For twenty-five years, state legislative efforts to legalize, tax, and regulate sports wagering were forestalled by a federal law that disallowed new states from legalizing sports wagering. This freeze on new state-sponsored sports wagering ended abruptly on May 14, 2018, when the U.S. Supreme Court ruled in Murphy v. National Collegiate Athletic Ass’n that the Professional and Amateur Sports Protection Act violated the U.S. Constitution by impermissibly commandeering the states.
Since the U.S. Supreme Court’s ruling in Murphy, there has been a rapid proliferation of legalized and regulated sports wagering throughout much of the United States. At present, thirty-five states allow for some form of legalized and regulated sports wagering, with most of these states allowing for sports wagering not only in the brick-and-mortar format but also online and on mobile applications.
This rapid proliferation of sports wagering, however, has not always gone perfectly. At present, some states enforce strict limits on the number of companies that are eligible to obtain sports wagering licenses. Other states have implemented hefty taxation schemes that have made it difficult for any licensed operator to turn a profit. Meanwhile, still other states have focused primarily on maximizing tax revenues while doing little, if anything, to protect the interests of consumers, including problem gamblers.
This Article provides an expert-level analysis of the emergent market for regulated sports wagering—examining the evolution of sports wagering before legalization, the Murphy decision, and the market for sports wagering since Murphy. The Article then proceeds to elucidate some of the high-profile failures of the present market for sports wagering and examines ways of ameliorating many of these failures.
Introduction
For twenty-five years, legal sports wagering in the United States was confined to a small handful of states, with only Nevada having privately operated sportsbooks, and only Delaware, Montana, Nevada, and Oregon having any form of wagering on sports.1 This broad prohibition on the expansion of legal sports wagering—existing in the United States from 1992 until 2018—did not prevent most people from actually wagering on sports.2 But, it did force individuals who wanted to bet on sports to do so through illegal means, such as by using unlicensed offshore sportsbooks or private unlicensed betting pools.3
By the early 2010s, larger businesses began to make their way into the sports gaming world, albeit not at first through traditional sportsbooks.4 During this period, contests operating under the moniker of “daily fantasy sports” (DFS) took root on the internet, garnered millions of users, and became big business—all under the guise of being something similar to, but other than, sports wagering.5 By launching a cy pres activity to sports wagering, DFS companies served the important function of testing the political waters for legalizing traditional sports wagering.6 Their success helped to highlight the demand for legal sports betting by the American consumer.7
In 2014, responding to growing consumer demand for legal sports wagering, National Basketball Association (NBA) commissioner Adam Silver wrote an op-ed in The New York Times calling for Congress to “legalize and regulate sports betting” at the federal level—a request that was never granted.8 Silver’s calls were supported a few months later by Major League Baseball (MLB) commissioner Rob Manfred who, despite his league’s historic opposition to sports wagering that dates back to the 1919 Black Sox scandal,9 suggested that legalized sports gambling receive “fresh consideration.”10
The comments from these two league commissioners, however, are not without a big asterisk. As both league heads called for the legalization and regulation of sports wagering, their respective leagues were engaged in protracted litigation against New Jersey’s then-Governor Chris Christie over the state’s efforts to legalize similar activity.11 Many believe that while these two sports leagues were warming to the prospect of fans betting on their games, they opposed the prospect of New Jersey legalizing sports gambling without sharing gambling-related revenues with the leagues.12 To this extent, their continued opposition to New Jersey legalizing sports gambling may have been, in part, political posturing.13
Nevertheless, on May 14, 2018, the Supreme Court declared the Professional and Amateur Sports Protection Act (PASPA)—the law that for twenty-five years had prevented the expansion of sports wagering14—unconstitutional.15 In the first four years since the Supreme Court’s Murphy decision, states across the country have reexamined their sports betting bans.16 At present, more than thirty-five states have chosen to legalize or expand their sports betting options following the 2018 ruling.17
In the four years since Murphy, just under $160 billion has been legally wagered by Americans on sports.18 This has translated into just under $1.9 billion in tax dollars for the states that legalized sports betting—with New Jersey, New York, and Pennsylvania accounting for more than half of all tax revenue generated by sports betting since Murphy.19 While sports betting so far has failed to emerge as the panacea for state budget woes that many had hoped,20 the market remains desirable to a large number of state legislatures and sports betting companies.21 In many cases, there have been more potential market entrants into the sports wagering market than state gaming licenses made available.22
With many states granting professional sports leagues exclusive rights to sell game-related data,23 the launch of legal sports wagering has been accompanied by broad support from the four major U.S. professional sports leagues, which once opposed legalized sports gambling.24 Sports wagering has also become tremendously popular among sports fans.25 Meanwhile, state politicians have latched onto sports wagering as a means to raise revenue without undertaking unpopular actions like raising income or property taxes.26
Nevertheless, legalized sports wagering has also led to certain unresolved problems. These problems include optimizing taxation rates on sports wagering;27 addressing consumer protection needs, especially for problem gambling;28 and ensuring the integrity of the underlying sporting events.29 These problems, of course, are not insurmountable, and, once reasonably addressed, gambling marketplace experts predict that state legislatures will expand sports wagering into nearly all states.30
This Article provides an expert discussion of the emergence and early regulation of widespread legal sports wagering in the United States. Part I of this Article provides an overview of gambling regulation prior to the Murphy decision. Part II illustrates the process of the legalization of sports wagering across the country and discusses the emergent models for regulating sports wagering. Part III provides an overview and evaluation of regulation in the U.S. sports wagering market. Part IV delves into the potential for unifying sports wagering law across the country. Finally, Part V considers best practices for future sports wagering regulation given the extreme unlikelihood of passing federal or state uniform law.
I. Historical Legal Treatment of Sports Wagering
The historical legal treatment of sports wagering emerges from complex political and social dynamics that largely involve powerful lobbying groups ranging from professional sports leagues to the Catholic Church.31 As with other forms of gambling, the cultural and moral ambivalence towards sports wagering has produced a legal environment that is potholed and bumpy.32 Section I.A begins by examining sports wagering in the United States prior to the passage of PASPA. Section I.B discusses the momentum that led to the passage of PASPA. Section I.C describes the rise of gambling on the internet. Section I.D analyzes the role of DFS in testing the market for sports gambling. Section I.E explores the lead-up to the Murphy decision. Finally, Section I.F delves into the Murphy decision.
