Since the Supreme Court repealed PASPA, the federal statute prohibiting states from authorizing sports gambling, several states have legalized sports betting and many more are following their lead (see discussion in Part I). While these states expect to benefit from higher tax revenue stemming from sporting events and gambling, many sports leagues have expressed caution or opposition, arguing that sports betting may impact the integrity of the leagues (see discussion in Part II). Part III of this series begins by briefly examining how successful states have been in collecting tax revenue and growing their economy, and then moves on to address potential legal problems surrounding sports betting.
How Much Revenue Do States Generate?
While it is still too early to determine long-term revenue from sports betting, early indicators show only modest gains since legalization (AP, LSR). New Jersey and Nevada generated $32 and $20 million, respectively, in tax revenue between June 2018 and September 2019 (LSR). While this represents only a small part of the state budgets (for example, New Jersey has a $37 billion budget in 2019), revenue has significant potential to grow as sports betting becomes more well-established (NJ Budget). Nevertheless, many states have missed their target revenue goals for sports betting (AP).
However, direct tax revenues are not the only consideration for states – other forms of economic impact should also be factored into the evaluation. For example, revenues collected by sportsbooks factor into the overall economic health of a state. In New Jersey, over $3.7 billion were wagered, out of which sportsbooks received $246 million in revenue (LSR). Nevada saw $5.4 billion in wagers and sportsbooks took in $307 million in revenue (LSR). Potential out-of-state visitors have also not been considered. Benefits from increased tourism resulting from legalized sports betting can also stimulate the economy, such as by supporting local businesses. On the other hand, if many states legalize sports betting, then this effect would be negated.
Three Legal Problems: Federal Regulation, Integrity, and Consumer Protection
Potential federal regulation of sports betting might limit the scope and effects of legalization. The federal government could implement and enforce bans on sports betting by prohibiting people or businesses from running or participating in sports betting schemes. However, Congress might face significant opposition from states that have legalized or plan to legalize sports betting. Eighteen states have passed legislation and twenty-five other states have proposed legislation (CBS). On the other hand, federal regulation is generally desirable – standardized rules and principles can help sports leagues and businesses navigate a legal landscape that has thus far been inconsistently regulated by widely varying state laws (ESPN). Bipartisan legislation toward this end has recently been announced (Id.). If modeled based on previous congressional bills, the legislation may provide for minimum gambling standards, such as establishing a state regulatory entity, limiting when and where someone may place a bet, and placing prohibitions on wagering in certain amateur sports (SWMIA 2018). The legislation would also provide for federal law enforcement to enforce these laws, taking some of the burden from the states (Id.).
Additionally, sports leagues have an interest in maintaining their integrity. If games appear fixed, or if players or employees abuse their position for the sake of bets, fewer people may be interested in watching games. Although the impacts are difficult to measure, one of the reasons people watch sports is to see teams compete, and if the games are fixed then that is no longer a reason to watch. As a result, many sports leagues are encouraging the government to institute an integrity fee, which would impose an additional cost on sports betting and generate revenue that could be used to monitor game-fixing (USA Today). The NCAA has already partnered with an unnamed organization to monitor sports betting and integrity, and is also pushing for legislation prohibiting amateur sports betting (ESPN). Whether the integrity fee will have a direct impact on preventing game-fixing depends on several factors. On the one hand, the fee would deter sports betting by imposing costs on consumers and sportsbooks. Doing so also decreases the incentive for corruption by lowering potential profits. However, aside from the deterrent effect, there is no direct relation showing how an integrity fee would prevent game-fixing. On the other hand, if the integrity fee goes towards an effective monitoring system focused on game-fixing, it could deter corruptive acts while identifying potential wrongdoers. Through the collection of data and more active policing, sports leagues could potentially use the integrity fees to regulate corruption.
On the other side of gambling, consumers need to be protected in at least two ways. First, consumers may be misled by sportsbooks or other businesses to make decisions on incomplete and false information. The NBA and NFL have already partnered with MGM and Sportsradar, respectively, to officially provide data to consumers (ESPN, NYT). However, this does not mean that other organizations cannot also track and provide data to consumers in ways that may be misleading or fraudulent. As a result, legislation should be passed to standardize the type of data that can be provided to consumers (see SWMIA 2018, Sec. 103(5)(b)(5) requires official data). Second, consumers that are especially vulnerable to significant losses – e.g. addicted gamblers – need to be protected. SWMIA 2018 provides a framework to begin considering this problem, which would help monitor and provide access to resources for gamblers (Id.).
The Big Picture
Although several states have legalized sports betting, many legal challenges still need to be addressed. These questions primarily deal with whether a standardized set of laws or rules should be established. Federal laws can help create minimum standards that all states need to meet. Corruption issues arising from sports betting may need to be addressed in the future, and creating laws regulating it may be one possible solution. Finally, consumers are vulnerable to misinformation and gambling addiction, and will likely need new laws to protect them as well.