For the first time in more than two decades, Nevada no longer has a monopoly on legal sports betting.
Thanks to a 6-3 ruling by the Supreme Court of the United States in Murphy v. National Collegiate Athletic Association, 138 S. Ct. 1461 (U.S. 2018), the federal prohibition of sports betting is a thing of the past. The Supreme Court forever changed the sports world when it held that the Professional and Amateur Sports Protection Act (PASPA), 28 U.S.C. §§ 3701-3704, is unconstitutional because it violated the anti-commandeering doctrine under the Tenth Amendment.
Justice Samuel Alito, who authored the majority opinion in which Chief Justice Roberts, Kennedy, Thomas, Kagan, and Gorsuch joined (with a seventh justice, Breyer, joining in part and dissenting in part), minced no words in striking down PASPA in its entirety. Justice Alito held:
The legalization of sports gambling requires an important policy choice, but the choice is not ours to make. 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. PASPA is not. PASPA “regulate[s] state governments’ regulation” of their citizens
. . . The Constitution gives Congress no such power.
Thus, after more than six years of litigation, including three lower court losses, New Jersey finally won the right for itself and other states to legalize sports betting.
Overview of Legalization Efforts
New Jersey’s victory at the Supreme Court did not actually make sports betting legal in the United States. Despite widespread misunderstanding by many sports fans, sports betting is not legal. The Murphy decision simply gave individual states the power to legalize sports betting if they so choose.
So far, in less than eight months, seven states have joined Nevada in launching licensed and regulated sports books. Those states are New Jersey, Delaware, Rhode Island, Pennsylvania, Mississippi, West Virginia, and New Mexico.
Additionally, Arkansas voters approved a referendum in November to expand its state’s gambling offerings to include sports betting and expects to open its first sports books in 2019. In December 2018, Washington, D.C. voted to legalize sports betting, but it will be the only jurisdiction not utilizing an open marketplace. Instead, it granted the D.C. Lottery a monopoly on offering sports bets.
In addition to those ten jurisdictions, New York and Connecticut have partial laws in place and could launch sports books within the next nine months. There are also various bills attempting to legalize sports betting pending in 16 other states including Ohio, California, Illinois, Indiana, Tennessee, and South Carolina. By the end of 2020 it is not unrealistic to expect up to 20 states to offer some form of legal sports betting
Federal Oversight Looming
Despite the flurry of legislation activity by numerous states, the Murphy decision left the door open for Congress to go back and regulate sports betting or even try again to ban it completely with the prophetic line, “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.” Murphy, 138 S. Ct. at 1484-85.
At least some members of Congress have already accepted that invitation. In December, Senators Orrin Hatch (R-UT) and Chuck Schumer (D-NY) introduced a bill to regulate sports betting at the federal level. The bill, titled “Sports Wagering Market Integrity Act of 2018” would prohibit wagers on amateur sporting events such as the Olympics and college sports, set a national minimum gambling age of 21, require that sports wagering operators use official data licensed by professional sports leagues, and create a National Sports Wagering Clearinghouse to monitor suspicious gambling activity.
Most importantly, the bill mandates that before any state can offer legal sports betting, it must first obtain the approval of the United States Attorney General. This proposed shift of power from the state to federal level might raise a repeat of the anti-commandeering issues that doomed PASPA.
However, given the current gridlock in Congress and with nine states already offering sports betting, passing a federal bill anytime soon seems unlikely.
New Era of Sports Betting Ushers in Significant Sponsorship Opportunities
As states rush to legalize sports betting, many sports leagues and teams are already seeing increased revenue-generating opportunities through marketing deals that PASPA previously foreclosed.
The NBA led the pack when it became the first professional sports league to partner directly with a casino operator, MGM Resorts International, in July. The deal, reportedly worth $25 million over three years, provides MGM access to official league data, logos, and highlights. Since then, the NBA has also struck deals with BetStars and FanDuel. Other leagues have followed suit. The NHL partnered with MGM and FanDuel while MGM is now the “official gaming partner” of Major League Baseball.