A. Sports Betting Prior to the Professional and Amateur Sports Protection Act
Until the Supreme Court invalidated PASPA in 2018,33 nearly all sports wagering in the United States was in the form of illegal betting.34 Illegal sports betting became popular in the United States in the years between World War I and World War II35 when many former bootleggers moved into the market as their new form of organized crime.36
For most of the twentieth century, the availability of legal sports betting, other than horseracing, was limited.37 In large part, this was because, until 1978, Nevada was the only state that allowed casino gambling.38 Even in Nevada, sports betting was effectively thwarted by a 1951 federal law that imposed a 10% excise tax on sports wagers accepted by legal sportsbooks.39 This tax on the amount bet, known as the “handle,”40 made it impossible for legally-operating sportsbooks to make money.41
The imposition of the 10% excise tax was among the first, but certainly not the last, federal actions that sought to eliminate sports betting.42 As it related to lawful sports betting, the tax was a success.43 However, in the broader context, the federal excise tax simply drove sports betting further underground into an unregulated and criminally influenced environment.44 Congressional investigations in the 1950s gave visibility to the role of organized crime in sports and horse racing wagering, and these investigations produced calls for legislation.45
A leading voice in the call for imposing federal criminal law against sports wagering as a means to target organized crime was Robert F. Kennedy.46 When his brother, John F. Kennedy, was elected President in 1960, John appointed Robert to be Attorney General.47 In this role, Robert Kennedy championed the enactment of the Federal Wire Act,48 as the first of several federal laws targeted at curtailing sports wagering.49
Many critics agree that few federal laws have created more misunderstanding, or have been criticized more harshly, than the Wire Act.50 The legislative history of the Wire Act reflects the desire to criminalize organized crime’s use of the Racing Wire Service51—a ticker-like mechanism that allowed horseracing and sports information, including wagers, to be quickly transmitted to bookmakers.52 With the passing of the Wire Act, Congress was intimating that the interstate transmissions of sports wagers were not per se undesirable, but rather that “they were undesirable chiefly because they were used by hoodlums.”53
Even though the Wire Act did not prevent new states from legalizing sports gambling, only three states joined Nevada in legalizing sports betting in the 1970s and 1980s—these states being Delaware, Montana, and Oregon.54 And, even these states limited legal sports gambling to a small number of state-sponsored, lottery-like contests.55 Meanwhile, in 1976, New Jersey became the second state after Nevada to allow for casinos.56 However, unlike Nevada’s regulations, New Jersey’s regulations did not allow casinos to offer sports wagering.57
By the beginning of the 1990s, several other states began to seriously consider legalizing sports wagering.58 As the U.S. economy hit a downturn, three states in particular began to explore bills that would legalize and regulate this once prohibited activity—California, Florida, and Illinois.59 The Illinois proposal was particularly intriguing because it planned to use a proposed tax on sports wagering to fund the building of a new Chicago Bears stadium.60 Because the sports wagering proceeds would indirectly go into the pockets of NFL owners, some legislatures believed the sports leagues would not voice much opposition.61 But, at least for the time being, the U.S. sports leagues remained opposed to expanding legal sports wagering. And, in response to these state efforts to legalize sports betting, the U.S. sports leagues doubled down on their lobbying efforts to federally prevent sports betting’s expansion.62
B. Opposition to Sports Betting Mobilizes, and the Professional and Amateur Sports Protection Act
As states such as California, Florida, and Illinois discussed legalizing sports wagering in the early 1990s, major professional sports leagues and the National Collegiate Athletic Association (NCAA) began to organize a coalition to renew their attack on sports betting as an activity that they purported would corrupt the integrity of sports.63 The public face of the opposition emerged in Senator Bill Bradley of New Jersey.64
Bradley was a formidable adversary. He had been an All-American basketball player at Princeton University, and then a Rhodes Scholar.65 Before entering politics, Bradley was a two-time NBA champion with the New York Knicks.66 He sought to gather broad-based support for a federal law that would prohibit sports betting, perhaps even applying the ban to Nevada where sports betting had been legal and regulated for decades.67 But his efforts to pass a direct, federal ban on state-sponsored sports wagering languished. Despite the efforts of Bradley and others to pass a “clean” law making all sports betting illegal in the United States, Bradley had to instead settle for a law that prohibited sports betting’s expansion.68 Thus, sports betting would essentially be frozen at the state level as it was in 1992.69
The new law that Senator Bradley was ultimately able to pass—PASPA—was enacted on October 28, 1992.70 PASPA is notable both for what it did—and did not—do. There is wide support for the view that Congress has the power to prohibit sports betting in the United States.71 However, rather than doing that, PASPA merely told the states that they could not authorize or license sports betting operations beyond those forms of sports gambling the states already had in place.72
The law had two specific prohibitions to that effect. One provision made it “unlawful for . . . a [state] to sponsor, operate, advertise, promote, license, or authorize by law or compact . . . a lottery, sweepstakes, or other betting, gambling, or wagering scheme based” on competitive sporting events.73 The other prohibition made it “unlawful for . . . a person to sponsor, operate, advertise, or promote” such gambling activities on competitive sporting events if this were done “pursuant to the law or compact of a governmental entity.”74
Though PASPA did not make sports betting a federal crime, the U.S. Attorney General was authorized by PASPA to bring civil actions to enjoin violations.75 In addition, this same power to seek injunctive relief was extended to “a professional sports organization or amateur sports organization whose competitive game is alleged to be the basis of such violation.”76
Because the State of New Jersey already had licensed casinos in Atlantic City, PASPA allowed New Jersey one year from PASPA’s effective date to authorize sports betting and thus be grandfathered in along with Delaware, Montana, Nevada, and Oregon.77 However, New Jersey never took steps to do so—perhaps recognizing the irony of legalizing sports betting within its borders when one of the state’s two senators, Bradley, was the primary initiator of efforts to keep sports betting from becoming legal elsewhere.78
C. Online Gambling: The Purported New Menace
The passing of PASPA essentially put a halt to the expansion of legalized, state-licensed sports gambling for the time being,79 and, by the mid-1990s, Congressional concerns about gambling had pivoted away from brick-and-mortar sports betting toward a new betting concern: online gambling.80 The emerging world of online gambling included not only online casinos and online poker sites, but also online sportsbooks—many of which were housed on foreign servers but targeted local customers.81
In a landmark case, United States v. Cohen, the U.S. Court of Appeals for the Second Circuit upheld the conviction of Jay Cohen, a business entrepreneur with a prestigious academic pedigree, for violating the Wire Act by accepting sports wagers in Antigua, placed by telephone or the internet from bettors located in the United States.82 The court held that it made no difference that Cohen placed all of his company’s servers outside of the United States given that he accepted money from bettors in the United States.83
Antigua took exception to the Cohen prosecution, and it challenged the United States before the World Trade Organization (WTO) for violating the General Agreement on Trade in Services (GATS), claiming that the United States was giving an unfair advantage to U.S. gambling operators at the expense of non-U.S. operators.84 The United States’ defense to these claims was that the type of trade involved—internet gambling—violated the “public morals” of the United States, and thus fit within an exception to GATS.85 However, the WTO rejected this assertion, pointing out that the United States legalized and regulated other forms of gambling, including interstate horseracing.86
Nevertheless, the Bush Administration’s Department of Justice continued to use the Wire Act and other federal laws to selectively pursue and prosecute internet gambling businesses that accepted bets from those in the United States.87 Doubling down on the efforts to eradicate online gambling within U.S. borders, a number of largely Republican congresspersons proceeded to launch an effort to pass a federal law nearly prohibiting internet gambling in its entirety.88 This culminated rather anticlimactically in 2006 with the passage of the Unlawful Internet Gambling Enforcement Act—otherwise known by its clumsy acronym, UIGEA.89 UIGEA, which was unceremoniously attached to a port security bill related to defending against terrorist attacks, was passed, or, as some have said, “rammed through,” in the final minutes before the Congressional fall recess.90 Few, if any, members of Congress were aware of its provisions, which may have been an intentional tactic of the UIGEA sponsors.91
In practice, UIGEA attacked internet gambling more subtly than in previous efforts.92 Rather than using a “kill shot,” UIGEA sought to suffocate internet gambling by removing its oxygen source, specifically, the funding of online gambling accounts.93 To accomplish this, the law targeted two of the three parties to the transfer of money—the gambling site and the financial institutions that facilitated the transfer of funds from the bettor to the gambling site.94 The portion of UIGEA directed at the gambling site makes it unlawful for “‘[any] person engaged in the business of betting or wagering’ to ‘knowingly accept’ credit, an electronic funds transfer, check, or similar instrument in connection with unlawful Internet gaming.”95 Meanwhile, the portion of UIGEA targeted at financial institutions empowers the Federal Reserve Board and the Department of the Treasury to develop regulations requiring financial transaction providers—credit card companies, banks, or stored value providers—to identify, code, and block restricted transactions.96 Restricted transactions were those where a gambling business accepted funds directly or indirectly from a player connected with unlawful internet gambling, that is, gambling illegal under state or federal law.97
The financial industry voiced sharp opposition to the notion that credit card processors had to be the filter for illegal internet gambling transactions. It would require an overinclusive process that would lead to the blocking of many transactions that were not about gambling at all.98 Although UIGEA specified that the regulations for this blocking process would be prescribed within 270 days following the law’s enactment, in fact, years passed before final regulations were in place.99 Those regulations discarded the identify/code/block requirements, which would have placed a burden on financial institutions to police individual client transactions by coding and ultimately blocking all payments in violation of UIGEA.100 Instead, entities that had the closest relationship to the internet business had to exercise due diligence to determine whether that business was engaged in unlawful internet gambling.101
D. The Stalking Horse for Sports Betting: Daily Fantasy Sports
