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States Eye New Revenues After Supreme Court Backs Legal Sports Betting

May 15, 2018
Originally published on May 16, 2018 1:30 pm

Now that the Supreme Court says it's OK, states are free to legalize betting on sports if they want to. As a once under-the-table economy moves into the open, it creates some large business opportunities — and the potential for millions in new tax revenues.

But first comes the nitty-gritty part: writing the rules for how sports fans can bet on their favorite games — the legal age, where people can bet, licensing requirements, software standards for mobile apps, and money laundering safeguards.

"We also have to establish what the tax structure will be," says New Jersey Assemblyman John Burzichelli. "That's very important. We're actually in our budget cycle now."

He says the tax rate is still being negotiated, but will be between 8 percent and 15 percent of revenue after winnings are paid out. He says New Jersey can get these rules written in about four weeks.

This puts the state neck and neck with Delaware and Mississippi. Close behind them — and just in time for football season — are Pennsylvania, West Virginia and Connecticut. These are all states with an established gaming industry, all trying to be the first to take legal sports bets.

"Markets of this size don't just come into being on a regular basis," says Chris Grove, a gaming analyst for the research firm Eilers & Krejcik.

He expects 32 states to eventually allow sports gaming, worth roughly $6 billion annually. But, he says, that may not come so easily.

"There's an existing black market. It's entrenched. It's attractive. It offers a number of advantages that regulated betting sites will never be able to offer: the lack of having to fill out tax forms and have your winnings reported, the ability to bet on credit," Grove says.

But new entrants into the gaming industry don't expect much competition from the black market.

"I think most people would prefer to do things in a legal manner if given the option," says Jason Robins, CEO of the daily fantasy sports company DraftKings.

He compares illegal sports betting to the pirating of music. Most people shifted to legal products when streaming services came along. He contends something similar will happen in sports gambling.

Some analysts warn that profit margins might not be as plush as investors hope. A lot depends on how heavily sports betting is taxed.

And on top of taxes, there's what professional sport leagues want.

After years of fighting against sports betting, the NFL, Major League Baseball and other leagues have changed their approach. Over the last few months they've been going state to state, lobbying aggressively for a special fee to pay for policing against cheating, like an athlete intentionally throwing a game.

In New Jersey, leagues tried to get a fee between 2 percent and 3 percent of gross wagers. But lawmakers balked.

"They're not paying that in Nevada and their not paying that to the illegal sportsbooks." Burzichelli says. "That's a nonstarter as far as I'm concerned."

In statements Monday, the major sport leagues said they will be looking to Congress for a "regulatory framework" to protect the "integrity" of their games.

U.S. Rep. Frank Pallone of New Jersey is sponsoring one bill, which would establish a legal framework for consumer protections and give the Federal Trade Commission some oversight. But he acknowledges it's not getting passed anytime soon.

Copyright 2018 WSHU. To see more, visit WSHU.

ARI SHAPIRO, HOST:

The Supreme Court has spoken. States are free to legalize betting on sports if they want to. And as operations that have been under the table move into the open, there are some very big business opportunities. Many states are looking at a whole new stream of tax revenues. First, there's work to be done, as Charles Lane from member station WSHU reports.

CHARLES LANE, BYLINE: The work is writing the rules for how sports fans can bet on their favorite games. Assemblyman John Burzichelli is leading this effort in New Jersey.

JOHN BURZICHELLI: We will establish the legal age. It will be 21. We will reinforce what the Constitution says - that on-site sports wagering will only occur at our casinos and racetracks and be able to make it available online to New Jersey residents.

LANE: And lest we forget, the main reason for doing this...

BURZICHELLI: We also have to establish what the tax structure will be. That's very important. We're actually in our budget cycle now.

LANE: Burzichelli says the state can get as much as 15 percent of all the money that comes in after winnings are paid out. He thinks New Jersey can have sports betting up and running in about four weeks. This puts them neck and neck with Delaware and Mississippi close behind them. And just in time for football season are Pennsylvania, West Virginia and Connecticut, all states with an established gaming industry. They're all trying to be first to market. Chris Grove is a gaming analyst for the research firm Eilers & Krejcik.

CHRIS GROVE: Markets of this size don't just come into being on a regular basis.

LANE: Grove expects 32 states to eventually allow sports gaming, earning roughly $6 billion a year. But that may not come so easily.

GROVE: There's an existing black market. It's entrenched. It's attractive. It offers a number of advantages that regulated betting sites will never be able to offer - the lack of having to fill out tax forms and half your winnings reported, the ability to bet on credit.

LANE: But new entrants into the gaming industry don't expect much competition from the black market. Jason Robins is CEO of DraftKings, the daily fantasy sports company.

JASON ROBINS: Well, I think most people would prefer to do things in a legal manner if given the option. I don't think most people want to be betting illegally.

LANE: He compares it to the pirating of music until streaming services came along.

ROBINS: People shifted from the illegal market to those products, so I think you'll see something similar here.

LANE: After years of fighting against sports betting, professional leagues like the NFL and Major League Baseball have changed their approach. Over the last few months, they've been going state to state, lobbying aggressively for a special fee to pay for law enforcement to prevent cheating, like an athlete intentionally throwing a game. In coordinated statements yesterday, the major professional leagues said they will be looking to Congress for a regulatory framework to protect the integrity of their games. House Democrat Frank Pallone from New Jersey is sponsoring one bill, but he acknowledges it's not getting passed anytime soon. For NPR News, I'm Charles Lane. Transcript provided by NPR, Copyright NPR.