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GAMBLING A Gamble on

States looking to ou bettor believe it. action, passing legislation to allow sports The U.S. Supreme Court’s ruling betting. , , close budget gaps last spring in Murphy v. National Col- and West have now joined with sports-betting Ylegiate Athletic Association paved the in offering at their commercial way for states to authorize on sports . In Delaware, the legal and regulatory revenue may be events, booking the topic a slot in future head- framework was already in place; it just needed lines for months to come. New gaming-related the governor’s approval. , New disappointed. opportunities and puns abound. York, and have The court’s decision was long in the making. also enacted measures legalizing sports betting Congress passed the Professional and Ama- and are expected to begin offering it soon. In teur Sports Protection Act, widely known total, 21 states, the District of Columbia and as PASPA, in 1992. It prohibited states from proposed or enacted measures in BY JACKSON legalizing sports-betting operations, but 2018 to either legalize and regulate sports bet- allowed states already offering sports betting ting or form commissions to study the issue. BRAINERD or related games (Delaware, and Most of the states leading the way enacted ) to maintain their current operations. legislation before the Supreme Court deci- Other states had the opportunity to jump in sion, allowing them to get a jump on expanded and offer sports betting at the time, but all gaming opportunities. Because some of the declined. For the last 26 years, only Nevada bills were relatively bare-bones and merely has offered full-fledged sports betting. instructed a regulatory authority to investigate When New Jersey passed a law to repeal the sports-betting, several states still must develop state’s ban on sports betting in 2014, the move rules or pass additional legislation to flesh was challenged by the NCAA and a handful them out. But the measures in a few states are of major pro sports leagues as a violation of more comprehensive in their regulatory scope PASPA. The case made its way to the Supreme and provide useful insights into how states are Court, which ruled 6-3 that provisions of the approaching the issue. In general, states are act violated the Constitution’s anti-comman- grappling with the following policy concerns. deering rule. That rule prevents Congress from compelling states to adopt or enforce federal Integrity Fees Jackson Brainerd is a policy associate in law. To address the question of how to protect NCSL’s Fiscal Affairs Program. States have since rushed to get in on the sports events from the potential corruption

NOVEMBER/DECEMBER 2018 42 STATE LEGISLATURES GAMBLING

of gross sports wagers are paid out in win- and other amateur sports presents another nings, leaving only 5 percent in profit for integrity issue. It’s not difficult to see why it the operators. So, an integrity fee of 1 per- might be easier to convince an unpaid col- cent of gross wagers would eat up roughly legiate player to deliberately pitch 20 percent of net profits. Fiscal analysts a poor game than it would be to influence a have questioned whether integrity fees this professional being paid millions of dollars high would erode states’ revenue share to to do the same. (That’s one of the reasons such an extent that sports betting would the NCAA was a plaintiff in Murphy.) New become cost prohibitive. York lawmakers enacted a measure that Pro sports leagues support the fees, but prohibits betting on collegiate sports. New not all lawmakers like the idea. West Vir- laws in Rhode Island and New Jersey pro- ginia Senate Majority Leader Ryan Ferns hibit betting on games played by the states’ (R) says, “There is zero interest in integrity collegiate teams and on any collegiate fees or anything else associ- event taking place in the state. Other states ated with professional sports have either not addressed this or allowed in the Legislature. I think collegiate sports betting to proceed. major league sports were late to the game … It wasn’t Online Betting a partisan issue, I just don’t Even in the year 2018, the gambling world

think there was any support Senate Majority is relatively untouched by the internet. Only for it.” Leader Ryan Ferns a handful of states—Delaware, Nevada, Alternate proposals to New Jersey and Pennsylvania—have legal- preserve the integrity of ized , in part because it can that results from millions of dollars rid- sports contests include one from the Amer- hurt the industry. If people can gam- ing on the outcome of a game, a handful ican Gaming Association to create an inde- ble online, they are less likely to spend their of states have proposed “integrity fees.” pendent Integrity Monitoring Association money at a casino. Many states have pro- These would amount to 1 percent of the that would help flag suspect activity sur- posed or enacted legislation allowing sports gross amount wagered and would be paid rounding sporting events via information betting online or through mobile devices, to professional sports leagues, essentially sharing and an enhanced reporting system. however, in part because both options are as compensation for increased self-polic- more appealing to younger bettors than casi- ing to fight corruption. The amount would Betting-Eligible Events nos, which have struggled to attract millen- not be insignificant. Roughly 95 percent Whether to allow betting on collegiate nials. A study conducted by Nielsen Sports on behalf of the American Gaming Associa- tion found that “44 percent of sports bettors are adults under the age of 35, as opposed to 31 percent of the general population.” Nevada accepts online bets anywhere in the state if the gambler has registered in person at a . Pennsylvania and West Virginia have authorized sports betting online or through mobile devices, and a mea- sure pending in would allow gam- ing on a mobile sports-wagering platform. Mississippi allows bettors to place RI online sports bets using an app, but only if