Flawed as it may have been, UIGEA did put another enforcement arrow in the quivers of prosecutors who wanted to prosecute offshore internet gambling companies taking bets from United States bettors.102 Still, UIGEA’s most controversial provision was a “carve-out” for “any fantasy or simulation sports game or educational game or contest” where the outcomes are determined by “accumulated statistical results” and not the “score” or “point-spread” of a competition by a “single real-world team,” nor the single performance of an individual athlete.103
How this provision became part of a law statedly hostile to online gambling is a fascinating study in the legislative process.104 At the time of UIGEA’s enactment, fantasy sports were regarded by many as a “bragging rights,” or small money, activity that did not resemble gambling.105 Moreover, the major sports leagues had not opposed a carveout, in part because they had “recognized the synergy between their games and the fantasy sports ‘hobby.’”106
Nevertheless, almost as soon as Congress passed the UIGEA and its special carveout for “fantasy or simulation sports game[s],” risk-seeking and perhaps legally unadvised entrepreneurs launched a new brand of online contests that they called “daily fantasy sports,” in which participants would have the task of “picking a roster of players from draft lists based on a salary cap, with participants competing against one another for prizes”—sometimes large sums of money.107 With the emergence of DFS as a purported form of fantasy sports, new questions of legality arose.108 DFS companies purported that federal law explicitly legalized their games, as these activities involved predicting the performance of multiple players in multiple real-world events and did not entail betting money against the house.109 However, others, including the sponsors of UIGEA, were less certain.110
The outsized attention given to DFS from 2007 until the Murphy decision in 2018 was a critical antecedent to legalized sports betting.111 Despite the hostility to DFS and some difficult times in 2015, DFS softened up the United States to the idea that wagering on sports, or “wagering type” activity on sports, was not so bad.112 Moreover, with so much attention focused on the legal status of DFS, particularly in the period from 2013–2018, less attention was paid to New Jersey’s attack on PASPA taking place in the courts of the Third Circuit.113
E. The Lead Up to Murphy
There is some irony to New Jersey being the state that attacked PASPA. New Jersey indeed was the only state upon PASPA’s passing that was offered a window within which to legalize sports gambling.114 And yet, the state decided, at the time, not to exercise its special option.115
But times change. And the option that New Jersey failed to act upon in 1993 had, in the years since the emergence of DFS, become very important to State Senator Ray Lesniak as a means to potentially revitalize the struggling casino district of Atlantic City through the raising of tax dollars.116 At the time, Lesniak also claimed that legalizing sports wagering would be a boon to small-business entrepreneurs—claiming that, with legalized sports wagering, New Jersey could become the center of a new and thriving home for online businesses—a gambling Silicon Valley of sorts.117
In 2011, Lesniak, along with several New Jersey thoroughbred associations and a media company, brought suit in federal court claiming that Congress did not have the authority under the Commerce Clause of the U.S. Constitution to pass PASPA.118 In addition, Lesniak and his co-plaintiffs alleged that the law infringed on the Tenth Amendment by interfering with the “reserved powers” of states, as well as the Equal Protection Clause of the Fourteenth Amendment due to the privileges selectively granted to a few states.119 Nonetheless, none of these assertions were considered by the court, as it ruled the plaintiffs lacked standing to bring the constitutional claims.120
Meanwhile, New Jersey’s supporters of sports gambling were just beginning their efforts.121 In November 2011, they prepared a referendum item for their general election, amending their state constitution to permit sports betting.122 Voters overwhelmingly supported the amendment. Soon after that, the state legislature passed laws allowing sports wagering at Atlantic City casinos and horse racetracks.123 The new laws gave the New Jersey Division of Gaming Enforcement authority to approve applications for sports wagering operations.124
In doing so, New Jersey was openly challenging the sports leagues’ authority under PASPA.125 As Governor Chris Christie announced, “We intend to go forward and allow sports betting to happen. If someone wants to stop us, then let them try to stop us.”126 With regulations in place and an intent to be operational by football season in the fall of 2012, the expected legal challenge from the leagues came on August 7, 2012, when they sought and received injunctive relief from a federal court.127
The litigation that followed—originally captioned as Christie v. National Collegiate Athletic Ass’n and later recaptioned as Murphy v. National Collegiate Athletic Ass’n after Phil Murphy succeeded Chris Christie in the New Jersey Governor’s office—began an almost six-year slog through the courts of the Third Circuit.128 Among other arguments, New Jersey claimed that PASPA violated the Tenth Amendment of the U.S. Constitution because it commandeered the New Jersey legislative process and conscripted the state legislature to do the work of federal officials by mandating the state take specific legislative action.129
New Jersey’s path to the Supreme Court was turbulent and has been detailed elsewhere.130 From the initial challenges to PASPA by the state in 2012, to the Murphy decision in 2018, the state endured a pounding.131 It lost five times in the courts of the Third Circuit, and the Supreme Court denied its petition for certiorari in 2014 after the litigation’s first time through the courts.132 After another rejection by the Third Circuit in August 2016, this time by the court en banc, there was little reason for optimism. Another petition for certiorari seemed like a long shot.133
An inkling that something might be different this time, however, came in January 2017 when the Court issued a “call for the views of the Solicitor General” (CVSG),134 a mechanism for seeking the counsel of the U.S. Solicitor General about a case in which the United States does not have a direct interest.135 Historically, if the Solicitor General recommends the Court grant certiorari, the Court usually does.136
The Solicitor General found little merit to the petition, opining that the case did not warrant the scrutiny of the Court.137 However, on June 27, 2017, the Supreme Court surprised many people when it granted New Jersey’s petition for certiorari on the question of whether a federal statute that prohibits modification or repeal of state-law prohibitions on private conduct “impermissibly commandeer[s] the regulatory power of States in contravention of New York v. United States.”138 The stage was set for the transformation of American law on the issue of sports wagering.
F. The Murphy Decision
Predicting the outcome of a Supreme Court case based on the oral argument before the Court is a bold undertaking. Justices whose comments suggest a particular viewpoint may surprise when the case is decided.139 Thus, lawyers should be wary of reading too much into the colloquy between the bench and the attorney.140
The oral argument in Murphy belies that caution. Questions from the bench were heavily weighted against the constitutionality of PASPA, and commentators noted that fact.141 When the decision was released on May 14, 2018, the antipathy toward PASPA expressed by the Justices during the case’s oral argument was reflected in the outcome and the Court’s opinion.142
Justice Alito’s opinion for the Court was an emphatic takedown of PASPA.143 Seven Justices voted in favor of invalidating section 3702 of PASPA on the basis that it in fact commandeered states.144 Six Justices also found section 3703 invalid, with Justice Breyer parting ways with the majority on that point. Justices Sotomayor and Ginsburg dissented.145
The Court described anticommandeering as a “fundamental structural decision incorporated into the Constitution”146—one that “withhold[s] from Congress the power to issue orders directly to the States.”147 Though the term itself might “sound arcane,”148 it simply expressed the limits on Congress’s power and the power reserved to the states in the Tenth Amendment.149 Moreover, it was a “structural protection[] of liberty” for individuals.150 The opinion also stressed the role the anticommandeering doctrine played in promoting political accountability151 and preventing the federal government from shifting regulatory costs to the states.152
The core of the Court’s opinion is its analysis of New York v. United States153505 U.S. 144 (1992). and Printz v. United States154521 U.S. 898 (1997).—the only two cases where the Court had struck down a federal statute using the anticommandeering principle.155 In both cases, Congress gave states a direct order to take action that promoted a federal policy.156 PASPA—the leagues and the government argued—gave no such instruction. Rather, it simply prohibited states from licensing or authorizing sports betting.157 However, Justice Alito’s opinion swept away any distinction between a “command” and a “prohibition,” calling that distinction “empty.”158
II. Regulating Sports Wagering in the Aftermath of Murphy
Since the Supreme Court’s ruling in Murphy, the growth of sports wagering in the United States has been nothing short of meteoric—with the Supreme Court ruling in favor of states’ rights ushering in the single greatest expansion of legalized gambling in our nation’s history.159 Almost immediately upon the Supreme Court’s ruling in Murphy, the states of West Virginia and Delaware—based on their pre-Murphy actions—launched legalized and regulated sports wagering.160 Very shortly thereafter, Rhode Island, Mississippi, Pennsylvania, and New Mexico joined them, as well as New Jersey, which ironically was not the first to act despite funding the Supreme Court lawsuit.161
At present, thirty-six states plus the District of Columbia have legalized some form of sports wagering, with sports wagering currently legal in most of the states along the northeastern corridor.162 Many, but not all, of the states that have introduced legal and regulated sports betting allow for online sports betting through a website or mobile application—a form of sports betting that today represents more than eighty-five percent of all legal U.S. sports wagers.163 Clearly, the concerns about the “public morals” of betting over the internet that the Bush administration had raised with the WTO are now all but dead.164
Nevertheless, with the Wire Act continuing to disallow interstate sports gambling,165 individual states have been forced to implement their own independent regulatory schemes—leading to differences in the manner in which the sports wagering industry operates across states.166 Under these individual state regulatory schemes, sports wagering has not proven profitable for the gaming operators in all states, nor has it even served as a meaningful source of tax revenue to the state itself.167 In addition, the legalization of sports wagering has been complicated by the Indian Gaming Regulatory Act (IGRA), which sets forth the gaming relationship between federally recognized Indian tribes and states.168 Under this Act, if a state does not presently allow for casino gaming by commercial entities but allows for tribes to operate such gambling by compact, then the tribes within the state can make a reasonable argument that they should be entitled to a monopoly over sports wagering.169 This has created challenges for the legalization of sports wagering in states such as California and Florida.170
This Part proceeds in three Sections. Section II.A provides an overview of the three primary models for regulating sports wagering that presently exists in the United States and their comparative successes and challenges. Section II.B includes a discussion of the various methods for licensing and taxing sports gambling operators today. Section II.C briefly examines the aspects of existing state gambling regulations that pertain to gambling integrity and consumer protection.
