As the U.S. Supreme Court prepares to rule on New Jersey’s challenge to a federal ban, more than a dozen U.S. states are actively preparing to join Nevada and Delaware in regulating sports betting.
But will operators in those states be able to offer bets online? And how should companies in North America and Europe be preparing for the development of this major new market?
Hosted by GamblingCompliance on February 1, this interactive webinar explores those questions and looks at the potential legal implications of a Supreme Court ruling, licensing and geolocation issues and how New Jersey is set to take centre stage for the rollout of online sports wagering within weeks of any decision to invalidate the federal ban.
To view the webinar recording click here.
A Q&A from the webinar, with GamblingCompliance's responses to additional questions posted by participants, can be viewed below.
If PASPA is repealed do you anticipate federal action or a state-by-state approach? If federal, how long will it take for a federal regulatory framework to be enacted by Congress?
As noted in GamblingCompliance’s special report on U.S. Sports Betting last September, much depends on the specifics of the Supreme Court’s upcoming ruling. If the court overturns the Professional and Amateur Sports Protection Act (PASPA) in full, sports-betting expansion is likely to proceed on a state-by-state approach and it is difficult – although not impossible – to foresee Congress acting to impose a federal regime, at least in the immediate aftermath of such a ruling. But if the court’s ruling is limited to New Jersey’s “partial repeal” framework or overturns only part of PASPA, then federal action becomes the far more likely path.
As was discussed during the webinar, a new federal law probably would not cut states out of the picture altogether. Instead, it could conceivably leave matters of licensing, oversight and tax to states, but introduce certain minimum federal standards, potentially some kind of centralized sports-integrity framework and possibly changes to the federal Wire Act to accommodate interstate betting pools, for example. As for how quickly Congress would act in the wake of a Supreme Court ruling, place your bets! Aside from the obvious political challenges of passing any new law in a divided Congress, sports-betting legislation would probably require careful coordination among the key stakeholders (sports leagues, gaming interests, Indian tribes, states’ rights groups, etc.), and one only has to look to the recent failure to pass federal legislation for online poker as a reminder of the difficulty of moving forward when lobbying interests are not aligned.
Which states will introduce legislation permitting sportsbooks? Any ETA on when they could go live?
At the time of writing, at least 14 states were considering bills to permit sports betting, with six weighing bills for online sports betting, specifically, according to U.S. Sports Betting Tracker, GamblingCompliance’s legislative monitoring report. Those numbers are only expected to rise as a Supreme Court ruling draws nearer.
Not all of those states will pass laws this year, but it seems fair at this stage to anticipate at least a handful will follow Pennsylvania’s example and adopt legislation to be ready when a ruling comes down.
In terms of implementation, as George Rover of Princeton Global Strategies noted on our webinar, the focus will likely fall most immediately on New Jersey, where state regulators are actively preparing not only for sports betting at racetracks and casinos but also via a robust online offering.
Depending on the timing of the Supreme Court ruling, it is possible to expect New Jersey, Delaware and perhaps another state or two to be up and running with expanded sports betting in time for this year’s NFL season. Longer term, GamblingCompliance anticipates 21 to 38 states to pass sports-betting laws within roughly five years of the end of the federal ban. For more on the factors affecting those forecasts, please see our special report U.S. Sports Betting: A Market On The Cusp Of Major Change.
Will sports betting be available solely via casinos or are any states considering 'European-style' free-competition licensing processes?
Current legislative trends suggest sports-betting licenses are more likely to be limited to states’ incumbent land-based gaming licensees, meaning international betting operators would probably need to partner with local casinos, racetracks or other eligible entities. In fact, of the six states considering online sports-betting legislation at the time of writing, only Illinois had a bill proposing a European-style open licensing framework – and even then, it is doubtful that would be the model Illinois eventually adopts as sports-wagering proposals undergo closer scrutiny by lawmakers.
One related question worth highlighting: How will states that authorize online/mobile wagering treat the issue of sports-betting skins? Will states allow sports-betting operators or sports-media companies to deploy their own branded websites under the license of their casino partner, or merely allow betting operators to provide supporting services to casinos? Ultimately, this could be an area where states adopt divergent approaches.
Meanwhile, another factor to watch is whether states will choose to authorize sports betting through their lotteries, either alongside a sports-wagering licensing regime for casinos or even on an exclusive basis.
How do the market projections differ if betting is (a) limited strictly to brick-and-mortar facilities, (b) permitted online but only for customers that have registered at a brick-and-mortar facility, and (c) offered online with remote registration?
GamblingCompliance’s analysis (below) suggests the U.S. sports-betting market would be significantly larger if states choose to allow full online sports wagering, without a requirement to register at a brick-and-mortar casino, or if they limit sports-betting exclusively to land-based outlets.
That being said, there are a number of variables to consider on a state-by-state basis. Would states limit in-person registration for mobile betting accounts strictly to casino facilities, or could operators register patrons at satellite venues that may be more conveniently located? If states limit sports betting to land-based venues, does that mean only casinos, racetracks and off-track betting outlets (as the most obvious locations for sportsbooks)? Or could bets also be placed via lottery retailers, at bars with gaming operations, or even via standalone betting corners?
How would the 1% 'integrity fee' on handle proposed by the NBA affect the entire value chain for sports betting? Would the 1% fee the NBA is proposing apply for all other major sports?
