A piece of legislation was introduced in Congress recently. New York Congressman Paul Tonko has proposed the following: “It should be unlawful to advertise a sportsbook on any medium of electronic communication subject to the jurisdiction of the Federal Communications Commission, such as TV, radio, or the internet.” Congressman Tonko modeled his proposal on the 1971 law that banned cigarette advertising. Tonko’s proposal is not based on science, like the cigarette legislation, but it may make up for that with a wave of public support.
Super Bowl LVII represents some significant landmarks in the history of professional sports and sports betting. The game in 2023 was the first ever where betting was legal at the game and in home states of both teams. Retail and mobile sports wagering is legal in Arizona, Pennsylvania, and Kansas. In the five years since it became possible to offer sports betting in any state choosing to allow it, sports betting has become ubiquitous in the media, both in the narrative and the advertising. In the weeks leading up to the game, the media was flooded with wagering advertising. Not since 2009, the breakout year for FanDuel and DraftKings, has the country seen so much sports betting being advertised.
In 2009, FanDuel and DraftKings were fantasy-sports purveyors and fierce competitors. In September 2009, the New York Post reported that DraftKings had spent $21.8 million on 5,800 commercials; FanDuel spent a little less. DraftKings said it was signing up thousands of people a day and had 4.5 million subscribers. It appeared that between the two companies, fantasy sports would replace cars and beer advertising during sporting events. However, they ran into some resistance when attorneys-general from around the country began investigating the legality of fantasy sports.
Public law-enforcement officers were not the only ones concerned about the amount of fantasy-sports advertising on television that September; ordinary sports fans were also weary of the constant barrage ads. This year is not much different. The public and lawmakers are tired of the constant presence of the ads.
Another source of criticism comes from Wall Street analysts who speak almost with one voice when calling for some profit from all of the noise and commotion. The five or six major sports betting companies all have one thing in common: None has turned a profit yet. Like FanDuel and DraftKings did, they advertise incessantly, offering bonuses and free bets to entice people to sign up for their apps. In particular when a new market opens, as Ohio has just done, the companies double down on their freebies and advertising, fighting for initial market share.
At one level, it works, evidenced by the millions of people who have signed up with one of the major companies. FanDuel and DraftKings are winning the market-share wars; together, they have almost 70 percent of the market, while the top five have 92 percent. Most people probably sign up for more than one company to collect the benefits being offered. It is unlikely that the majority of those sign-ups wager enough to justify their rewards, even before the sportsbooks pay their taxes.
Sport betting is generating some very large numbers, especially when it comes to the handle. In 2022, it was approximately $95 billion and of that amount, the books earned gross gaming revenue of $14.5 billion, 8 percent, and paid about $1.5 billion in taxes, roughly 10 percent of the GGR. In some states, the tax rate is much higher, of course; New York, for example, collects 50 percent. Oho is just starting to take bets, but the governor would like to raise the tax rate from 10 percent to 20 percent to balance his budget.
Besides the taxes, advertising, bonuses, and free bets, sports books have normal business overhead. Although they ply their trade in cyberspace, it takes bricks, mortar, and employees to make it all work. Some are trying to reduce those expenses; Bally Bet is laying off 15 percent of its employees, DraftKings 3.5 percent. A few companies have thrown in the towel entirely, removing themselves from the highly competitive market, but the rest continue to spend hand over fist to attract customers. In the dog-eat-dog world of sports betting, there are not enough bones to go around and that intensifies the fighting. But while they roll around in the dust, biting one another, the fight is attracting some unwanted attention. Just as the bitter battle in 2009 brought down the wrath of law enforcement all over the country, this dog fight is doing the same.
It is unlikely that New York Congressman Paul Tonko’s proposal will become law, but it will still have an impact. Other laws will no doubt be proposed on the state level and some will pass. The extent of the legal backlash will depend on a couple of things. The first is the visibly of the fight via advertising. Excessive advertising will engender excessive legislation. The second is the social cost of hundreds of billions of dollars being wagered on sporting events. That is more nebulous and will take longer to manifest.
It has been only five years since the Supreme Court rubbed the lamp and freed this betting genie. In February 2023, 36 states already offer sports betting. By the end of the first decade of legal sports betting, nationally, there will only be one or two states without it. At that point, the social costs will be more apparent. But no one can control the trajectory; like social media, online shopping, and streaming, sports betting has been set loose. It will find its natural limits, just as Google, Amazon and Microsoft will. And like those companies, sports betting will find its way to congressional and state investigative committees. It is far too soon to predict any of possible outcomes. But it is, without a doubt, the way of our world.
