If SCOTUS Lets States Legalize Sports Betting, Will They Be Ready?

The black market will continue to thrive if taxes and regulations are too burdensome, a new CEI report warns.


Baishampayan Ghose / Flickr

Last December, when the Supreme Court heard oral arguments in Christie v. NCAA, most of the justices seemed inclined to agree that a 1992 law barring states from legalizing sports betting unconstitutionally "commandeers" state officials in service of a federal goal. With the Court expected to issue its decision this spring, Michelle Minton notes in a new report from the Competitive Enterprise Institute, at least 15 states "have enacted regulations for sports gambling within their borders in anticipation of when the federal government steps out of the way." Minton has some tips for those states and any others that hope to replace the black market in sports wagers with a legally regulated industry, a move that promises to protect consumers, control corruption, and raise revenue for the government. Well, two out of three ain't bad.

The Professional and Amateur Sports Protection Act of 1992 (PASPA) effectively gave Nevada a legal monopoly on single-event sports betting. But that does not mean Nevada dominates the market. The $4.9 billion in wagers that legal Nevada bookies accepted last year represented something like 4 percent of all sports betting in the United States, Minton says, meaning the share for illegal bookies was more than 20 times as big. This situation makes game fixing easier to hide, undermining the main goal of PASPA, which the big leagues demanded to protect the integrity of sports. As Minton points out, legalization promotes transparency and data sharing, which make cheating easier to detect.

The sports leagues continue to defend PASPA, which they are asking the Supreme Court to uphold in Christie. But their leaders' perspective on legal sports betting seems to be shifting along with public opinion, which since the 1970s has swung from majority opposition to majority support. "The commissioners of Major League Baseball (MLB) and Major League Soccer have called for examinations into what a regulated sports betting market would look like," Minton notes. "NBA Commissioner Adam Silver has advocated for full legalization, arguing that 'sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.'"

Minton's idea of appropriate regulation includes five major features: "adequate license availability" to ensure there are enough legal businesses to serve the market; "reasonable tax rates," somewhere between 10 and 15 percent of gross gaming revenue, to keep legal operations competitive (and, not incidentally, maximize the government's take); "diverse product offerings," including online options, to attract and keep bettors who would otherwise bring their wagers to illegal bookies; "robust consumer protections," including age, identity, and location identification and self-exclusion lists for problem gamblers; and "regulatory cooperation" among gambling businesses, between gambling businesses and sports leagues, and between states.

Some state plans already run afoul of these guidelines. In Pennsylvania, Minton notes, the legislature "set the tax rate at 34 percent of gross gaming revenues, on top of the $10 million one-time licensing fee. These costs represent an enormous barrier to entry that significantly increases licensed bookies' operating costs. As a result, few operators will be able to enter Pennsylvania's legal market and those that do will not be able to offer rates as competitive as those of their illegal counterparts. This makes it likely that the legal sports betting market in Pennsylvania will fail to thrive, causing consumers to either cross the state line seeking friendlier regulatory environments or continue patronizing illegal operators."

Like the states that have legalized marijuana, states that legalize sports betting have to take into account a black market that will continue to thrive if taxes and regulations in the legal market are too burdensome. "For the last 25 years, the states have lost out on millions in tax revenue they could have collected from sports betting, thanks to a ban pushed by and maintained by sports leagues," Minton writes. "The federal government made a grave error in 1992, when it put the interest of these multi-million dollar businesses over those of the states and their voters. Now that this failed law appears to be nearing its end, states should not repeat Congress' mistake. Instead, state legislatures should begin developing robust regulatory regimes for legal sports betting that emphasize compliance, market competitiveness, and cooperation among all stakeholders."

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  1. In Pennsylvania, Minton notes, the legislature “set the tax rate at 34 percent of gross gaming revenues, on top of the $10 million one-time licensing fee.

    We really should set up state stores for gambling to make sure the consumers get the best pricing, and have a union of state gambling store workers to strengthen and preserve the public’s tax dollars.

  2. Are you familiar with the lottery? It’s a state-sanctioned numbers racket wherein the pay-off is so pathetically low that any casino offering such odds would be busted for running a criminal enterprise. And yet, as far as I know, no state has been smart enough to lower the odds by a margin high enough to steal all the lottery business from the other states. Why is that? It’s almost as if there’s some sort of collusion amongst the states, an agreement that they’re all going to offer the same pathetic odds so as not to compete on price the way any private business would. Like the way actual casinos offer all sorts of bonuses, free drinks and meals, comps and special props to attract customers all while advertising their high pay-out ratios – 95% or so if I’m not mistaken.

    So will these be state-sanctioned sportsbooks or state-operated sportsbooks? If they’re merely state-sanctioned but privately operated, will the taxes be so onerous that the books will only be able to offer lottery-level payouts? And will the states collude to maintain universal lottery-level payouts? It seems like it would be smart for states to operate a system the same way Nevada operates with regards to Reno and Las Vegas, but betting on the state legislatures to do the smart thing is a worse bet than the lottery.

    1. States have different payout rates on lotteries, but a lot are very similar. I think that’s not necessarily collusion (though they cooperate when it comes to multistate games, like PowerBall). It’s more likely a reflection of states experimenting over the years to figure out how low the payouts can be without harming demand, aka tax revenue.

      Re: Sports betting, none of the proposals I’ve seen are for state-run sportsbooks. However, once it is legal I can guarantee you’ll see state lotteries offering certain types of sports wagering, most likely parimutuel betting.

      1. The state lotteries aren’t for serious gamblers, so they don’t need to compete seriously on price.

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  4. I think that it is high time to legalize all such things. You have to be realistic, everything on the black market is constantly sold or used. The situation will be the same only now the state will receive taxes from this and a little control over such rates. I also bet the website and as for me, better for the good of the state

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