A. Models for Legalized Sports Wagering
While thirty-five states plus the District of Columbia currently maintain some system of legalizing, taxing, and regulating sports wagering, there is great variance in the regulatory models that have been adopted and the underlying features of these models.171 The primary distinction in the regulatory models that have been adopted for sports wagering relate to who serves as the principal regulatory agent. At present, most states fall into one of three broad models. The Nevada regulatory model—featuring a Gaming Control Board and a Gaming Commission overseeing all sports gambling activity—has long been described as the “gold standard” for regulating sports gambling activities.172 Nevada first created its gambling control board in 1955.173 In 1977, the state legislature declared that there was no implicit right for an entity to receive a gambling license, but only a revocable privilege to offer gambling.174 With the reduction of the federal excise tax to a manageable .25% in 1982, sports betting flourished and emerged into an industry that saw more than $5 billion wagered in 2018.175
The Nevada model has since been adopted by a number of other states, including New Jersey, Pennsylvania, and Mississippi.176 From a revenue perspective, New Jersey and Pennsylvania have done well with the Nevada model; however, Mississippi, which only allows for mobile sports betting on a casino site, has seen far less tax revenue generated.177
A second regulatory model, meanwhile, uses a state lottery as the primary regulatory agency.178 The three states other than Nevada that operated sports betting products prior to the Murphy decision—Delaware, Montana, and Oregon—were all operated by state lotteries.179 While states like Delaware had existing expertise and legislative delegation within their lottery corporations to oversee limited sports wagering products and thus were able to seemingly expand their sports betting offerings in the immediate aftermath of Murphy, other jurisdictions that adopted the state lottery model did not have quite as smooth a transition.180 For example, the District of Columbia has seen returns significantly below expectations from its sports betting app, GambetDC.181 In addition, the GambetDC product was mired in controversy, not only for the bid process that resulted in Intralot receiving the contract, but also in the low payouts to consumers that likely resulted in many choosing alternatives—or not to bet at all—rather than use the lottery’s products.182
Tennessee also has seen problems with its rollout of sports wagering under the state lottery regulatory model.183 In particular, it was revealed that one of the local companies approved for a license in Tennessee also happened to operate a payday lending business, and reportedly withheld winnings from pay-day lending clients who won wagers through the app.184 The controversial approval of this particular licensee was followed by reported instances of rampant proxy betting on the same company’s app.185 Compounding the situation, when the lottery moved to suspend this company’s license, a court overturned the suspension when it was revealed that the Tennessee lottery had failed to follow its procedures.186
The third dominant regulatory model for sports wagering, meanwhile, involves tribal governance, or shared governance with tribal authorities having oversight of sports wagering within their sphere of jurisdiction.187 Several Native American tribes in New Mexico were among the first to launch sports betting, shortly after the Murphy decision.188 Wagering on tribal land is governed by IGRA.189 IGRA was the federal government’s rapid response to the 1987 decision in California v. Cabazon Band of Mission Indians, which declared that state authorities lack the necessary authority to regulate gaming on tribal lands.190 Following the passage of IGRA, states were obligated to negotiate in good faith with federally recognized tribes if the tribes sought to offer certain types of gaming and enter into compacts, which were subject to approval by the Department of the Interior.191 New Mexico tribes had entered into permissive compacts that allowed them to offer any legal Class III game, so when the Murphy decision allowed sports betting to expand beyond Nevada, New Mexico tribes were only a sportsbook partner away from being able to begin taking wagers.192 While New Mexico tribes quickly launched in-person wagering, tribes in other jurisdictions aspired to compete on a broader scale by allowing mobile wagering.193 As a result of uncertainty regarding whether IGRA permitted tribes to offer mobile wagering via compact, tribes in Michigan, Arizona, and Connecticut have agreed to terms with state regulators outside of the IGRA compacting process, which respects tribal sovereignty. Instead, the tribes have agreed to be taxed as commercial operators.194 Federal efforts to expand mobile wagering under the IGRA compacting process failed in 2019 and 2021.195
In 2021, Governor Ron DeSantis and the Seminole Tribe of Florida entered into a compact that would have allowed the Seminole Tribe the exclusive ability to operate mobile sports wagering throughout Florida.196 The first-of-its-kind agreement was premised on the theory that IGRA allowed tribes and states wide latitude to negotiate and come to terms on gaming.197 The Florida compact, however, was challenged by several groups including West Flagler Associates, a group that operates pari-mutuel facilities in South Florida, who were required under the compact to negotiate with the Seminole Tribe if they desired to offer sports wagering.198 After approval was deemed to occur following a forty-five-day lapse without rejection at the Department of the Interior, the Department issued a deemed approval letter, which included the finding that the Department of the Interior believes “evolving technology should not be an impediment to tribes participating in the gaming industry.”199 West Flagler Associates challenged the Department of Interior’s deemed approval, arguing that the Department had an obligation under IGRA to reject the compact as incompatible with federal law.200 The D.C. District Court ultimately agreed with West Flagler Associates, holding that the compact violates IGRA’s provision that gaming must take place on “Indian lands,” and because mobile wagering does not take place exclusively on tribal land, the Secretary had an “affirmative duty to reject” the compact.201 Tribal gaming regulation has played a growing role as many states that have been later adopters of legalized sports wagering have done so as a result of the need to renegotiate tribal compacts.202 Indeed, California’s future regulation of sports betting is very likely to depend on tribal governments playing a role in regulation.203
Ultimately, the model a state uses for regulating sports betting, to a large degree, will be dictated by its historic structure for regulating gambling generally. In states where Indian tribes operate casinos, sports betting could be another form of Class III gaming offered by the tribal casino, subject to the terms of the compact the tribe negotiates with the state.204 For example, in Connecticut, commercial casinos are not permitted, and all Class III gaming is offered by two Indian tribes with which the state has entered compacts.205 Those compacts were amended in 2021 to allow the tribes to offer sports betting regulated by the Connecticut Department of Consumer Protection Gaming Division.206 This is the path Florida and California will need to follow to open those massive sports betting markets. Consequently, regulation of sports betting in this fashion is not as much of a path chosen as one required by history.
State lotteries may have considerable power, especially in states without commercial casinos. However, a model placing oversight and regulatory authority over sports betting in a state lottery has no apparent benefits. On balance, allocating authority over sports betting to an existing gaming regulator is likely to be the most efficient. Concerns about agency capture in the regulation of sports betting, nevertheless, are legitimate. Although often referred to as being the “gold standard” of regulation, Nevada regulators have been criticized for their lack of transparency in handling allegations of sexual misconduct of a licensee,207 and in not disclosing potential conflicts of interest.208 Under any model of regulation, administrators must always be sensitive to perceptions of excessive outside influence.
B. Tax Rates and Licensing Mechanisms
In addition to the disparate systems for determining who oversees sports wagering, there is diversity on the state level between tax rates and how third-party operators are licensed.209 While the federal government charges a quarter of a percent of the total amount of money wagered,210 there is a significant variation in state tax rates, ranging from 6.75% in Nevada and Iowa to 51% in New Hampshire, New York, and Rhode Island.211 Licensing fees also vary across the country, ranging from $500 in Nevada to $20 million for an online-only license in Illinois.212 The disparate tax and licensing regimes around the country come with different privileges. Because operators in Iowa have a tax rate of 6.75% and licensing fees of only $45,000, the state’s companies have significant competition, as Iowa has issued over eighteen licenses.213 By contrast, in Rhode Island, the state awarded a monopoly over online sports betting to William Hill in exchange for a 51% share of the revenue.214 States with higher tax rates have generally seen more tax revenue, though some states have seen their potential revenue depleted via deductions for customer promotions including free bets.215
No state has generated as much attention for its licensing and tax regime as New York.216 New York held a blind bidding process where sports betting operators submitted bids where they offered the highest tax rate that they would be willing to pay.217 After the top bid won—64% of gross gaming revenue—the state issued a matrix with a declining tax rate based on the number of operators in the market.218 The tax rate would be set at 64% with no deductions for promotions219 allowed if there were only four or five operators allowed into the market, declining to 35% if thirteen or more operators were selected.220 The state received bids that would have provided for a total of fourteen operators;221 however, after scoring the bids, it settled on nine operators.222 In six months, New York had surpassed the tax revenue generated by every other state, regardless of when those states had launched sports betting post-Murphy.223
Yet, despite New York’s success, not all subsequent states have attempted to implement a high tax rate. Kansas, for instance, imposed a modest ten percent tax and noted that it hoped to generate only between $1 and $5 million in tax revenue.224 Uniquely, Kansas announced its goal to use sports betting revenue to attract a professional sports franchise to the state.225
C. Gambling Integrity and Consumer Protection Mechanisms
Not only do individual states differ from one another in terms of their models for regulatory oversight and raising revenue through licenses and taxation, but they also differ in terms of their procedures for maintaining gambling integrity and ensuring consumer protection. The approaches taken to both market integrity and consumer protection differ from state to state on a continuum from restrictive to permissive.226 While the most basic level of maintaining market integrity and consumer protection is licensing, there are variations in states regarding which suppliers need to be licensed.227 For instance, in Illinois, even a person who repairs certain technology products must be licensed.228 Tiered licensing is another common feature, with different states choosing which stakeholders require which level of licensure.229 Colorado, for instance, has major licenses for the betting operators, and then requires only minor licenses for those supporting the operation as outside contractors.230
States also differ with regard to how they regulate market integrity. A great number of states have chosen to prohibit wagering on in-state college teams, or collegiate sports altogether, in the name of integrity.231 Many states also have mandated the use of so-called “official league data”—adopting a false narrative promoted by sports-league lobbyists who, in the absence of traditional property rights over gathering game statistics, are looking for a means to profit directly from the legalization of sports gambling.232 Official league data is simply data that is provided by an official sports league-authorized provider, of which there are a small number.233
While states have taken some misguided steps with respect to limiting the market to sell collected and aggregated game data, all states work to protect market integrity by restricting certain types of wagers that might be easily manipulated.234 For instance, a number of states disallow certain proposition wagers such as wagering on whether an injury will occur.235 States also restrict which individuals are allowed to participate in the market. For instance, New Jersey disallows anyone owning more than a ten percent stake in a sports team from placing a wager on a game from the associated league.236 Other individuals commonly excluded by state regulations include those likely to have insider information or the ability to impact the outcome of a contest.237
From a consumer protection standpoint, there seems to be widespread agreement that the emerging market has not done enough to protect those with problem gambling tendencies.238 Many states have opted to set the age limit for wagering at 21 years old; however, several states, including Rhode Island, New Hampshire, and Washington D.C., allow players to wager at 18 years old.239
States also have taken varied approaches to what is necessary to create a sports betting account. While some states allow bettors the ability to simply pull out their phone, take a photo of their driver’s license or passport, provide a social security number or tax identification number, and connect a bank account or credit card from the comfort of their own home, other states, like Nevada, require individuals to present themselves in person and have their information verified by a sportsbook employee.240 While some states, like Illinois, began with an in-person verification requirement, pandemic necessity resulted in a change, which was later permanently adopted, allowing consumers to verify their identity without presenting themselves physically at a casino.241
Another common area where there is a dichotomy in regulation is with regard to the allowance for use of credit cards.242 Many states have chosen to allow customers the convenience of funding accounts with credit cards; however, others like Iowa and Tennessee require customers to use other means of funding their accounts.243 The concern about allowing gamblers to fund their accounts using credit cards is the prospect of some problem gamblers betting on margin.