Individual teams are also seeing increased sponsorship openings. Sports book operator William Hill inked a deal with the New Jersey Devils to open a physical sports lounge inside the Prudential Center, MGM became the “official gaming partner” of the New York Jets, the Philadelphia 76ers signed a cross-promotional deal with Caesars Entertainment, and the Dallas Cowboys signed a deal with WinStar Casino. Uniform patches, in venue advertising, betting lounges, and cross- promotions will become the norm as more teams and leagues partner with gambling entities.
Data is King
At the heart of every partnership deal is access to official league data and intellectual property. This is because the future of legalized sports betting is increasingly mobile. Nevada and New Jersey already offer mobile wagering, including live in-game betting. Soon every state with legal sports betting will follow suit.
Supporting such rapid wagering requires instant access to trusted data. Sports leagues are in the best position to capitalize on both reliable and fast data. Many betters seek a speed-based edge to place bets faster than an operator can alter a line or close a betting window. Thus, it is imperative for sports book operators to obtain the fastest and best data.
Who controls this data, and at what price, will be the source of many future legislative efforts to protect both the integrity of the sporting event wagered on and the wager itself.
The concept of the integrity fee first appeared in Indiana when the state considered legalizing sports betting prior to the Supreme Court’s ruling. House Bill 1325 called for any “sports wagering operator” to “remit to a sports governing body” an “integrity fee of one percent (1%) of the amount wagered on the sports governing body’s sporting events.”
The initial integrity fee proposed was 1 percent on the handle, or the total amount wagered, not gross revenue. This is in addition to the federal 0.25 percent excise tax on the handle and whatever revenue tax a state enacts.
Fees placed on the handle can drastically cut into a low-margin business. Just look at Nevada. In 2017, the state’s sportsbooks took in $4.8 billion in wagers and won $248.7 million for a margin of about five percent.
As states began to legalize sports betting without any integrity fees to sports leagues, the legislative push shifted to gaining “royalties” for putting on the event that gamblers wager on. To date, no state with legal sports betting provides a royalty or fee to sports leagues.
Individual Athlete Publicity Rights
Increased sports betting leads to increased usage and publication of athletes’ names and potentially their images. Currently, athlete unions are exploring ways to protect their members both physically and financially from the rise of legalized sports betting. Professional athletes might see a cut of sports betting dollars through league revenue sharing depending upon the terms of the collective bargaining agreement at issue.
However, one area that players cannot capitalize on is their actual names. In October, the Indiana Supreme Court ruled in Daniels v. FanDuel, Inc. that the use of college athletes’ names, likenesses, and statistical data in online fantasy sports contacts were of “newsworthy value” under the state’s right of publicity statute. The decision shut down the athletes’ attempts to block FanDuel and DraftKings from this information without the players’ permission. Although the ruling only dealt with fantasy sports, it likely provides cover for sports books to use athlete names for gambling purposes without permission. This will likely be a source of future litigation in multiple jurisdictions.
Influence Beyond Sports Betting
The Murphy decision also has broader implications than just sports betting. It is an enormous victory for states’ rights in general.
Justice Alito predictably deemed PASPA an overreach by the federal government to control states in violation of the Tenth Amendment. He explained:
The PASPA provision at issue here—prohibiting state authorization of sports gambling—violates the anticommandeering rule. That provision unequivocally dictates what a state legislature may and may not do. And this is true under either our interpretation or that advocated by respondents and the United States. In either event, state legislatures are put under the direct control of Congress. It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals. A more direct affront to state sovereignty is not easy to imagine.
So while sports fans cheer the newfound ability to legally wager on games, advocates for legalized marijuana and sanctuary cities might see a pathway to blocking federal authority in contravention of states’ rights. The sports betting case could prove to be a litmus test for just how far the Supreme Court will allow federal authority to reach.
While the wide-ranging implications of this decision play out, the key takeaway is that legal sports betting is coming fast and many different entities stand to reap significant rewards. Sports betting is no longer a novelty relegated to Las Vegas. It is a multi-billion dollar industry that no employer, lawmaker, athlete, team, or league can ignore.
“Should Employers Hedge Their Bets in Light of the Supreme Court’s Sports Betting Ruling?” (Ogletree Deakins Blog Aug. 17, 2018)