How Legal Sports Betting Is Catching Fire In The US And The Issues At Stake

Updated on November 28, 2018

This is Part 1 of a two-part series on the Status of Legal Sports Betting in the US.

As several states have already taken advantage of the option and an increasing number of other states are considering doing likewise, legislators are grappling with important decisions on the best way to proceed. There is also growing concern about the possible effect wide-scale legalized sports betting will have on the integrity of the various sports.

These were the topics discussed at the second annual US Sports Betting Policy Summit on Nov. 15 in Washington, D.C. I thought the varying points of view would be of interest to NJ Gambling Websites‘ readers.

Where legal sports betting is happening in the US

Previously, Nevada was the only state that offered legalized sports betting on a full-scale basis. Three other states — Delaware, Montana, and Oregon — were also exempt from PASPA, but legalized sports betting in those states was extremely restricted.

However, now that PASPA is no longer an obstacle, legalized sports betting has expanded to multiple states.

As of this writing, full-scale sports betting is available, though to a greatly varying extent, in eight states:

  • Nevada: Full-scale sports betting has been legal for decades.
  • New Jersey: Sports betting available at seven casinos, two racetracks, and via mobile sportsbooks.
  • Delaware: Expanded sports betting now offered at the state’s three casinos.
  • Mississippi: Available at 10 casinos, but no mobile sports betting as yet.
  • New Mexico: Available at Santa Ana Star Casino & Hotel as a result of a tribal gaming pact with the state.
  • Pennsylvania: Available at Hollywood Casino at Penn National Racetrack and conditionally approved at Rivers, SugarHouse and Parx casinos with an application pending from Valley Forge.
  • West Virginia: Offered at Hollywood Casino and expected at four other casinos.
  • Rhode Island: Launched Nov. 26 at Twin River Casino.

Two other states now have legislation permitting sports betting, but the option is not yet available.

  • Arkansas: Approved in the November election for four casinos.
  • New York: Law passed in 2013 for four locations, but regulations incomplete.

Other states headed in the direction of legal sports betting

These 17 states are currently working on legislation that will allow sports betting:

  • California
  • Connecticut
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Maryland
  • Michigan
  • Minnesota
  • Missouri
  • Ohio
  • Oklahoma
  • South Carolina
  • Tennessee
  • Washington

States that currently offer very limited sports betting

These two states continue to offer the same very limited legal sports betting as before due to being exempt from PASPA.

  • Montana
  • Oregon

However, additional legislation would have to be passed to start offering full-scale sports betting. So far, no action has been reported in that direction.

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States that still prohibit all forms of sports betting

The remaining states have no plans in the works to legalize sports betting. There are laws on the books specifically prohibiting full-scale sports betting. Since no bills have been introduced as yet to repeal or amend these laws, the prospects look dim for legal sports betting.

Concerns about legal sports betting

On Nov. 15, I had the privilege of traveling to Washington, D.C., to attend the US Sports Betting Policy Summit, jointly sponsored by Sportradar, Revolution and Spectrum Gaming Sports Group.

The discussion focused on the efforts toward legalization of sports betting in various states so far and state legislators’ and sports leagues’ mutual concerns with protecting sports integrity.

The following is a summary of the important points raised at the summit and the different approaches the participants recommend for implementing legal sports betting while at the same time addressing their concerns.

Is Nevada still a good model to emulate?

Art Manteris, vice president of race and sports operations at Stations Casinos, feels Nevada offers an excellent model for other states to emulate.

He pointed out that legalized sports betting has worked well there for more than 50 years and that their sports betting industry is highly regulated and conforms to the strict policies of the Nevada Gaming Control Board.

On the other hand, Stanton Dodge, chief legal officer for DraftKings, finds New Jersey might serve as an even better model.

He praised New Jersey for having done a commendable job in building an “open, competitive and mobile market” within a very short span of time. He also had the highest praise for the Division of Gaming Enforcement (DGE) in facilitating the entry of DraftKings back in August.