While the success of each sports wagering market is at least partially dictated by its regulatory structure, it remains to be seen if the successful structures that individual states have adopted will continue to be successful over time.244 Part III details and evaluates the current sports wagering market.
III. Overview and Evaluation of the U.S. Sports Wagering Market Today
The current hodge-podge of state laws that regulate sports wagering in the aftermath of Murphy leads to great differentiation on a state-by-state basis; yet, at the same time, there is undoubtedly something that can reasonably be described as a singular sports betting business market in the United States, with various characteristics that arise from the interaction of this amalgamation of ununified state laws. Today, more than four years after the Supreme Court’s decision in Murphy, this emergent market for sports wagering can be evaluated in several different ways. Section III.A looks at the current sports wagering market in terms of its structure and size. Section III.B explores the market’s actors. Section III.C looks at the state of competition within the U.S. wagering market. Section III.D looks at the market’s failures.
A. Sports Wagering Market Structure and Size
In the time since the Supreme Court’s decision in Murphy, sports betting has transformed from an activity that was primarily enjoyed either in the state of Nevada, or illegally, into an activity that is legal and regulated in a majority of U.S. states.245 The marketplace also has seen a rapid consolidation, where companies have engaged in an advertising arms race, effectively outspending less well-resourced competitors to the point that they concede that they cannot compete with bigger brands.246
The discussion surrounding sports betting financials has long caused confusion due to the common conflation of the total amount wagered, or the “handle,” and gross gaming revenue, also known as the amount of money kept by sportsbooks.247 While the handle of sports wagering in the United States in the four years post-Murphy has been significant (roughly $135 billion at the time of writing), the gross gaming revenue has been far lower.248 The 7.6% nationwide hold rate may even be slightly inflated, as historically sportsbooks have managed to hold onto only about 5% of the total amount of money that is wagered, which suggests that the industry could see the hold rate regress to the mean.249 Even with legal wagering, it is widely believed that the amount of money being wagered in unregulated markets far exceeds the regulated market.250 Towards the end of 2021, it was estimated that the regulated U.S. market was merely 8% of the size of the unregulated market serving U.S.-based consumers.251
As the states’ sports wagering markets mature, it is expected that hold percentages will regress towards the mean. This may be explained by bettors’ initial attraction to lottery-esque types of wagers that rarely pay off, before becoming more conservative with their bets over time.252 The regression in the amount of money that sportsbooks keep will result in less state-imposed tax income based on revenue, as opposed to the handle.253 The taxation of sports betting operators has been one of the most prominent features of the legalization of sports betting.254 While some states have followed the lead of Nevada and New Jersey by passing laws in hopes of creating a robust and competitive market, other states like Rhode Island and New Hampshire sold monopolies for a 51% share of gross gaming revenue,255 and the District of Columbia sold a monopoly for 57.5% minus direct operating costs incurred by the operator.256 Meanwhile, New York has attempted to garner the best of both worlds by instituting a 51% tax rate while also granting licenses to nine companies—a far cry from a monopoly or oligopoly.257
In addition to taxes, states have taken varying approaches to both the rate of licensing fees and the frequency with which operators must renew them.258 While some states have sought to maximize revenue through the legalizing of sports betting, other states have touted the objective of recapturing at least some of the money being wagered in unregulated markets.259
Reducing the size of the unregulated, often illegal, market has been an ambition of U.S. authorities since at least the 1950s when the federal government began to examine ways to disrupt organized crime’s gambling operations.260 It was during this era—prior to the passage of the Wire Act261—that the government began attaching estimates to the size of the illegal gambling market and initially pegged an annual value between $1 billion and $8 billion.262 That number remained relatively consistent for at least a decade.263 Yet, by 1999, the estimated size of the illegal market had grown to between $80 and $380 billion.264 With the rise of the regulated market in the United States, the government expended effort to temper the estimated size of the unregulated market, perhaps to manage expectations for the regulated market.265 The most commonly cited figure for the size of illegal sports betting in the era of widespread legal betting is $150 billion, though that remains largely a best guess.266 Regardless of actual size, government regulation has long aimed to bring at least a portion of the money being wagered back to a market where it can be taxed.267
Targeting the offshore market is a popular political position. Not only does it stop untaxed activity, but it also suggests that new revenue can be generated.268 The unregulated market, nevertheless, has some built-in advantages over the regulated market—perhaps the most prominent of which is the longevity of existing relationships as the first online gambling sites emerged in 1996.269 In addition, there is the convenience factor of many unregulated gambling systems operating on a credit-based system—something generally disapproved of by regulators in regulated markets.270 Meanwhile, yet another factor that may contribute to the continued success of the unregulated market is pricing. Unregulated sportsbooks that do not have to worry about taxation can, in theory, offer bettors more attractive pricing because they maintain a greater share of the revenue.271 Perhaps more than anything, despite efforts to vilify unregulated operators, many of the unregulated companies have well-established brand names and high brand equity with long-time gamblers.272 While it may be an aspiration to recapture money from the unregulated market, the costs of totally eradicating the illegal competition are simply too high.273
B. The Market Actors
While the regulators create the shape of the market, the operators are the ones who ultimately serve the gambling consumers. The regulated U.S. sports betting market’s first four years have been highlighted by a rapid consolidation around a handful of well-known major brands.274 The most dominant brands in the market are two companies, FanDuel and DraftKings, that gained a head start by building customer lists around DFS products—sometimes even in markets where DFS was arguably illegal—while biding time for sports betting to become legal.275 The existing customer lists, and hundreds of millions of dollars on advertising, undoubtedly created a brand awareness that other companies could not replicate when they sought to enter the U.S. market beyond Nevada following May 14, 2018.276
Immediately behind FanDuel and DraftKings in the emergent sports wagering market are a series of legacy brands that operated legally in Nevada, long before either FanDuel or DraftKings came into existence, but they did not launch DFS products as a means to develop national customer lists. These companies include Caesar’s Sportsbook, which acquired bookmaker William Hill in 2021,277 and BetMGM.278 Additionally, Barstool Sportsbook (owned by Penn National Gaming), Fox Bet (a subsidiary of the Fox Corporation), Bet365, PointsBet, Bally Bet, BetRivers, and SugarHouse represent the other, most prominent sports betting brands.279
C. Market Competition, Advertising, and Fear of Consolidation
At present, FanDuel, DraftKings, BetMGM, and Caesars have remained the dominant brands in the sports wagering market, with a combined control of over 82% of the market in 2021.280 Meanwhile, the inability to gain market share has already caused some well-resourced brands, including Canadian media company-backed theScore Bet, to exit the U.S. market altogether.281 For some of the smaller and more niche gambling brands, the inability to secure a sports wagering license in certain states has made it more difficult for them to garner a national footprint and thus to build the economies of scale necessary to compete effectively in even the states where they have gained licensure.282 Meanwhile, even the biggest market players have been unable to turn revenue into profits,283 with gaming operators contending that their situation is made worse by high tax rates in states like New York.284
The rapid consolidation of the market around a few top brands led those top companies to spend tens of millions of dollars to attract customers.285 Many in the industry have acknowledged that advertising spending is simply unsustainable over an extended period.286 Not only are the advertisements bringing these companies unwanted regulatory attention, but they are incredibly costly.287 The hope is, undoubtedly, to be the last company standing when the dust settles and the competition has spent its last dollar, but until then, companies have been spending on average hundreds of dollars to acquire each new customer.288 Even if smaller companies can afford the tax rates and licensing fees around the country, customer acquisition costs are yet another challenge in competing against the best-resourced companies.289
The race to acquire customers and survive until profitability has resulted in billions being spent on advertising. Both FanDuel and DraftKings were projected to spend more than $750 million each in 2022.290 The sports betting demographic is incredibly desirable for marketers and advertisers, and sports leagues have seen the average age of their viewers continue to age out their prime earning years.291 Online sports bettors tend to be overwhelmingly male, making up 80% of bettors, but they have an average age of 37.7, with 50% being between the ages of 18 to 34.292 A significant portion of bettors, 45%, earn more than $75,000 per year, while the national average earning that amount is only 34%.293
