States take a gamble on sports betting

Legislatures deciding whether to legalize the practice must weigh the benefits of taxable revenue and possible job creation against the threat of crime and the disapproval of professional sports leagues.

Photo by Baishampayan Ghos (Wikimedia Commons)

By: G. Walker Douglas, Guest Contributor May 15, 2014

 Editor’s Note: The Campbell Law Observer has partnered with Judge Paul C. Ridgeway, Resident Superior Court Judge of the 10th Judicial District, to provide students from his Law and Public Policy seminar the opportunity to have their research papers published with the CLO.  The following article is one of many guest contributions from Campbell Law students to be published over the summer.

Gamblers legally waged $3.45 billion in Nevada’s sports books in 2012, resulting in a gross revenue of $170 million.  It is estimated that $80 million to $90 million is wagered each year during the NCAA basketball tournament.  These numbers may seem large, but Nevada’s legal sports gambling represents less than one percent of all sports betting around the country.  The National Gambling Impact Study Commission (NGISC) estimates that illegal sports bets amount to as much as $380 billion annually. The FBI estimates that more than $2.5 billion is illegally bet each year on March Madness alone.

The Professional and Amateur Sports Protection Act (PASPA) bans gambling on sports in the majority of states, but because of the struggling economy, states such as Delaware and New Jersey are working to legalize it with the goal of generating revenue. States are now weighing the benefits of collecting taxable revenue from sports gambling and possible job creation against the disapproval of professional sports leagues.

 The purpose of PAPSA was to stop the spread of state-sponsored sports gambling and to maintain the integrity of our national pastime.

 In the early 1990’s the economy struggled and states were looking for means to generate revenue. 1  At least 13 states contemplated legalizing state-sponsored sports betting at that time. Congress faced significant pressure from both the professional sports leagues and the NCAA to pass legislation that would outlaw state-sponsored sports gambling, and as a result, Congress enacted PASPA. (PDF)

The purpose of PAPSA was to stop the spread of state-sponsored sports gambling and to maintain the integrity of our national pastime. The Act does not apply to any state that allowed or operated sports betting between 1976 and 1990. Nevada, Montana, Oregon, and Delaware fall under this exception, but today only Nevada, Montana and Delaware have legal sports betting. PASPA also gave states that operated casino gambling for the previous 10-year period the right to pass a law legalizing sports gambling within that state. This exception was aimed at New Jersey and the casinos in Atlantic City, but the state legislature failed to pass the necessary legislation before the window expired on January 1, 1994.

Delaware introduced a sports lottery game in 1976 in which players could bet on the winners of certain NFL games. The NFL subsequently filed suit arguing that its “forced association with gambling” constituted an “unlawful interference with its property rights.”  The U.S. District Court for the District of Delaware held that certain games within the Delaware sports lottery were permissible as long as the game materials included a statement making it clear to players that the game is not associated with or authorized by the NFL. Despite being authorized to offer certain forms of sports gambling, Delaware discontinued its sports lottery after just one year of its existence.

A few decades later, Delaware Governor Jack Markell attempted to re-initiate the sports lottery in an effort to generate more revenue.  In order to accomplish this, Governor Markell signed the Delaware Sports Lottery Act into law on May 14, 2009. Under PASPA, however, a civil action to enjoin a violation of the Act “may be commenced in an appropriate district court of the United States […] by a professional sports organization or amateur sports organization whose competitive game is alleged to be the basis of such violation.” The MLB, NBA, NHL, NFL and NCAA took advantage of this right and filed suit on July 24, 2009, followed by a motion for a preliminary injunction on July 28, 2009. 2

The United States District Court for the District of Delaware refused to grant this injunction, unconvinced that the leagues would likely succeed on the merits of the case, that the leagues have not demonstrated irreparable harm, or that failing to grant an injunction would result in irreparable harm. The leagues appealed this decision and were partially successful in their appeal. On appeal, the United State Court of Appeals for the Third Circuit barred Delaware from allowing gambling on sports other than the NFL. The court also held that Delaware could not offer any single-game betting on NFL games. The court did, however, hold that Delaware may institute multi-game (parlay) betting on at least three NFL games, since such betting is consistent with sports betting that was legal in Delaware in 1976.

PASPA gave New Jersey a window to legalize sports betting, but the state legislature did not pass a law in time. Today, Governor Chris Christie has acknowledged that he would like to legalize sports betting. He and other proponents of legalized sports betting argue that it would provide a new source of revenue from money that is now paid untaxed to unlicensed offshore websites or to illegal bookmakers. In an effort to accomplish this, New Jersey placed a referendum to amend the state constitution to allow for sports betting in the state on the ballot in the November 2011 election. The referendum passed by a two to one margin, and Governor Christie signed a law legalizing sports betting at the state’s casinos and horse tracks.

The various sports leagues have again taken advantage of their right to file suit in the event of a PASPA violation in light of the new law. The NCAA, NFL, NBA, NHL and MLB filed suit after the passing of the New Jersey law saying that the law is “in clear and flagrant violation” of PASPA.  The United States District Court for the District of New Jersey granted the leagues’ motion for summary judgment on February 28, 2013 and held that they were entitled to a permanent injunction.  Governor Christie has appealed the decision to the United States Supreme Court and supporters of the New Jersey law legalizing sports gambling are waiting to see if the Supreme Court will hear the case.

 Gambling gets people to watch.”

