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The Effects of the Legalization of Sports Betting

Earlier this year the Supreme Court struck down a 1992 federal law that made sports betting and gambling illegal. How are businesses reacting?

Earlier this year the Supreme Court struck down a 1992 federal law that made sports betting and gambling illegal. Professional and Amateur Sports Protection Act (PASPA) made it unlawful for States to “‘to sponsor, operate, advertise, promote, license, or authorize by law or compact . . . a lottery, sweepstakes, or other betting, gambling, or wagering scheme based. . . on’ competitive sporting events”. It did not make sports betting a federal crime but gave the Attorney General legal basis to bring about civil objections. This year, in a 6-3 ruling, the court deemed the PAPSA unconstitutional because it involved the Federal Government restricting States rights. Judge Alito, a native of New Jersey, wrote in the majority opinion, “Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.”

This in essence will be bringing an estimated $150 billion in illegal wages from the black market onto legitimate channels. This is a major win for states like New Jersey who want to encourage tourism and generate tax revenue from legal sports betting. On Thursday, June 14th the state will begin allowing legal wagers to be places on sporting events. This comes just in time for the beginning of the World Cup. While New Jersey was the one that pushed this Supreme Court case, they were not the first state to take advantage of the decision. Delaware was actually the first state to have allow legal bets to be placed on sporting events besides Nevada who had already allowed it before this case event went to the Supreme Court due to a previously grandfathered law. Three casinos in the state became the only place on the East Coast for sports gamblers to make wagers on major events like the Stanley Cup Finals and the NBA finals which concluded last week. So far only New Jersey, Delaware and Nevada have full scale operations. Pennsylvania, Mississippi, and West Virginia will all soon follow as they recently have had bills passed. A handful of states have introduced new bills while over twenty have still not made any strides towards legalizing sports betting in their state. As more and more states begin to start allowing wagers to take place, we will begin to see the positive and negative effects this new legislation will have on the sports and live events industry.

Could Sports Betting Have a Negative Effect?

One of the biggest concerns from sports organizations revolved around maintaining the integrity of the game. They believe that they will have to take steps to protect their sports and some are calling for more regulation from the government. Rightly so, the organizations are weary about the potential of “game fixing”. They have even gone as far as proposing a 1% integrity fee, a measure that may a little too much for the gaming industry.

The MLB released a particularly cautious statement detailing their priorities following the decision. “Our most important priority is protecting the integrity of our games,” MLB’s statement continued. “We will continue to support legislation that creates air-tight coordination and partnerships between the state, the casino operators and the governing bodies in sports toward that goal.”

The NFL wrote a statement along the same lines, “Congress has long recognized the potential harms posed by sports betting to the integrity of sporting contests and the public confidence in these events,” the N.F.L. said in a statement released. “Given that history, we intend to call on Congress again, this time to enact a core regulatory framework for legalized sports betting.”

However, not everyone in professional sports feel this way. Some people argue that bringing the betting into the light will actually protect the sports more since more regulation can be enforced. Legalization means more framework and forces everyone in the world of sports betting to follow the same set of rules. Ted Leonsis, who owns the NBA’s Washington Wizards, the WNBA’s Washington Mystics and the NHL’s Washington Capitals thinks that by bringing this industry above the board will actually help to rid it of any corruption since previously it could not have regulations since it was not legalized.

“It brings a multibillion dollar industry out of the shadows and into the sunlight, where its integrity can be guaranteed and consumers can be better protected,” Leonsis wrote in a blog post, adding, “I think that the increased transparency that will accompany more legalized betting around the country will only further protect against potential corruption.”

Nevada may be the only state not excited by the recent ruling. When state sponsored sports betting was being banned in 1992, they were allowed to continue operations due to previous allowances. In the past, those wanted to place legal bets on sporting events would have to make the journey to places like Las Vegas. This trek became especially popular during March Madness, the Superbowl, and other major sports matchups. Now, that could be a thing of the past as more states begin to allow legal sports betting.

Delaware also has its concerns on how the new ruling may negatively affect business in the state. Before the ban was lifted, parlay bets were allowed to place parlay bets, where they had to choose the winners of at least three games. This made it the only place where legal bets could be placed on NFL. The concern is that single game bets pay out higher margins and that once other states legalize betting that folks won’t be driving across state lines to place parlay bets anymore. However, many still believe that the positive effects will far outweigh the bad.