GamblingCompliance’s understanding of the so-called “integrity fee” as proposed in Indiana, Illinois, Kansas and Missouri (so far) is that the fee would be remitted to the governing bodies of any sports upon which wagers are accepted; not just for the NBA and MLB – the leagues that appear to be directly advocating for it. That would seem to require integrity-fee payments not just to major domestic sports leagues, but potentially international sports bodies as well.
It is no secret that many gaming industry insiders are opposed to the proposed 1 percent fee on handle/turnover, as we have analyzed here. The danger of such a fee, or so opponents argue, is that it would be very difficult for a betting operator to turn a profit without offering far poorer odds to customers than those that are available via offshore sportsbooks or underground bookies – and at least some proportion of sports bettors would decide where to place their wagers based on price.
Of course, an integrity or betting right fee is not entirely unprecedented in the global gaming industry – similar fees are also required in France and the state of Victoria in Australia. We also anticipate that debate over the role of sports leagues in expanded betting will broaden from the issue of integrity fees to include closer scrutiny of further league-backed provisions requiring use of their official data by betting operators and granting leagues rights to potentially restrict certain betting events.
If online sports betting is allowed by federal law, do you see the same hurdles the states face today with approving legislation for online casino gaming? Is there any prospect of online casino being regulated alongside sports in any states?
That is something worth watching: Will states legislate online sports betting at the glacial pace of online casino (four states passing iGaming laws in five years), or more like daily fantasy sports (18 states in two years)? We don’t really know the answer to that yet, but do suspect, based on the current tone of discussion in states like West Virginia, that online/mobile sports betting will probably expand somewhat quicker than online casino or poker – in part because local casinos have less cause for concern regarding cannibalization of their current offerings – and may even be approved in states where iGaming has so far gained little or no traction at all.
That being said, we would also expect that many of the same state-level legislative hurdles we have witnessed with iGaming in states like California and Michigan will continue to apply to online sports betting, and these would need to be overcome if online wagering is to be approved in those jurisdictions.
Based on current legislative trends, it seems that states are more likely to legislate for online sports betting separately from online casino. Both verticals were, of course, authorized in the same piece of legislation in Pennsylvania last year. But as of the time of writing, only Michigan was considering a bill that would package online betting and iGaming together.
How will the Wire Act apply to online sports-betting operations? For instance, will it be possible to run operations from another U.S. state or from a foreign territory?
As explored by Behnam Dayanim of Paul Hastings on our webinar and separately analyzed in this recent article, it would not be surprising if the precise scope of the Wire Act emerges as a significant legal question as more states begin to explore online sports betting in a post-PASPA world.
There does not appear to be definitive case law on how or whether the Wire Act applies to the different aspects of an online sportsbook operation and, as Dayanim noted, there are also strong arguments the act was never intended to restrict lawful sports wagering being operated under a state-sanctioned regulatory regime. Still, one plausible starting point for states contemplating this issue could be to require that servers are located within their borders (so bets themselves are not transmitted across state lines), but odds-making and trading could possibly be conducted from a central office in another jurisdiction where sports betting is legal (recognizing the provision of the Wire Act which exempts the “transmission of information assisting in the placing of bets or wagers” from the act’s scope).
Ultimately, this is an area where expert legal analysis will probably be required. In addition, we note the possibility of state policymakers mandating that all betting infrastructure be hosted within their state’s borders, independent of the Wire Act context.
What role will tribal gaming interests have on legislation in certain states like California and Florida?
In short, we expect tribal gaming interests will have a fundamental bearing on sports betting in states like California, Florida and the various others where Indian tribes are known to carry significant political clout. As GamblingCompliance explored in this special report, sports betting presents several specific legal questions for tribes and tribal gaming. Among other things, tribes in most states with Indian gaming would need to amend their compacts to accommodate sports wagering in their casinos – a process that requires alignment of tribal and state governments, and approval of federal officials as well.
Ultimately, however, there will be different dynamics in different states. Perhaps it is not too early to speculate that Connecticut – home to the famed Mohegan Sun and Foxwoods tribal casinos and where several new gaming laws have been passed in recent years – could provide an early case study in how legislation for sports betting can be constructed in a state with a politically powerful tribal gaming sector.
Do you expect the states that will not offer online sports betting to possibly change their opinion and change legislation over time?
In some cases, that would appear a logical outcome – a state would start off with just land-based sports betting initially, but then reconsider online as regulators and policymakers become more comfortable with lawful wagering and come to appreciate the greater tax revenue potential of a mobile offering.
We would note, however, that there could be additional policy or legal reasons for states to limit sports betting to land-based facilities. For example, it may be easier for tribal and commercial gaming stakeholders to agree on land-based betting than online; or there could be legal or constitutional hurdles in play for internet wagering that are not a factor for sportsbooks in already-authorized casino venues. Meanwhile, smaller states may question whether they have a sufficient population base to sustain online wagering if it is limited to purely an intrastate operation. Or policymakers could conclude that a more logical next step for sports betting beyond casinos is a rollout to additional land-based retail venues, rather than online.
What types of marketing restrictions are anticipated for online sports betting?
It is probably too early to predict that at this point in time. However, existing regulations related to the terms and conditions of sports bets in Nevada would seem to be a good point of reference as a potential starting point. So too would New Jersey’s current regulations regarding internet gaming promotions and related guidance on online gaming bonuses.
It is perhaps also worth noting the global trend for policymakers to revisit the issue of marketing restrictions for online sports betting a few years after market launch, rather than at the outset. In recent years, Australia and Italy have adopted tighter rules regarding the marketing of online sports betting, while the UK, Spain and Belgium are in the process of doing so as well.