Background

On 14 May 2018 the United States Supreme Court paved the way for individual states to introduce legislation permitting sports betting if they so wish, by striking down a federal law which had effectively prohibited this. This outcome was the result of a long-running attempt by the State of New Jersey to legalise sports betting within Atlantic City, following a non-binding referendum of its citizens in 2011 in favour of this.

The ruling in this case, heard in its final form as Murphy v. National Collegiate Athletic Association., No. 16-476, is set to radically alter the sports betting climate across the United States, and could open up a market estimated by GamblingCompliance as likely to be worth between $2bn and $5.8bn in annual gross gambling revenue over the next five to seven years.

What did the case decide?

The law at the centre of this case was the Professional and Amateur Sports Provision Act 1992 (PASPA). PASPA made it unlawful for a state to sponsor, operate, advertise, promote, license or authorise sports betting, and for private individuals to do the same if done pursuant to the law or agreement of the state. Only four states maintained exceptions to this prohibition, most notably Nevada, which permitted sports betting in casinos, and as a result enjoyed a near-monopoly on sports betting in the United States. Montana, Delaware and Oregon were also allowed to continue the limited forms of sports lotteries they had permitted prior to 1992. One thing PASPA did not do was criminalise the act of sports betting.

The Supreme Court judges ruled 6-3 that PASPA violated the “anticommandeering principle” enshrined in the 10th Amendment to the Constitution, which provides that Congress may not compel states to legislate as it dictates. By 7-2, the same judges also declared the entire law unconstitutional, finding that the provisions which violated the anticommandeering principle were unseverable from the remainder of the Act.

What does this mean?

The Supreme Court’s judgment has not made sports betting legal in the United States. What it has done is placed the ball firmly back in the courts of the individual states to legalise and regulate sports betting if – and as – they see fit, just as they already do with many forms of non-sports gambling such as casino gaming. Congress could still choose to legislate directly on this issue through a revised law which doesn’t commandeer states to prohibit sports betting, and there is currently lobbying (including from Americas’ major sports leagues) for a federal framework to be introduced, but any such action would take time, and may not happen at all. This process of state-by-state legalisation is therefore like to occur in several waves of reform, with some states acting to liberalise regulation as soon as possible, many adopting a wait-and-see approach, and some continuing to prohibit sports betting.

Next Steps

Prior to the decision, several states had already moved to enact legislation which would permit sports betting in one form or another in the event PASPA was overturned. This list includes New Jersey, Delaware, West Virginia and Mississippi, all of which could have legalised sports betting in some form in 2018.

The next group of states face a race against time to pass agreed legislation on sports betting before the end of their current legislative sessions, or will have to wait until next year to do so. States in this second wave of reform include California, Illinois, Michigan, Rhode Island and New York.

As the majority of states are now out of session, 2019 will be the first opportunity for most to pass sports betting legislation. States such as Maryland, Kansas and Connecticut which considered passing legislation before last Monday’s ruling are likely to lead the charge in this respect, and Connecticut may even call a special session of the General Assembly before then to consider the issue. Some states, such as Colorado, explicitly prohibit sports gambling in their state constitution, meaning its legalisation would entail a vote of the people. Various other states are likely to introduce legislative proposals in early 2019, with perhaps as many as 25 to 40 states permitting sports betting in some form within the next five to seven years. A brief state-by-state overview of the sports betting legislative landscape in all 50 states is available here.

Five Likely Early Movers:

For an insight into the future landscape of sports betting in the United States, the following five states are among those identified by GamblingCompliance as likely to be early-movers:

  • New Jersey New Jersey is now expected to speedily enact legislation to honour the result of its 2011 referendum by legalising sports betting in Atlantic City, releasing a draft bill on the same day as the ruling. Monmouth Park Racetrack is expected to start accepting wagers on Memorial Day (28 May), thereby becoming the first sports book to open outside of Nevada in the post-PASPA era.
  • New York – New York technically already legalised sports betting in 2013 via a gaming-expansion law, but this is limited specifically to four upstate casinos. In what could likely become the largest US sports betting market, lawmakers seem likely to move to extend this to more locations, including racetracks. New York in particular must also consider the lobbying interests of the governing bodies of America’s major sports, especially the NFL, NBA and MLB, all of which are headquartered there. These industry heavyweights are likely to have strong demands in areas such as “integrity fees” (a share of betting revenues awarded to governing bodies on the basis of the increased cost of anti-corruption measures they cite as being necessitated by legalised betting), customer data and the leagues’ ability to restrict certain types of bets. It will be interesting to see if a consensus on all this is achievable before New York’s current legislative session ends on 20 June.
  • Delaware – Delaware’s exemption under PASPA already allowed it to run a sports lottery offering parlay (accumulator) bets on NFL games before this ruling. It is likely to be fairly straightforward for the state to expand this to include legalisation of a full range of sports bets, initially at Delaware’s three racinos (racetrack casinos). Governor John Carney has stated that he expects this to happen before the end of June.
  • Mississippi – Mississippi made a subtle change to its gambling legislation in 2017 which removed the prohibition on the operation of sports betting by its casinos as part of a regulation dealing primarily with fantasy sports. Subject to regulation by the Gaming Commission, state officials have said that legalised sports betting could be up and running within six weeks of the 14 May ruling.
  • Pennsylvania – Pennsylvania passed legislation authorising sports betting at its casinos and racinos in October 2017, but tempered this with demands for a $10 million licensing fee and effective tax rate of 36% for those wishing to take advantage of PASPA’s demise. It will be interesting to see if this is enough to dissuade casino operators from introducing sports books in the state, or whether they are willing to stomach these expenses in order to cash in on the opportunities offered by access to the US’ sixth-most populous state, especially considering its large number of sports teams, existing online casino and poker operations and close proximity to New Jersey.

What factors are likely to be important in states’ sports betting legislation?

  • Tax Rates – As suggested by the example of Pennsylvania, tax rates and licensing fees are likely to frame the centre of much debate in state legislatures considering introducing sports betting regimes. States will be acutely aware of the taxable revenues offered by legalised sports betting, but also of the importance of not setting levels so high as to dissuade gambling operators or allow them to be undercut by unlicensed bookmakers and organised crime. New Jersey’s draft bill included a 9.25% tax on land-based sports betting revenue and 17.5% on online. More patient states are likely to look closely at the effects of this, as well as the much higher levels potentially being set by states such as Pennsylvania, before deciding upon the details of their own legislation.
  • Media and Data – Media and data companies which have existing relationships with America’s sports leagues stand to benefit from increased interest from neutral audiences and potential monetisation opportunities for their products. Data businesses already sell official US sports data to regulated betting operators in other jurisdictions, and are likely to be well positioned to provide that data to an emergent US sports betting sector. The betting sector will also seek rights to show live footage of matches in their premises and (where permitted) on their websites. This increasing demand will result in financial benefits to the US sports leagues, as well as discussions with major broadcasters around the extent of their exclusivity.
  • Remote Betting – Another key issue is whether states will allow remote (mobile and online) betting, and if so whether this will be restricted to in-person registration in casinos (as is currently the case in Nevada), or include full remote access and registration as in the UK and other regulated markets. Final versions of New Jersey’s current draft legislation will likely allow international bookmakers to partner with the state’s casinos and racetracks for online/mobile offerings. Mississippi looks likely to (at least initially) restrict mobile betting to the casino floor. It seems unlikely that international remote betting operators who thrive in European regulated markets will be permitted free access to US state markets without some kind of arrangement with local state casino/racetrack (or state monopoly) interests, at least in the short and medium term.
  • Integrity – Integrity issues are likely to be a central concern for the leagues in seeking to safeguard their sports against corruption. Legalisation provides opportunities in this area, not just the perceived threats, as legalisation allows betting operators and leagues to monitor gambling patterns and identify irregularities when they occur, in a way which is impossible (or at least extremely difficult) on the current unregulated markets. The level of integrity payments called for by the leagues – especially if the NFL becomes heavily involved – is likely to influence the debate on legislation and tax rates. Players’ unions such as the MLBPA and NFLPA are also likely to want to have their say in any such discussions.
  • Native American Gaming – Native American gambling operations maintain exemptions to federal gambling regulations, in part under the Indian Gaming Regulatory Act 1988, and naturally have their own interests in this potential area of growth, although the regulatory landscape in this respect is complex.

Final Thought

This ruling turns over to individual states the future of the sports betting market in the US. The next 5-7 years of reform will be formative in the development of what has the potential to become the world’s largest legalised sports betting market.

In the wider context, the Supreme Court’s decision also served to reaffirm the role of the anticommandeering principle at the heart of states’ rights politics in the US. This could well inform the way Congress decides to legislate on a wide variety of issues in the future, from the legalisation of marijuana to gun control.

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