DC the bettor is on casino premises. New Jer- PR VI sey appears to have left the decision up to GU the Division of Gaming Enforcement. MP Grandfathered by PASPA AS Tribal Concerns not offering sports betting A few states are working to fit legalized Offering sports betting sports betting into existing state compacts 2018 legislation pending with tribal governments. In Connecticut, 2018 legislation failed 2018 legislation enacted Source: NCSL tribal leaders have argued they hold the

STATE LEGISLATURES 43 NOVEMBER/DECEMBER 2018 GAMBLING YES, NO, MAYBE SO | ETHICS 101 exclusive right to offer sports betting in the pensions, that come with costs that can state and have threatened to stop paying easily outpace gaming profits. Gambling Nevada’s 2017 Gaming the state 25 percent of slot machine revenue expansions typically result in an immedi- Revenues After Paying ($270 million in 2018), per their existing ate revenue increase that plateaus or even agreement, should the state allow sports declines over time, until a new game is Winners betting elsewhere. In , efforts introduced. States looking to close bud- have been slowed by tribal concerns about get gaps with sports-betting revenue may the language in proposed online sports be disappointed, especially as more states betting legislation. And in and legalize it and take their slice of the market. , tribes are pushing for legalizing sports betting and allocating a portion of Place Your Bets the proceeds to the states. The push for legalized sports betting comes at a time of gaming expansion Tax Rates nationwide. Since 2000, seven states have Existing and proposed tax rates on legalized and 11 have legalized Total Gaming $11.6 billion sports-betting profits vary widely. States casinos or , or both. In concert with Sports Betting $248.8 million seem to be falling into two camps: those this growth, however, has been a gradual taking a relatively lower cut (rates between flattening or even decline in state gambling Source: UNLV Center for Gaming Research 5 and 15 percent) and those taking a larger revenues across the country. A 2016 Rocke- share (up to a third or more). On the lower feller Institute report shows that, between end, Nevada takes 6.75 percent of the gross fiscal years 2008 and 2015, 21 states saw Among the states with recently autho- revenue of the licensee. New Jersey will their revenues decline, and national rized sports betting, Mississippi took in tax gross sports pool revenues at 8 per- lottery revenue grew by just 0.2 percent $54,000 in revenue off $9.8 million in cent but apply a 12.5 percent rate to online when adjusted for inflation. The trend total wagers in its first month; Delaware sports-betting revenues. Casinos pay a 12 results partly from states with newly legal- brought in just over $1 million in its first percent tax in Mississippi. ized gambling siphoning off—or “cannibal- three months; and New Jersey casinos gen- On the higher end, a recently enacted izing”—gamblers from other states or keep- erated just under $1 million Pennsylvania law set the rate at 34 percent, ing their own residents from crossing state in August, its third month of with an additional local-share assessment lines in search of opportunity. operation. New Jersey Senate of 2 percent. The ’s reve- The ability of sports betting to generate President Stephen Sweeney nue-sharing agreement with sports-betting revenue for states will also depend in part (D) responded that legalized operators grants the state 50 percent of on drawing gamblers away from the sizable sports betting “helps our [fis- total winnings. And in Rhode Island, the black market. Estimates of the money in the cal] situation but it doesn’t Senate President state takes 51 percent. black market range from tens of billions to fix anything.” Stephen Sweeney New Jersey As with any other “sin tax,” there is the hundreds of billions of dollars. Unfortu- potential that a rate perceived as being too nately, billions in total sports-betting wagers Federal Interference? high will allow the black market to flour- do not necessarily translate to huge profits The states’ varied approaches to regu- ish. Pennsylvania casinos were reluctant to or tax revenue for states. It’s hard to say lating sports betting have produced some offer sports betting due to the state’s high how much revenue sports betting will gen- nervousness at the federal level. In its first tax rate, but at least one is expected to erate. Most states estimate a couple million hearing on sports betting since the Murphy begin providing it this fall. to tens of millions of dollars, but nothing decision, the U.S. House Subcommittee What will states do with the added rev- resembling a true windfall. Potential annual on Crime, Terrorism, Homeland Security enue? Lawmakers are considering various revenue was estimated to be $3.1 million to and Investigations discussed a possible options. West Virginia will deposit the $18.8 million in , $2 million to $2.4 regulatory framework that could pre-empt first $15 million into the state’s lottery million in Michigan and $5.5 million in state authority. And in the U.S. Senate, fund, with any additional revenue going West Virginia. Minority Leader Chuck Schumer (D) of to the Public Employees Insurance Agency Nevada’s 2017 gaming revenues provide New York has proposed a federal frame- Financial Stability Fund. Proposals in a useful example: Of a total $11.6 billion work. New York and West Virginia would direct in casino winnings in 2017, only $248.8 As the voice of the states, NCSL has money to education. And the laws in Penn- million, or 1.7 percent, was attributable to called on Congress to respect the states’ sylvania and Rhode Island direct revenues sports betting. The tax rate on those win- sovereignty to regulate and tax sports gam- to the general fund. nings was 6.75 percent, resulting in less bling. are, whether regulation remains States have been known to direct reve- than $20 million for the only state with a state-by-state patchwork or the feds step nue to programs, including education and legalized sports betting. in, sports betting is here to stay.

NOVEMBER/DECEMBER 2018 44 STATE LEGISLATURES