likely raising questions about how much of the illegal market is being recaptured."

The Good - States like - and ONLY like - New Jersey.  There has been more than $2.6 billion in wagers placed in New Jersey over the past several months.

The Bad - "Pennsylvania has imposed a tax rate and licensing fee that initially appeared to threaten their ability to attract  any  companies  to  the  market."

The Good - "Pennsylvania’s launch of sports betting has been slow but steady after casinos were initially scared off by the tremendous upfrontcosts.The number of those willing to pay the licensing fee and accept the tax rate has increased."

The Good - "Unlike the commercial casino model in other jurisdictions,the lottery model enables states some  additional  flexibility  in  where  consumers  access  sports  betting  products.While  Delaware has elected  to  confine  single-game wagering to the state’s casinos, they make their Scoreboard product available at hundreds of locations, virtually any location that offers lottery products could sell sports wagering  products  under  a  lottery  model. The  lottery  has  established  duties  that  retailers  must comply with in order to be able to sell sports wagering products."

The Good - "Delaware’s launch of expanding sports wagering has appeared to be smooth."

The Bad - "Delaware lottery officials have contended that mobile wagering is authorized in the state, though there is  not  anyone  currently  servicing  that  market  segment."

The Bad - "Among  the  potential  drawbacks  of  a  lottery-model  is  a  lack  of  competition  for bettors,leaving bettors susceptible to the state’s bookmakers,  who  do  not  need  to  compete  with external competition.  Allowing for outside entities to run sports betting may further result in states losing control that they cannot recapture."

Holden points out that the Washington, DC lottery model process has not run so smoothly when compared to Delaware.

The Bad - "New Jersey demonstrates that mobile wagering generates significantly more interest than brick and mortar wagering; however, it may be less easy to control underaged access to mobile wagering."

The Good - New Mexico seemingly came out of nowhere in the sports betting space.  It became apparent rather quickly that, in states where tribes have a major influence, the push for legalizing sports gambling will be that much more difficult.  New Mexico is likely more of the exception.  

"The  agreement  between  the  state  government  and  Tribal  governments  seemingly  grants  the  tribes, subject to the compact, extensive authority to authorize Class III gaming at their facilities.The determination of sports betting as a Class III gaming activity is a near certainty,and the Federal Register endorses that conclusion, listing “sports betting and pari-mutuel wagering” as examples of Class III games. Despite the fact that sports betting appears to be illegal under New Mexico law, state officials have endorsed the Pueblo of Santa Ana’s interpretation that the gaming compact allows for the tribe to offer in person sports wagering. The Pueblo of Santa Ana launch has raised questions about which other tribes may have entered into compacts with permissive language that would enable them to bypass renegotiation of existing compacts or launch a sports wagering product without further action from the state."

With that, Holden goes into extensive detail as it relates to The Tribal Gaming Situation.

The Bad - "The tribal-state relationship in many states may actually be an impediment to the offering of sports betting,  as  oftentimes  gaming  compacts  are  the  result  of  years  of  negotiation  and  any  potential disruption by a renegotiation,as may be necessary in some states,could prompt both tribes and states to view offering sports betting as not worth the effort. The state of Florida serves as an apt example of  the  challenges  regarding  the  offering  of  sports  betting  where  there  is  an  existing  tribal  gaming compact."

The Bad - "The federal, state, and tribal landscape is very much in a state of flux, and is likely to remain so for some time, as all consider how best to move forward. The early lessons that are being learned suggest that there  is  a  need  to  proceed  cautiously  so  as  to  maximize revenues and  minimize  negative externalities associated with lax consumer protections, and impose some sort of know your customer regulations."

And then there is that controversial "integrity fee" the leagues are attempting to impose on states looking to legalize sports betting. 

In states where leagues have major interests (Illinois and New York), the "integrity fee" should be a greater obstacle.  Indiana somehow managed to get around it.  The NCAA, which is based in Indianapolis, omits mention of such a fee in its submitted testimony.  Their rationale for doing so we won't get into here, but let's just say it is strategic.

Holden also delves into the "bad actor" clause and makes mention of FanDuel and Draftkings, two companies that  offered daily fantasy sports contests that arguably violate federal law.  Both are licensed in New Jersey along side The Stars Group, whose massive growth occurred after it chose to remain available in the US market long after the passage of the Unlawful Internet Gaming Enforcement Act (UIGEA).  That decision helped PokerStars capture the leading market share abandoned by once dominant PartyPoker.  In April 2011, PokerStars was named in an indictment filed by the Southern District of New York.

The Stars Group, in particular, may have a tougher road moving forward,  Their PokerStars site tried, and failed, to gain access to the California market.

- Chris Costigan, Gambling911.com Publisher

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