A dissenting position was taken by Ohio State Senator Bill Coley. Coley cautioned against focusing too heavily on what another state has done. He pointed out that while Nevada had a “great model for its time,” modern technology now poses new challenges in eliminating illegal gambling.

Coley also said that each state would have to decide who its sports betting operators would be — i.e., casinos, racetracks or huge corporations. Also, sports betting could be offered at a variety of places, but they wouldn’t have to be rolled out all at once.

Brandt Iden, a state representative in Michigan, concurred. He pointed out that every state is unique, so simply copying Nevada or New Jersey might not work.

Importance of setting the right tax rate

A lot of careful thought needs to go into deciding at what rate revenue from sports betting should be taxed. Obviously, a state needs to collect enough tax money to have a meaningful impact.

However, the tax rate shouldn’t be set so high that the sportsbooks can’t make a profit.

Coley agreed with the other speakers at the summit that a very high tax rate across the board on sports bets was not the answer. However, he also suggested that revenue generated from longshot “sports entertainment” bets with a very high payout could be taxed at a much higher tax rate than other sports bets.

Stanton Dodge countered with the opinion that a tax rate that’s too high would drive away customers to the illegal market.

Presumably, casinos facing a very high tax rate might compensate by offering less attractive odds, spending less on marketing and technology, and offering sports bettors fewer amenities. This would, in turn, create the right conditions for illegal bookmakers to flourish and for customers to frequent them if they feel they are receiving better treatment there.

Pennsylvania off to a slow start

Pennsylvania provides a good example of a state where sports betting is now legal but making slow strides. Experts believe that the high tax rate has a lot to do with it.

PA not only imposes a $10 million fee for sportsbook operators to get a license but a whopping 36 percent tax rate on gross revenue. This is huge compared to the tax rates in New Jersey and Nevada. The Nevada tax rate for legalized sports betting is only 6.5  percent and in New Jersey, it is 8.5 percent for casinos and racetracks and 13 percent for online sports wagering.

The combination of both the hefty licensing fee and the inordinately high tax rate has to be a big deterrent in getting sportsbook operators to want to do business in Pennsylvania. In fact, William Hill USA, which currently operates not only many Las Vegas sportsbooks but also three in New Jersey, is not even considering expanding to Pennsylvania. Dan Shapiro, vice president of business development at William Hill US, admitted that “with a 36 percent tax and a $10 million licensing fee, there are other states that are more interesting to us. it’s not something we’re looking at seriously right now.”

Even the NFL has urged the Pennsylvania state legislature to reconsider its present tax rate because it is making it too difficult to compete against illegal bookmakers.

Online and mobile sports betting

Another matter up for discussion at the sports betting summit was once sports betting in a state gets the green light, at what point should legal online and mobile sports betting be offered.

Should states start by offering just on-site sports betting and online and mobile sports betting later or should those options be available from the get-go? This was a decision where the panelists clearly had dissenting opinions.

Coley advocated for limiting sports betting initially to brick-and-mortar locations. He stated that adding online and mobile betting to the mix would complicate the task and require extensive algorithms to track at different levels.

Dodge disagreed, saying that online and mobile gambling is important because it offers customers better protection. It also helps identify players who might have a gambling problem.

Iden felt the same and said that in Michigan they hope to have the governor sign a bill for online sports betting by 2019.

Protecting sports integrity

Another issue of concern to the panelists at the Washington sports betting summit is the degree to which legal sports betting needs to be regulated to ensure integrity.

Coley would like to see tighter regulations to stop illegal operators and “keep out criminals.”

However, Manteris cautioned that overregulation and too many constraints could backfire and drive bettors back to illegal local bookies or offshore sportsbooks.

A lot more on this topic of what steps should be taken to protect sports integrity, including involvement by the sports leagues and possibly the federal government as well, was discussed by other conference participants.

Part II of my series on the Status of Legal Sports Betting in the United States will summarize the key points mentioned.

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