Initial Positive Effects of Legalized Sports Betting

Immediately following the Supreme Court decision Caesars Entertainment stock prices rose by 6%. Mark Cuban, world renowned investor and owner of the Dallas Mavericks, believes that this decision could bring large financial boost to professional sports team. He even went as far to say that franchise owners saw their investment double with the decision. When asked why, he highlighted how the in person and online experience will change for fans. It will also allow organizations news avenues to expand to new demographics and retain their audience. For some people, the entire fan experience will change as those previously not interested will find themselves more engaged when games have a monetary value placed on the outcome.

“You’ll have fun at the arena, at the stadium, and while you’re watching it whether it’s online or on traditional TV. I think this is something that benefits everybody even tangentially associated with sports,” said Cuban to CNBC.

Cuban emphasized that even though betting in some form has occurred, now that it is coming above ground more technology can now be used. The more innovations and access that becomes possible the more creative ways that people can interact with sports games. While there is not wide scale legal betting online yet it is definitely on its way. The current legislation states that online sports betting cannot start within 30 days of the bill signing. Once that time period expires then it will make the world wide web open for legal sports betting.

“Everybody gambled for a long time — this is not a new industry,” Cuban said. “It’s just a question of whether you’ve done it as a part of the underground economy … or whether you’ll be able to do it above board, and leverage all the new technology available to do it. With technology, apps, and always-on access, it’s something that will be a new form of entertainment that effects us all.”

According to a study done by the American Gaming Association, in 2015 Sports bettors made up 25% of the NFL’s television audience and accounted for 47% of all minutes viewed. In other words, sports bettors watch more of the game than non bettors do. Now that it will be easier for them to place bets, it is not unlikely that viewership goes up across all professional sports. The survey went as far to predict that with betting moving above ground, that the number of people who bet on sports and watch the NFL would jump from 40 million to 57 million. That would be 17 million added viewers who watched 19 more NFL games in 2015 than adults who did not bet. Not only would the number of views increase, but the would be engaged more than normal fans. The study also showed that those who make bets on the game are 65% more likely to discuss the game via social media. This could mean huge advertising opportunities and new wave of economic success for media companies as well as brands. This is especially important during a time when television is considered to be in trouble. Magna, the ad-buying and media intelligence arm of IPG Mediabrands said that advertising sales fell by 2.2% last year and they predict that they will continue to fall by 2% every year through the year 2022. However, this recent ruling could help swing that in the other direction, at least when its comes to watching professional sports.

“This is a dry constitutional issue about states’ rights, but it will likely change how we have viewed sports for the past 100 years,” said Gabriel Feldman, the director of the sports law program at Tulane Law School. “It’s called the gamblization of sports. Fans will become much more focused on gambling than following a team. It will make every second of every game of every week interesting to fans as it will give everyone something to root for.”

Although it has a much smaller population and it’s sports are not as diverse as that in the United States, in Britain alone had a total gross gambling yield in 2017 of $18.19 (converted from £13.7) billion. It is estimated that 20 to 30 percent of that went back into advertising, mostly on television. Using those across the pond as an example, it appears that a good portion of the revenue generated makes its way back to the world of sports broadcasting. Not only will traditional media be affected but new streaming services like ESPN+ and other medias like podcasts could see an increase in engagement as more people join in on not only betting, but the conversations around placing those wagers.

The states, especially those like New Jersey, see this as an opportunity to bring in new revenue to their sports tracks and casinos. They want to leverage legal sports betting to bring patrons back to places like Atlantic City, which has been struggling to stay a float over the past few years. Not only would the casinos and racetracks benefit, but the nearby restaurants and hotels will as well, boosting the overall economy in states in which sports betting is legalized. The state will also receive pretty significant tax revenue by bringing this industry above ground. New Jersey state officials predict $13 million in tax revenue could potentially be brought in from legal sports bets. This is because in person bets will be subject to an 8.5% tax and online bets 13%. The reasoning behind a higher tax online is to encourage people to visit the sites and spend more money on surrounding businesses. In addition to the economic boost, many jobs will be created in the process of legalization. At Monmouth Park alone in New Jersey 50 to 120 jobs are predicted to be added for both gaming and non gaming roles.

“By attracting new customers, we increase tourism,” state Assemblyman John Burzichelli, D-Gloucester, said. “Local businesses will also reap the benefits afforded by this new revenue stream. This is good news all around for Atlantic City and for the entire state of New Jersey.”  

Overall, whether positive or negative, the Supreme Court’s ruling to allow states to legalize sports betting will have a profound impact on the industry. While most of the professional leagues are concerned about maintaining the integrity of the games they represent, others are too focused on all the legal dollars it will generate. From state tax revenue to an increase in local economies the decision is likely to have a large economic impact for everyone involved.  

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