Don’t Expect Spread of Sports Betting, Even if New Jersey Prevails

October 22, 2014
Don’t Expect Spread of Sports Betting, Even if New Jersey Prevails

There is a lot of confidence in New Jersey that there will be sports betting this Sunday at Monmouth Park. Legal analysts do not share the same view. Whatever happens, don’t expect more states to join the sports betting bandwagon anytime soon.

New Jersey is in a unique situation. Its gaming industry has suffered a serious blow due to competition from surrounding states. Sports betting is considered a way to fill hotel rooms during the slow fall and winter period.

New Jersey has little in the way to gain from a tax point of view. Its sports betting win will be taxed as a sports pool under gross revenue, but that amount would be insignificant compared to what Atlantic City already generates. There could be more sales tax paid by tourists or more money bet at casino games by those visiting to bet on sports. This scenario is not going to be as attractive in other jurisdictions.

Issues Facing States Considering Sports Betting

Some states may look to expand gambling to raise revenue. Most states do not generate substantial gaming income from outside its borders in the same way as Nevada and New Jersey. This means that creating tax revenue is the only positive that sports betting can bring to the table.  The small margin on sports betting by itself will not generate substantial revenue.

Since it has already been established that only four states have that right under the Professional and Amateur Sports Protection Act (PASPA) – Delaware, Montana, Oregon, and Nevada – this makes sports betting an underdog right out of the gate.  Even in those states, single sports betting is restricted to Nevada.

Hypothetically speaking, let’s assume a state wants to legalize sports betting without taxes being a consideration. There are still other obstacles.

The NCAA has shown its displeasure with sports betting in the past. The Oregon Lottery once spread Sports Action where NFL games could be parlayed. It also briefly spread NBA parlay cards for games not involving the Portland Trail Blazers.

Bets on college games were not accepted. The NCAA still punished Oregon. No special NCAA activities were scheduled in Oregon. This meant that it missed out on college basketball tournaments and other national events.  New Jersey has faced similar threats from the NCAA.

The NFL made it clear that Oregon would never have an NFL team for as long as its lottery was booking bets on the league’s games.

Oregon’s Sports Action was killed by the state legislature in 2005.  It accepted its last wager at the end of the 2006 NFL season.

For these reasons, there would be little to gain and everything to lose by states thinking about legalizing sports betting.

What if California Legalized Sports Betting?

A 2012 California bill proposed legalizing sports betting in the state. There are several issues that could arise if sports betting were to ever become a reality in California.

It is common for there to be NCAA Basketball tournaments in California. The 2013 schedule saw San Jose and Los Angeles host brackets. Anaheim and San Diego hosted 2014 basketball tournament events. If the NCAA applied the same rules and pressure that it did on Oregon and New Jersey, these events would be lost.

There are four college bowl games scheduled in California this year. Under the same scenario, those holiday traditions could be also be targeted.  This seems less likely as Las Vegas hosts an annual bowl game.

The NFL appears to be one of the staunchest sports betting opponents out there. Legalizing sports betting in California may jeopardize a team moving to Los Angeles. It may also hurt the relationship of the three existing ones. With that said, it is interesting that games played in Toronto and London create no conflict. Both cities have legalized sports gambling.

The NBA has a history of not allowing games to be played where betting on its games occurs. The Ontario Lottery is not allowed to offer any NBA betting due to the presence of the Raptors. The same held true when the Grizzlies played in British Columbia.  There are four NBA teams in California.

The 2007 NBA All Star Game was held in Las Vegas. It was only considered by the league if it was taken off the boards at the sports books. The state happily obliged as the handle on all star games tends to be extremely low.

NBA Commissioner Adam Silver stated last month that sports betting in the U.S. is “inevitable“. While he may feel that way, his league joined both lawsuits against New Jersey.

Delaware Lottery

The Delaware Lottery already had its run-in with the sports leagues. The state is exempted under PASPA and it decided to spread a full menu of sports betting through its lottery in 2009. The leagues decided to wage a legal battle claiming that Delaware could only spread the NFL parlay cards that were the original protected games under the exemption. The courts agreed.

Delaware would find little value in the outcome in New Jersey at this point as it will have a much harder time claiming that the gambling is unregulated when it is spread by the state lottery.

Repeal of PASPA Only Way to Spread Sports Betting

The only way that states may tax and regulated gambling on sports is if PASPA is repealed. This seems extremely unlikely. States have so little to gain without being able to tax the handle or net winnings that sports betting is not likely to find any sort of expansion beyond where it is now, regardless of whether New Jersey wins its long-shot bet.

(Corrected to reflect taxes paid by sports pools as gross revenue.)

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