Betting big on sports gambling
States, casinos, teams, and fans all hope to cash in on legal sports betting. Can they all be winners?
Where is it legal?
Sixteen states have passed legislation permitting sports betting over the past year, and six have already set up betting operations. Last May, the U.S. Supreme Court struck down a federal law limiting sports gambling to Nevada, ruling that the law unconstitutionally intruded into state decisions. New Jersey led the charge to overturn that 1992 ban, in the hope of reviving its moribund Atlantic City casinos. Since then, there’s been some $9 billion in legal action nationwide on professional and college sporting events in Delaware, Mississippi, New Jersey, Pennsylvania, Rhode Island, and West Virginia. In recent months, Arkansas, Illinois, Indiana, Iowa, Maine, Montana, New Hampshire, Tennessee, and Washington, D.C., passed sports betting laws, and dozens more are mulling legalization. Analysts believe the U.S. is still just scratching the surface of what could become a $400 billion industry.
What’s in it for the states?
A new source of revenue. Americans bet up to $150 billion on sports in 2017, only $4.9 billion of which was legal. The legalization argument echoes the case for legalizing marijuana: If people are going to do it anyway, why not regulate and tax it? In New Jersey, legalization has generated nearly $200 million in revenue and helped create more than 3,300 full-time jobs, many of them in Atlantic City. Legalization has “brought new life and new customers to our racetracks and casinos,” Gov. Phil Murphy said recently. “New Jersey can very soon and will very soon dethrone Nevada as the sports gaming capital of America.” Yet while states charge sportsbook companies millions for licenses and impose steep taxes, revenue in most states is falling far short of projections; Rhode Island, for example, expected to collect $11.5 million in taxes during the first fiscal year of legalization. In three months it took in just $150,000. Mississippi, Pennsylvania, and West Virginia have had less than half the expected revenues.
Why the poor results?
There is a lot of competition for the dollars of people who like to gamble, including casinos, state lottery games, and online betting, and not everyone has enough sports savvy to confidently bet on the outcome of pro games. And in sports betting, the house doesn’t always win. Rhode Island sportsbooks lost $2.35 million in February, after the New England Patriots won the Super Bowl and covered the 2.5-point spread. Long-shot underdogs can burn bookies even worse: James Adducci of Wisconsin went to Las Vegas in April and placed the first sports bet of his life—$85,000—on Tiger Woods to win the Masters. When Woods won his first major title in 11 years, Adducci got a payout of $1.19 million.
Are the leagues on board?
Yes, though they were almost uniformly opposed just a decade ago. Pro football, basketball, baseball, and hockey feared scandals in which athletes, coaches, and referees could be secretly paid to corruptly influence game results. But with the explosive popularity of online sports betting sites such as FanDuel and DraftKings, each valued at more than $1 billion, the leagues found the lure of a new profit source irresistible. After the Supreme Court paved the way for legalization, Mark Cuban, owner of the NBA’s Dallas Mavericks, said franchise owners “just saw the value of their team double.” Since then, each league has licensed its proprietary statistics to casino corporations for tens of millions of dollars. The leagues are also pushing to get 0.25 percent of every bet as an “integrity fee” for the burden of preventing point shaving and other corruption, to stop teams taking bribes from gamblers to throw games—as the Chicago “Black Sox” did in the World Series 100 years ago. “If we have a scandal,” MLB senior vice president Bryan Seeley said, “that could cost us hundreds of millions of dollars.” Legalizing sports gambling will also bring an inevitable boom in problem gambling and gambling addictions. (See box.)
So why go down this road?
Politicians love revenue from “sin taxes” such as smoking, drinking, and gambling, since these activities are voluntary, and the leagues see betting as a way of juicing interest in their games. When a game turns one-sided, casual fans might leave early or change the channel. Gamblers stay on the edge of their seat, waiting to see if a team covers the point spread or if they’ll win a bet such as “Who will score last?” Golden State Warriors owner Peter Guber says he wants the fan to feel like “more of a participant than a passenger.” Keith Wachtel, the NHL’s chief revenue officer, says gambling revenue is actually an afterthought for owners. Seducing more fans to become even more engrossed, he says, is “the holy grail of sports betting.”
The addiction problem
Any expansion of legal gambling always brings a spike in the number of people with gambling addictions. Charlie, an IT professional from Pennsylvania, quickly burned through $400,000 after the state legalized online sports bets. “Imagine being an alcoholic sitting on your couch and there’s no beer in the house, and then there’s this app that you can press and magically a beer appears,” he said. “It’s tempting as hell.” Hotlines for gambling addicts in New Jersey received 21 percent more calls involving sports betting this year, and researchers believe about 2 percent of adults are susceptible to uncontrollable gambling. Arnie Wexler, a compulsive-gambling advocate, says legal sports betting will unleash “a volcano of gambling addiction in America.” The problem will grow worse if sportsbook operators are allowed to offer exotic “prop” bets in real time: “$10 he makes this field goal,” or “$20 the coach calls a running play.” Every minute of a game could become a source for adrenaline-pumping wagers. In the U.K., such bets are already legal, and today there are more than 8,500 “betting parlors,” with half the top soccer teams promoting gambling services on their jerseys. An estimated 430,000 Brits are problem gamblers, up 50 percent in just three years. ■