Gambling Legalization Has Started, Now Let’s Take a Look at What’s Next

Today is a historic day in the world of Sports Gambling, as the United States Supreme Court declared the Professional and Amateur Sports Protection Act (PASPA) unconstitutional, clearing the way for individual states to legalize sports betting.  This is a landmark ruling because until now Nevada was the only state where a person could wager on the results of a single game.

“Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.  Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PAPSA is not.”  – Per the court’s decision.

The Supreme Court’s ruling is expected to open the floodgates for legalized sports betting everywhere, so let’s talk about what’s next.

First up is New Jersey, and the Garden State is ready to roll.  Monmouth Park Racetrack will be one of the first New Jersey gambling venues to offer sports betting:

Four other states — West Virginia, Mississippi, Connecticut, and Pennsylvania — recently passed laws that would allow sports betting, so they will be next. Additionally, ~15 other states — including big states like Illinois, California, and New York— have introduced bills to legalize and regulate sports.  Basically, even though New Jersey is about to get this going asap, look for all the other states to follow because of the revenue stream it will generate.

If you would like to learn more about everything regarding sports betting being legal in your home state, our friends at Sports Handlehave a great state-by-state map for you to check out:

Speaking of revenue, what does this mean for the industry as a whole?  The main stakeholders are the leagues, team owners, gaming industry, government, media industry, and the bookies/ everyday gamblers.

Let’s start with the leagues.  Of course everyone wants a piece of the action, so the leagues want an “integrity fee”.  The NFL, NBA, NHL, MLB, PGA and NCAA have all talked about this in one way or another.  So what is an integrity fee exactly?  NBA spokesperson Mike Bass sums up what most leagues are looking for:

“Sports leagues provide the foundation for sports betting while bearing the risks it imposes, even when regulated.  If sports betting is legalized federally or state by state, we will need to invest more in compliance and enforcement, and believe it is reasonable for operators to pay each league 1% of the total amount bet on its games to help compensate for the risk and expense created and the commercial value our product provides them. This is a similar approach to legally-regulated sports betting in other international jurisdictions.”

My colleague Ryan Glasspiegel does a good job of discussing the fee and how every league is responding today in his latest post.  1% is an insane amount, so it will be interesting to see what the gaming industry will do.  As of now, the American Gaming Association (AGA), a group that represents the U.S. casino industry, disagrees that the 1% “integrity fee” is necessary. They, along with many others, think it is merely a proposal that will give leagues a piece of the pie that they do not deserve.  It does seem like a good negotiating tactic by the leagues to come in at a high amount.  Even if they settle at a fraction of that, they will be able to benefit from this in a huge way.  We will revisit how this affects the sportsbooks at the end when we discuss the everyday bettor, but here is a good read on everything you need to know about the fee.

When it comes to the owners, Washington Wizards owner Ted Leonsis and and Dallas Mavericks owner Mark Cuban have been passionately supportive of sports gambling. And why not, if there is one thing owners love, it is money.

This ruling will drastically change the sports sponsorship landscape and stadium/arena experience.  If Leonsis had his wish, he will soon turn his stadium into a Sportsbook:

"If Leonsis has his way, fans are betting in his arena, on his app, making and tracking their bets using data prepared by a company that he partially owns. There will be billions of dollars available for the taking all of a sudden, and teams and leagues will spend countless dollars trying to win the battle for the fan".

Mark Cuban told CNBC the following in a “Squawk Alley” interview:

"“I think everyone who owns a top four professional sports team just basically saw the value of their team double. It can finally become fun to go to a baseball game again.”"

This ruling is also going to have an enormous effect on the sports media industry.  The trickle down effect is going to be huge, as now media companies will be able to run ads from casinos and sports books.  Expect ads focusing on the recreational aspects of sports betting to pop up on your phones going forward. You will also see more gambling-oriented media companies pop up, like VSiN and The Action Network.  Most mainstream sports outlets already discuss gambling lines, especially for NFL games, but look for them to think of creative ways to monetizing it directly via subscriptions or ads per segment. Affiliate advertising is another direction companies can take as well, which would give media companies a monetary reward for sending consumers to various sports books.

And I saved the most important question for last.  How will this affect actual bettors? I think it all will depend on if states can follow the Vegas model, i.e. PlayMGM. It’s likely bets will have to be placed at brick-and-mortar locations to start, but if states can offer mobile sports betting, that will be a game changer.  Expect more casual bettors who can place a bet from anywhere at anytime, especially once the NFL season starts.

People that gamble on a daily basis are probably worried about about a couple of things — integrity fee and taxes.  For the people that do lose money, they can probably write it off like capital gains.  But if everyday gamblers have to pay taxes on their winnings, compared to not paying taxes, which route do you think they will go?  The integrity fee is also a huge sticking point when it comes to gamblers.  This “integrity fee” will place legal books at a competitive disadvantage to illegal offshore competitors.  Legalized sportsbooks will have to change their lines and raise their “vig” or “juice” to be able to make a profit long-term.  “Bookies” as we like to call them, will be able to offer better odds and prices on wagers.  Normal juice right now is 10 percent, so if you make a bet, usually you are seeing the line, and then -110 next to it. So for every $100 bucks you wager, you are paying the house $10 bucks.  With the integrity fee, that changes, and the legal books will have to raise their juice to make the same profit margin. If the vig is higher, it might be another reason for gamblers to stick with their local guy.  A lot of local guys will have to get creative by refunding juice, or giving you bonuses to stay.  So long story short, my advice is, don’t break up with your local guys just yet.

The competition should lead to better lines and lower vigs.  The states should work together and work on a single solution, as should the leagues.  That would be ideal.  What happens next will be fascinating, but one thing is for sure, the windfall from this is going to be worth billions.  The big question is, are you going to get in on the action and be able to ride the wave?