The first and probably the most powerful incentive for states to legalize sports betting is a quick increase in guaranteed revenues. As noted above, sports betting in Nevada generated a gross revenue of $170 million in 2012.  Delaware generated $2.1 million from its sports lottery during the 2012 fiscal year, and the 2013 numbers are expected to be even higher. (PDF) Analysts estimate that sports betting could generate well over $100 million in taxes for the state of New Jersey.

Some proponents of legalized sports betting argue that it will also benefit the sports leagues. Michael Rosenberg, a columnist for Sports Illustrated, writes that the people who run the sports leagues “are in the business of making money, getting people to watch and conducting sporting events — in that order of priority. They need people to watch so they can make money, and they need to conduct sporting events to get people to watch. Gambling gets people to watch.” Also, professional leagues negotiate large contracts with broadcast networks like ESPN who list the betting lines on their websites and even mention them during the broadcasts of games. Proponents also argue that it is hypocritical for the leagues to promote fantasy sports while opposing gambling, because the vast majority of fantasy leagues are played to win a cash prize.

 “If we legalize gambling, we can regulate it.”

Supporters of legalized sports betting further contend that legalized betting will generate jobs and create more integrity and oversight in sports.

 “It would bring people here and fill rooms and restaurants during the offseason and create jobs,” said Steve Sweeney, President of the New Jersey Senate.

It is estimated that legalized sports betting could bring thousands of jobs to New Jersey and generate an estimated $1.3 billion a year in job-generating income for the state’s racetracks and casinos. More than 30 million people visit Las Vegas each year to legally gamble on sports and legalized gambling provides employment for thousands of people.

“If we legalize gambling, we can regulate it,” writes Rosenberg. “We can monitor it. Experts can track gambling activity to look for suspicious patterns. Casinos can help law-enforcement authorities, even tip them off, because it will be in their best interest to do so. Game-fixing hurts the honest bookmaker.”

Sports books in Europe have installed “integrity units,” which consist of investigators who monitor all betting at various sites.  Using proprietary algorithms and software, they are able to predict how the lines should move and watch where money is being bet.  Anything out of the ordinary leads to an internal investigation, which can prompt the sports book to notify law enforcement or the governing body of the sport involved.  This has led to hundreds of arrests and convictions in various sports. Because sports gambling is illegal in the United States, there are currently no monitoring systems in place. If there is match-fixing in a game, it is unlikely that anyone would know.

 “Sports gambling threatens the integrity of, and public confidence in, amateur and professional sports.”

Just as there are arguments for legalizing sports gambling, there are also arguments against it. Those that oppose legalization argue that sports betting erodes the integrity of sports, leads to crime and addiction, and has harmful economic consequences.

“Sports gambling threatens the integrity of, and public confidence in, amateur and professional sports,” said Paul Tagliabue, former Commissioner of the NFL. “Widespread legalization of sports gambling would inevitably promote suspicion about controversial plays and lead fans to think the “fix was in” whenever their team failed to beat the point-spread.”

MLB Commissioner Bud Selig shares Tagliabue’s concerns. Selig argued that the more pervasive the sports gambling culture becomes and the more that culture is actively promoted by governments, the more likely it is that games will be perceived by the public with increased cynicism. Specific plays, coaching decisions, and umpiring calls, he said, would be questioned by fans who suspect that the “fix is in.”

Former NBA Commissioner David Stern wrote, “[t]he NBA cannot be compensated in damages for the harm that sports gambling poses to the fundamental bonds of loyalty and devotion between fans and teams. Once that relationship has been compromised, the NBA will be irreparably injured in an amount that cannot be calculated in dollars.”

 Sports gambling is known as the “gateway drug” to gambling addiction.

 Opponents of legalized sports gambling also claim that it breeds crime and addiction. Sports gambling is known as the “gateway drug” to gambling addiction. Experts contend that gambling addiction is linked closely to the “level of accessibility and acceptability of gambling in society.” Only certain people are susceptible to gambling addiction, but as more states legalize gambling and more people try gambling, more of those prone to addiction will be uncovered. Opponents claim these gambling addicts will then go out and commit crimes in order to support their habit. It is estimated that 40 percent of white-collar crime is committed by those addicted to gambling and $1.3 billion per year in insurance fraud can be related to gambling addiction.

Opponents of legalized gambling also argue that sports betting will have harmful economic consequences. For example, the NCAA stipulates that states that issue sports gambling licenses allowing for betting on single games will be barred from hosting NCAA championship events to “ensure the integrity of the game, provide consistency in awarding NCAA championships and to address concerns for student-athlete well-being” said NCAA spokeswoman Emily James.  The Oregon legislature, recognizing the economic harm caused by the NCAA stipulation, abolished sports betting in an effort to attract NCAA championships.

New Jersey has already experienced the effects of the NCAA’s stipulation. In 2012 the NCAA decided to move five planned NCAA tournament games, including the women’s Final Four. Nevada is also barred from hosting NCAA championships, though Las Vegas hosts conference tournaments each year.

Statistics reveal that sports gambling is already prominent within our society, even though the majority of sports gambling is illegal. Legalized sports betting has its pros and cons, and that the only clear fact in this debate is that sports gambling generates a lot of money. Only time will tell if PASPA can survive in an age where states desperately want this money and the jobs that come along with it.

G. Walker Douglas is a 2014 graduate of Campbell Law School. Walker may be reached via email at g_***********@em***.edu