The race to secure the largest market share in the United States is further aided by a plethora of affiliate marketing sites, which integrate sports betting links into industry, gambling, and sports coverage.294 Affiliate programs, which are used across a variety of industries and by companies such as Amazon, work by directing website visitors to a sportsbooks website, where if that visitor signs up as a customer, the affiliate site receives a commission.295 Different sportsbooks use different compensation schemes for affiliate links, ranging from one-time commissions to the receipt of a percentage of the customer’s lifetime revenue generated for the sportsbook.296 Even with millions being spent on direct market and affiliate deals, the sportsbook landscape has remained largely consistent, with the two DFS juggernauts at the top and everyone else looking up and trying to reach them.297
Despite having access to multiple brands in all but a small handful of states, and generous promotions that can sometimes offer risk-free wagers of up to several thousand dollars, American consumers have not shown themselves to be particularly interested in shopping around via a multitude of different apps.298 Not only do different sportsbooks offer different promotions for both new and existing customers, but they also offer different betting lines.299 This brand loyalty means consumers also show themselves to be non-price discriminate.300 While a portion of this may be simple laziness, another factor may be related to cumbersome sign-up processes that some states impose.301 In addition, a big portion of this is likely related to the familiarity that Americans have with FanDuel and DraftKings.302 While many Americans undoubtedly bet illegally online during the twenty-five-year PASPA prohibition, to date, none of the offshore brands that served American consumers have obtained a license to operate in the United States, leaving the two DFS companies as the next best alternative for customers looking for a familiar name.303 The familiarity that consumers had, not only with the FanDuel and DraftKings brands but also with the interface and user experience of their products, has undoubtedly played a significant role in their market position and may also explain why both brands have struggled outside of the U.S. market.304
D. Sports Wagering Market Failures
When looking at the current U.S. sports betting marketplace, it is easy to observe a number of marketplace failures. First and foremost, the sports betting regulation is grossly inefficient, with market participants needing to comply with differing and sometimes conflicting regulatory schemes. The legal inability for sportsbooks to operate in interstate commerce due to the Wire Act may create additional jobs for individuals in the industry, but at the same time leads to cost inefficiencies in maintaining separate brick-and-mortar locations, as well as servers.305 The same, no doubt, can be said with respect to the need for sports wagering companies to regularly file paperwork with the oversight body in each of the jurisdictions in which they operate.306 If some of these regulatory costs could be reduced, perhaps there would be more money left for the sportsbooks after paying taxes, and there would be fewer suggestions to reduce the tax rate on these existing operators.307
Sports wagering market failures also include the inability of many of the smaller sportsbooks to remain in business, given the high licensing costs and tax rates charged by states.308 The speed with which the sports betting market has consolidated has created a two-tiered system: at the top are companies with sufficient resources to enter multiple markets, and at the bottom are all the other companies, with many hoping for a merger offer as the best case scenario.309 Even for the companies that can participate in the market, few, if any, are profitable, as advertising and customer acquisition costs have decimated balance sheets.310 Unless this approach ultimately changes, the reality is that many of the comparatively smaller sportsbooks, as well as those that lack licensure in multiple states, will either go bankrupt or attempt to merge with larger competitors.311 As such, it will be incumbent on the U.S. antitrust agencies to ensure that any prospective mergers in the sports gambling marketplace do not make the largest operators even larger or aid in creating a nationwide oligopoly. Similar consolidation was seen in the DFS marketplace nearly ten years ago.312 While the Federal Trade Commission ultimately issued a Second Request for Information and took steps to enjoin the proposed merger of FanDuel and DraftKings, one could reasonably argue that the agency should have acted even sooner and disallowed the 2014 merger of DraftKings and DraftStreet, which in essence had reduced the DFS marketplace from three to two major players.313
Another market failure entails the number of states, including even those with language disallowing bad actors from the marketplace, that have allowed companies with questionable past behavior to enter the sports gambling market.314 As an interesting side note, the sports wagering companies DraftKings and FanDuel had both operated their DFS businesses for a number of years in certain markets where their underlying contests were at least questionably illegal based on either reasonable statutory interpretation or an attorneys general letter.315 Nevertheless, outside of Nevada, no state regulatory body has precluded either of these companies from receiving sports wagering licenses on these grounds. Indeed, DraftKings operates in at least twenty states and FanDuel operates in at least eighteen; by contrast, to date, no offshore sportsbook has yet been granted a license from a U.S. jurisdiction.316
Similarly, lobbyists seem to have an outsized role in getting more effective sports wagering legislation changed to preserve their personal interests. Two vivid examples of this come to mind. First, whereas New York has arguably been the most successful state to date in raising tax revenue for licensing sports wagering, multiple New York State assemblymen who serve on the state’s Racing, Gaming, and Wagering Committee are now encouraging the reduction of the state’s gambling tax rate to appease gaming operators.317 Second, after a number of states followed Nevada’s lead in not granting the U.S. professional sports leagues a share of the proceeds derived from legalized and regulated sports wagering, the professional sports lobby has been more successful in encouraging recent states to legalize sports wagering to impose mandates on sports wagering operators to purchase their data exclusively from the leagues.318
Other inefficiencies in the sports gambling market entail the failure to properly educate athletes in organized sports about the impermissibility of their gambling on game results and the failure of certain players to comply with these regulations.319 In recent years, there have been a few standout examples of professional athletes found to have bet on their own sport—the most recent involving former Atlanta Falcons star receiver, Calvin Ridley.320 All leagues have rules that prohibit wagering on league games, and some leagues, like the NCAA, prohibit all sports wagering.321 There has clearly been a breakdown in communication as Calvin Ridley will lose at least $11 million because of his suspension for the 2022 season.322
Also, many states prohibit sports wagering on games involving their state’s college teams but allow for wagering on all other collegiate sporting events.323 Given the ease in which a potential bettor in a small, Northeastern state such as New Jersey could travel to either New York or Pennsylvania to legally bet on a Rutgers University football game, such regulations seem to serve little to no meaningful integrity-preserving purpose.324
Finally, for what is supposed to serve as a regulatory scheme intended to legalize, tax, and regulate sports wagering, there seems to be far more being done in terms of legalizing and taxing the marketplace than in terms of implementing consumer protections. Indeed, for consumers, the launch of regulated sports betting has been accompanied by an inundation of advertising from seemingly every medium.325 Consumers with proclivities toward problem gambling have almost certainly been negatively affected by the expansion of legalized sports betting, which has not been accompanied by significant increases in resources for the treatment of addictions.326
IV. Potential Unification of Sports Wagering Law
To a casual observer, the movement by states to legalize, tax, and regulate sports wagering has been a tremendous success. Yet, given the market failures expressed in Section III.D, the question of whether the current U.S. system of sports wagering is working likely depends on the perspective of the particular stakeholder, as well as the underlying regulatory jurisdiction.
As such, some commentators have suggested that it makes little sense for each state to independently implement their regulations for sports wagering, especially as certain regulatory regimes are performing better than others. In addition, it has been widely noted that there may be inefficiencies that emerge from state-by-state regulation of sports wagering given that the Wire Act continues to disallow for states to agree to interstate sports betting much as has been seen with interstate betting compacts in online poker.327 This Part looks at the potential to unify sports wagering law in one of two different ways. Section IV.A looks at the potential for Congress to step in and pass a federal law to regulate sports wagering. Section IV.B then looks, in the alternative to federal legislation, at the potential for proposing and implementing uniform state law.
