Five years after PASPA’s repeal, sports betting is still evolving

May 13, 2023 2:28 PM
Photo: Shutterstock
  • Rege Behe, CDC Gaming Reports
May 13, 2023 2:28 PM
  • Rege Behe, CDC Gaming Reports

On May 14, 2018, the U.S. Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA). In a 7-2 decision, the court ruled that PASPA violated anti-commandeering laws and by a separate 6-3 decision declared the act to be unconstitutional.

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Unless one worked in the gaming industry or was a sports bettor, the ruling in Murphy v. National College Athletic Association might have gone unnoticed. Five years later, the reverberations of PASPA’s repeal continue to ripple across the country.

Sports betting is legal in 37 states and the District of Columbia. Advertisements for gaming operators, featuring former star athletes and celebrities, dominate broadcasts of sporting events. And in states where betting on sports remains illegal, operators advocate for legalization.

“The PASPA decision was monumental for the gaming industry,” says American Gaming Association President and CEO Bill Miller. “It resulted in legalized sports betting across the country, it transformed consumer entertainment, it innovated the sports industry, and it demonstrated the appeal of our industry to new audiences.”

The AGA issued a report on May 9, detailing the progress sports betting has made throughout the United States. According to the organization’s research, 85% of American adults approve of sports betting and 77% support sports betting in the jurisdiction where they live.

Sports betting is riding the crest of two waves: the record gaming-industry revenue in 2021 and 2022 and technology perfectly suited for online sports betting.

“People are on their phones all the time with a bunch of different forms of entertainment that they play,” says Dan Kustelski, CEO and co-founder of Chalkline, which implements turnkey sports promotions for affiliates, casinos, and online platforms. “They’re engaging with that land-based casino in a meaningful way online, whether that’s social casino or upgrades to their mobile sites. It’s just the digitization of gambling that has awoken across America.”

But not everyone thinks the rollout of sports betting was perfect.

“The industry had a golden opportunity in the US: a complete blank slate to create a well-received sustainable industry,” says Steve Ruddock, an igaming analyst and editor-in-chief at Gaming Law Review. “Instead, it tried to make up for lost time as quickly as possible, leading to flawed laws, regulations, and approaches by operators.”

One issue roiling the rollout of sports betting concerns divergent jurisdictional taxation rates, which range from Nevada’s low 6.75% to the stiff 51% in New York state, Rhode Island, and New Hampshire on gross gaming revenue.

According to Ruddock, in markets monopolized by a single vendor, such as New Hampshire (DraftKings) and Rhode Island (Sportsbook Rhode Island), the rates “are less of a burden, as there’s no competition. New York is different. It’s a highly competitive market and turning a profit will be next to impossible.

“Now, what’s an acceptable tax rate?” Ruddock adds. “I don’t think, as the industry argues, it’s 10 to 15 percent, but anything over 25 percent will be pretty challenging to overcome.”

The AGA’s Miller says that fair tax rates are important, given that sports betting is a low-margin industry.

“If you put high tax rates on legal sports, you have to remember that the illegal offshore market still exists,” Miller says. “They don’t pay taxes. They don’t create jobs in states or jurisdictions and there’s a real likelihood that an unintended consequence of legalizing sports betting, but then putting such high tax rates (on it), will push people right back into the illegal market. I think that’s not what policymakers intended.”

Sue Schneider, SBC Americas vice president of growth and strategy, believes the sports-betting industry is still in flux. She recalls that when Pennsylvania legalized sports betting in 2018, its tax rate was 36%. “Who’s going to apply for that?” she wondered at the time. Now six operators in the state included DraftKings, FanDuel, Caesars Sportsbook, BetMGM, Bet Rivers, and Betway. And the high rate hasn’t been a deterrent. The Pennsylvania Gaming Control Board reported sports-betting revenue this March of $50.6 million, with $45.7 million coming from online wagering.

“With a lot of operators, are they making money? Or is it just kind of another amenity that they’re offering to bring people in, particularly younger players, which every casino is concerned about?” Schneider says. “I think the jury is still out and it’s going to take some very smart analysts to research that over the next few years to see what models work best.”

Kentucky is the most recent state to legalize sports betting, but there are some significant holdouts. Two ballot propositions to bring sports betting to California in 2022 were defeated. In Florida, a federal judge barred sports betting after it was legal for five weeks in 2021. And efforts to bring sports betting to Texas have stalled, although this week the Texas House gave tentative approval to legislation that would allow voters to decide if they want casinos and online sports betting to the state.

Kustelski believes California will eventually approve sports betting, although the timeline is undetermined. Texas, he says, will have sports betting “in a way that the state is completely comfortable with and Florida is a really interesting case study. Other states, like Alabama and Georgia, will have it,” he says, adding that Utah appears to be the lone state where legalized sports betting is unlikely.

Miller, noting that the majority of U.S. citizens want legal sports betting, thinks holdout states will eventually come around. Acknowledging that California, Texas, and Florida each have some unique elements, he’s confident that legal sports betting will be approved in all three states. “I’m pretty convinced that they’ll get it sorted out. It’s just a question of when.”

Schneider lives in Missouri, where she says “we’re pretty much surrounded” by states with legal sports betting. As evidence of the desire for sports betting in the Show Me State, she points to data compiled by GeoComply, the Canadian company that provides geolocation-compliance services, during the most recent Super Bowl between Kansas City and Philadelphia. GeoComply blocked more than 200,000 Missouri residents from illegally placing online wagers.

“I think more states will be coming on board,” Schneider said, “and there will be more consolidation (of operators).”

Schneider noted that Points Bet is “in flux” and it’s been reported that the Australian-based sportsbook is selling its U.S. operations. MaximBet and FuboTV closed in 2022 and Unibet, which last year stopped operating in Iowa, also could be for sale.

Ruddock said the U.S. sports-betting industry is just starting to take shape. “We’re still in the early stages of the industry, but I would say we’re starting to see the dust settle. FanDuel and DraftKings are frontrunners and significant, well-known, casino brands (that have embraced online betting) seem to be in the mix.

“Now, things can change on a dime. Bet365 is starting to make a U.S. push. Bally’s is in the midst of a complete digital reset. And a change in corporate strategy or a major M&A deal could see a second- or third-tier company become a major player. And there’s always the possibility of another global provider seeing opportunities in the U.S.”