Why states are scrambling to legalize sports betting

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WASHINGTON – Legislatures in at least 21 states plan to consider legalizing sports betting in 2019, a development with the potential to flood their coffers with millions of dollars of new revenue.

Seven states and one casino operated by an Indian tribe in New Mexico have already tapped this revenue source.

The National Conference of State Legislators hosted a panel of gambling policy experts on Thursday to discuss the opportunities and pitfalls states face if they decide to legalize sports betting as a new source of tax revenue from what is estimated to be a roughly $150 billion industry.

“The economic upside is potentially unlimited,” said attorney Daniel Wallach, co-founder of a sports wagering integrity certificate program offered online by the School of Law at the University of New Hampshire.

The opportunity has been triggered by a May 14 ruling by the U.S. Supreme Court that overturned the 1992 Professional and Amateur Sports Protection Act banning betting on professional and collegiate sports.

Under the 1992 law, sports betting was only legal in Nevada.

Delaware was the first state to act in the wake of the ruling by allowing an expansion of sports betting on June 5 followed by New Jersey on June 14. Mississippi, West Virginia, Pennsylvania and Rhode Island have joined in the rush since then. The Santa Ana Star Casino & Hotel located on tribal land in New Mexico also allows sports betting.

Americans place almost $150 billion in illegal sports bets annually, according to the American Gaming Association. The group estimates $58 billion will be bet on professional and collegiate football this season but only $2 billion of that will be legally wagered.

How much tax money each state will receive from legalization depends on how it structures legalized sports betting, gambling experts told state lawmakers. Mississippi limits it to existing gambling casinos which capture only part of the potential market, while other states that allow online wagering have a much bigger revenue potential.

Chris Cylke, vice president of the American Gaming Association, cautioned that state legislators shouldn’t overestimate the potential tax revenue because it’s a low margin industry in which 95% of the betting money goes to payouts for winners.

State Sen. David Carlucci of New York, who co-chaired the sports betting discussion, said lawmakers need to be conservative in their government revenue estimates.

“I think that whatever we hear, we’ve got to be conservative,” Carlucci said, noting that New York heard inflated estimates about the financial windfall from allowing casinos in the state.

New York is among the states that are likely to legalize sports betting in 2019, Carlucci said.

“I think we are past whether this is a right thing or a wrong thing,” he said. “I think it’s just how do we do it and make it a beneficial program for the taxpayers, the residents of New York and for the consumers.”

Republican State Sen. Brian Kelsey of Tennessee said the sports betting bill he plans to introduce would limit it to designated entertainment districts in the cities of Nashville and Memphis if voters in those cities approve it through referendums.

Kelsey estimates the potential tax revenue to be “in the millions of dollars,” but he added, “It’s still too early to know exactly how much money this is going to bring in.”

Tennessee lawmakers are looking to dedicate sports betting tax revenue to funding K through 12 education, said Kelsey, who indicated it would be a natural complement to state lottery proceeds which go to higher education. Tennessee does not have any casinos, which Kelsey described as an advantage because lawmakers will be able to formulate their own approach.

“We certainly want to allow the traditional sports betting that is now taking place across our border in Mississippi and we’re discussing whether to allow more exotic bets,” said Kelsey. “We also want to encourage online betting as long as there is a physical presence within the boundaries of Tennessee.”

State legislatures will have the opportunity to decide whether to use the new revenue to pay down debt, or set the new revenue aside for expanded services such as all-day kindergarten and pre-K programs.

Doug Kellogg, states project director for Americans for Tax Reform, advised NCSL that states should enact low tax rates on sports betting.

Matthew Kandrat, president of Consumer Action for a Strong Economy, said a consumer-first approach “means sensible and a low taxation that doesn’t put licensed gaming companies at a competitive disadvantage with books run by organized crime or anonymous companies overseas.”

Gambling experts said that states which opt for an open marketplace could allow it to be used by internet gaming companies and state lotteries.

New Jersey has allowed sports betting via mobile app since August.

The New Jersey Division of Gaming Enforcement has collected $6.18 million in taxes from sports wagering from its inception on June 14 through Oct. 31.

New Jersey this month begins earmarking 1.25% of sports betting revenues to the Casino Reinvestment Development Authority. Two years ago the state redirected the state’s casino investment alternative tax from the CRDA toward Atlantic City debt service under a state takeover plan that took effect Nov. 9, 2016.

“The New Jersey digital numbers are off the chart, more than anyone expected, so consider that,” said Robert O’Connor, senior vice president of government affairs for Scientific Games Corporation based in Nevada which has 45 contracts in lottery states.

O’Connor said states might consider allowing both land-based and digital betting on any sport but he advised each state to consider its unique political realities in formulating their approach.

“There’s no one size fits all,” said O’Connor, adding that governors should not treat sports betting as a way to solve their budget gap.

Wallach, on the other hand, emphasized the potential for growth in legalized sports betting.

“As more and more states avail themselves of this opportunity, I think there will be a new class of customers that is created among sports fans,” Wallach said. “The potential upside within the next five years could be $500 billion of wagers nationally.”

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