A. Unifying Sports Wagering Law Through Federal Regulation
As New Jersey’s battle against PASPA worked its way through the courts between 2012 and 2018, the leagues remained united in their opposition to legalized sports betting.328 However, Adam Silver’s op-ed piece suggested that there might be a path forward that the leagues might approve. It was time, he wrote, “that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.”329
Silver’s opinion piece did not suggest the leagues were reconsidering their opposition to New Jersey’s effort to overturn PASPA. What was needed, Silver wrote, was for Congress to “adopt a federal framework that allows states to authorize betting on professional sports, subject to strict regulatory requirements and technological safeguards.”330 In the absence of such a “comprehensive federal solution” that states would be required to follow, it would be “bad public policy” to allow sports betting to be offered by states.331
At a time when New Jersey was being rebuffed in the courts, it seemed evident that any change in the law of sports betting would be a product of congressional action and not through judicial invalidation of that law. Even the leagues and members of Congress expressed this view.332 However, at some point, there was a pivot in this thinking.
If Congress had passed a law that involved the federal government in sports betting, it would not be its first effort. The Wire Act addressed sports betting,333 as did the Sports Bribery Act.334 PASPA’s fatal flaw, however, was that Congress did not directly proscribe sports betting; instead, it unconstitutionally commandeered the states to achieve that objective.335 The UIGEA impacted sports betting, but its primary target was any form of internet gambling.336 If the federal government’s record in helpfully addressing issues involving sports betting were measured by these laws, its grade would be passing, but not above average.
One federal law that has produced positive results is the Interstate Horseracing Act (IHA).337 Enacted in 1978 and amended in 2000,338 the law established the legality of off-track interstate pari-mutuel wagering under certain conditions.339 Although it is a federal law, the IHA does not create a regulatory authority, nor grant authority, to an existing federal body to regulate this gambling. States determine how much, if any, interstate horse wagering they will permit.340
The IHA is quite detailed in specifying when interstate horse wagers are legal.341 The purpose of the law, however, is clear. As a practical matter, off-track sportsbooks are required to negotiate a contract with a track in another state if they seek to offer betting on the races at that track.342 In turn, the track is required to reach an agreement with the horse owners and trainers racing at that track.343 Ultimately, the agreements provide that the sportsbook will share a portion of the wagers they accept with the host track and the owners and trainers racing horses there.344 This revenue sharing plan was designed to “further the horseracing and legal off-track betting industries in the United States.”345
The IHA, though not without its critics, has been at least partially successful in achieving its purpose of stabilizing the horse racing industry.346 As a model for sports betting, however, the law may be of limited utility. It is hard to imagine sportsbook operators being willing to pay a portion of each bet to the leagues upon whose game the bet was made. Unlike the floundering horseracing industry, sports leagues would have a difficult case to make in seeking similar assistance.347
Soon after the Murphy decision, a bill was offered in Congress that would create a significant federal presence in sports betting regulation.348 The Sports Wagering Market Integrity Act would have established a framework of regulation whereby states could authorize and conduct sports wagering. The bill also included minimum standards and consumer protections.349
One notable provision is the establishment of a National Sports Wagering Clearinghouse.350 The Clearinghouse would collect and distribute data on sports wagering, maintain a “national repository of anonymized sports wagering data and suspicious transaction reports,”351 and provide assistance and consultation with state and federal authorities when suspicious sports wagering activity is identified.352 The entity would be funded by several sources, including proceeds collected as part of the federal excise tax on sports wagers.353
Opponents of the federal government having any role in regulating sports betting will view the Clearinghouse as a pernicious first step toward a federal takeover of sports betting. However, having a central data collection process would promote both sports wagering and sports contest integrity. The resources of state governments to monitor integrity are strained by the fact that sports wagering is a global market, and the federal government could play an important role in coordinating with foreign sports wagering regulators.354
One provision of the proposal likely to find support amends the Wire Act to allow states to enter compacts that would pool their customers and create added liquidity.355 In addition, the law lays to rest concerns about the “intermediate routing” of online sports wagers. Even when a sports bettor and a sportsbook’s computer server are in the same state, the internet seeks the most efficient means of delivering the “data packet” (the wager), so there is no assurance the electronic communication stays within the state’s borders at all times.356 The federal proposal makes it clear that a wager made under those conditions is an intrastate wager.357
The policy reasons for involving the federal government in regulating sports wagering are numerous and have been addressed in detail elsewhere.358 The federal government’s involvement in day-to-day regulation of sports wagering is, however, unnecessary. States have a long history of dealing with licensing, auditing and accounting rules, internal control standards, and similar issues when regulating casino gambling, and much of this would translate to regulating sports betting.359
However, one feature of sports betting that distinguishes sports betting from casino gambling provides the strongest argument for some federal presence in regulating sports betting. In casino wagering contracts, the future contingent event that determines who wins and who loses is under the tight control of casinos and regulators. Card and dice games have detailed rules, and the games are played under the keen eyes of employees and video surveillance.360 Everything that goes into playing the game is right in front of the casino operator.
With sports betting, however, assuring the honesty of the underlying event that determines the outcome of a sports wager is a very different proposition. The uncertain contingent events that determine wins and losses no longer occur within the rigidly controlled environment of the casino. The sports contests take place outside the casino, often outside the jurisdiction where the casino is located, and sometimes on the other side of the globe. As a result, the integrity of the sporting event is largely outside the control of the casino regulators. Consequently, ensuring the integrity of the sports contests and the wagering process is fundamentally different from the integrity of casino gambling.361 The federal government’s resources, including law enforcement, and its greater ability to work with regulators and law enforcement in other countries, can be important tools in helping promote integrity in sports wagering.362
The Sports Wagering Market Integrity Act proposal from 2018 has made no progress in Congress.363 States have not waited for the federal government to step into the field of regulating sports betting,364 and now thirty-five states, plus the District of Columbia, have legalized sportsbooks.365 The critical mass of state legislation has certainly been achieved. That is, any federal proposal of consequence will require considerable input from the states, and dramatic changes in the federal-state balance seems unlikely. Perhaps there is a place for a law that recognizes the state’s historic role in regulating gambling, and which creates a streamlined system of regulation with a clearly defined role for the federal government. But the assumption, pre-Murphy, that sports betting would inevitably be a product of federal legislation seems long, long ago.
B. Unifying Sports Wagering Law Through Model State Law
Short of Congress passing a federal law to regulate sports wagering, there are, of course, other ways to potentially standardize sports wagering law. Most notably, one could craft a model law that state legislatures could then vote to adopt. Since 1892, the Uniform Law Commission (ULC)—a non-profit unincorporated association composed of individuals admitted to the bar—has played an important role in drafting proposed uniform laws.366 In doing so, the ULC has been able to help garner a system of legal conformity without Congress needing to act to pass laws at the federal level.
While the ULC has drafted model law on a wide range of topics, the ULC’s arguably most noteworthy initiative to date has entailed unifying much of commercial law across the fifty states with its drafting and subsequent state adoption of the Uniform Commercial Code—a code that was first adopted by Pennsylvania in 1953 and has been adopted, at least in part, by every other state.367
Meanwhile, some other areas where the ULC is currently exploring the potential to draft model legislation include: the treatment of debt collection default judgments, mortgage modifications, and the treatment of restrictive covenants in deeds.368 The ULC also has some experience proposing model law related to the commercial sports industry. Having recently drafted proposed legislation governing topics such as sports agency and college athlete name, image, and likeness rights, it would not be surprising to see the ULC take on the topic of sports wagering.369
While uniform state wagering law could not override the Wire Act and thus would not open the door to legal interstate wagering on sports, it could facilitate the creation of a multistate wagering database to facilitate the registration of sports betting companies over multiple states, allow for the sharing of information in the context of the investigation of sports betting companies for misconduct, and facilitate maintenance of an interstate excluded players list to reduce the likelihood of problem gamblers or other prohibited players from accessing sports wagering sites in any states. One of the virtues of states replacing their own systems for registering sports wagering companies with a method for multistate registration is that it would reduce the costs for individual states to investigate potential new sports betting operators because the costs of reviewing and registering applicants could be shared among all states that opt into multistate registration. In addition, multistate registration would save sports wagering companies substantial sums of money, even if actual state-specific licensing fees did not change, because operators would no longer need to reproduce similar paperwork many times over, nor would they need to pay lawyers to submit filings and supportive filings separately to each individual state. If the sports wagering marketplace were to remain a competitive marketplace with a large number of competitors fighting for market share, perhaps some of these cost savings might even be passed along to consumers in the form of more bettor promotions and/or lower vigs or rakes.
Another potential virtue of the multistate licensing approach comes in terms of enforcement. While to date it seems as if states are doing far more to legalize and tax sports wagering than to regulate operator behavior, there is a possibility that a single, large multistate body investigating gaming operator misconduct and seeking to enforce regulations might be more effective than many small and perhaps underfunded state investigative bodies doing the same. Furthermore, the potential sanction for misconduct—loss of the ability to operate a sports wagering business in many different states—may serve as a greater deterrent against sports wagering operator wrongdoing than simply losing the ability to operate in a single state.
Yet, at the same time, it may be too late for the ULC to make reasonable inroads with model state wagering law. As discussed earlier in this Article, at present thirty-five states already have some form of legalized, taxed, and regulated sports wagering,370 and the states have knowingly adopted differing perspectives on a number of critical matters, as referenced above. It is unlikely that many states would discard their recently implemented sports wagering regulations to adopt a “model” statute that no individual state legislator even played a role in drafting. Moreover, many states that have already implemented sports wagering laws have done so in a manner to maximize their expected tax revenue generated from sports gambling. To the extent any model uniform law would be likely to reduce the expected wagering tax revenue accumulated by a given state, it seems highly unlikely that the state would adopt the bill.
Somewhat ironically, the optimal time for an organization such as the ULC to have proposed uniform sports wagering law would have been prior to the Supreme Court’s issuance of the Murphy decision—at a time when few states had yet considered how they would desire to regulate sports betting. At this point, more than four years after the Court’s Murphy decision, the ULC may be able to achieve a somewhat more plebian task, such as organizing information exchange between states when determining whether to regulate a sports betting operator or exclude a potential sports bettor, or perhaps even creating a registration system that leaves the taxation choices up to the individual states. However, it would be very difficult to get states to implement true uniform law that sets constant elements such as a licensing tax rate across states.
V. Best Practices for Sports Wagering Regulation
While the proverbial train may have already left the yard in terms of federal sports wagering law or even meaningful, uniform state sports law, there are nonetheless important lessons that can be learned from observing the results of legalized sports wagering across a broad range of states and regulatory schemes, and there are best practices that certainly could and should be adopted and emulated by the individual states.371 Sometimes these lessons turn primarily on the underlying goal of a given state. For example, if a state is looking to maximize revenue, the numbers suggest that the ideal regulatory model would involve a high licensing fee and a blind bid system for a monopoly on the market.372 However, if a state were to view a competitive market as a desirable regulatory system or is seeking more market competitors for purposes of trying to create new jobs, a different approach may operate better.373 Similarly, if a state wishes to maximize the well-being of college athletes, it may seek to prevent betting on all college sporting events; meanwhile, if a state wishes to maximize consumer freedom, it may wish to allow betting on all college sports events.
States cannot easily control the marketing spending of companies without getting into murky First Amendment issues and potentially creating a less desirable product for consumers. Keeping barriers to entry low is essential for allowing startups the ability to have a chance if a competitive market is a state’s model of choice.374 Regulators should also work to ensure that startups are not hurt by competitors who breach rules and suffer only small slaps on the wrist, or no punishment at all, for bad conduct.375
There is also a need to do far more to ensure the independence of state gaming commissions. One of the challenges of establishing the staff of state gaming commissions is there is often an interest in choosing staff with experience in sports and/or wagering. This has thus meant, in some cases, individuals who have served in meaningful capacities in sports gaming commissions previously worked closely with one of the stakeholders in the legalization and regulation of sports gambling.376 Thus, it is not surprising that in many cases the state gaming commissions have adopted regulations that have favored professional sports leagues or large, international sportsbooks to the detriment of small, startup companies.377
Moreover, even where sports gaming commissions are truly independent of both sports leagues and large sports gambling companies, the U.S. sports wagering lobby is an increasingly powerful lobby that has been highly successful at petitioning state legislators and members of the state gaming authority.378 In some cases, it seems as if lobbyists have even played a substantial role in drafting and redrafting state bills.379 While the problem of a cozy relationship between lobbyists and regulators is far from limited to sports gaming markets, any broader efforts to limit who may serve in the role of lobbyist and what lobbyists may do to attempt to influence legislation would benefit the emergence of fair markets for sports wagering, as well as beyond.
The outsized role of the U.S. professional sports leagues in lobbying for special treatment under sports wagering laws is also a matter of especially serious concern. While the sports league lobby was once a major force in keeping legalized gambling out of most U.S. states, today the sports league lobby has become a critical force in demanding “integrity fees,” “data mandates,” and other unnatural means of expanding their rights over sports game data as a means to ensure, for themselves, a direct share of the revenues from legalized, licensed sports wagering.380 Notably, while most of the early states to legalize sports wagering rejected the idea of granting such additional rights to the U.S. professional sports leagues, many of the larger, more recent states to legalize sports wagering, including New York and Illinois, have granted the U.S. professional sports leagues an essential monopoly over the collection and sale of sports statistics to gaming operators—thus ensuring these sports leagues a share of overall gambling profits.381 The failed federal bill to regulate sports wagering also included a similar provision for the benefit of sports leagues.382
The protection of individuals who suffer from problem gambling is yet another area where most, if not all, states that have legalized sports wagering have substantial room to improve. While at present, state laws seem to uniformly require the provision of information for problem gamblers on their websites and advertisements, state gaming laws to date have failed to extend the requirement of including this information on third-party affiliates or other sites promoting sports gambling operators, such as on tout websites and Twitter handles.383 In addition, state gaming commissions have fallen short in imposing limits to when sports wagering companies may advertise on television and the role that sports gaming companies may play in placing signage in sports facilities and promoting televised game broadcasts.384 As professional sports represent an important part of American culture, and a reasonable segment of the U.S. population—including children and problem gamblers—may benefit from being insulated from sports wagering content, a reasonable step for sports gaming commissions to take would be to require any professional sports team that allows for game broadcasts that include wagering-related content to also make available alternative live game broadcasts that are scrubbed of all wagering content, either for free or at a reasonable cost.385
Furthermore, sports leagues need to improve their education programs for players and safely provide the necessary resources, so that athletes with problems related to gambling can receive the necessary treatment.386 The NFL has had two players violate league rules related to gambling since the advent of widespread legal wagering.387 The most recent incident involving former Atlanta Falcons star receiver, Calvin Ridley, has raised significant concerns about league control of players’ betting activities.388 All leagues have rules that prohibit wagering on league games, and some leagues, like the NCAA, prohibit all sports wagering.389 The Ridley incident illustrates that the NFL still has work to do educating players.390 Something is missing from the current programs since they continue to lapse where players violate the gambling rules.391 Improving education will be among the most promising solutions to preventing a disaster scenario involving gambling-related match-fixing.392 Maintaining the integrity of both the underlying sporting events and the betting market itself is essential.393
While match-fixing of a major American sports league is a nightmare scenario for the sports betting market,394 latency issues also are one of the key components holding the market back from reaching its current potential.395 Latency refers to the speed at which information travels.396 From a sports betting perspective, faster is generally regarded as better.397 A person attending a sporting event is watching that event in real time. Over-the-air broadcasts were at one time nearly simultaneous to the viewer attending in person, but now, broadcasts are delayed several seconds by a digitization process and occasionally by producers.398 Online streaming is often even more delayed, sometimes by as much as a minute.399 Slow sports betting feeds can be exploited by so-called “courtsiders” who transmit information live from within a stadium often faster than a television feed, which allows bettors to gain information faster than a sportsbook if they do not have superior information.400 Naturally, receiving information before a sportsbook can adjust a betting line places a bettor in a superior position and exposes a sportsbook to significant financial risk.401 Instead of promoting competition in the data distribution market to foster innovation, several states have been mandating the use of official data, a practice that limits the allowed number of data providers who all receive access from the same feed.402 This is a mistake. Rather than restricting the source of data, states should encourage competition in the data market so companies have an incentive to reduce the latency associated with data transmission and bring the industry one step closer to truly real-time information.
Conclusion
In hindsight, Congress and the ULC should have been prepared to implement a new and reasonable system for regulating sports wagering in 2018 based on the possibility that the U.S. Supreme Court in Murphy would overturn PASPA. However, neither Congress nor the ULC sufficiently acted—thus leaving state legislators scrambling to pass new laws to legalize, tax, and regulate sports gambling in their respective jurisdictions. In many cases, these new laws seem to have been largely a product of lobbyist intervention. And, in many cases, these laws have proven to be suboptimal to meet the needs of all constituent groups.
Now, more than four years since the Supreme Court’s Murphy decision, it seems unlikely that most states will go gentle into the night and voluntarily give up their regulatory oversight over sports wagering, especially as independent regulation has yielded meaningful tax revenues. By the same count, the idea of states fully replacing their current regulatory systems with uniform model legislation seems unlikely.
Nevertheless, there are bona fide lessons to be learned from the experiment of individual states implementing their regulations for sports wagering and best practices that states reasonably could and should adopt into their legislation expediently, even if states do not gut their legislation entirely. Among other things, states should take reasonable steps to increase the number of sports wagering licenses awarded to avoid creating monopoly or oligopoly markets, and states should improve consumer protections to better insulate pathological gamblers and minors from sports gambling advertisements. In addition, states desiring a competitive market should consider transitioning to the model of overseeing sports wagering that makes use of an experienced, professional Gaming Control Board as has been in place in Nevada for over half a century. These best practices serve not only to promote a fair and transparent market for sports wagering, but also reasonably to allow for states to continue to collect reasonable tax dollars from their regulatory schemes.