Geller speaks at NCLGS on the potential effect of Sports Betting on Pari-mutuels (summary below) and Webinar for GiGse on Sports betting
Since my last Post, I’ve spoken to the National Council of Legislators from Gaming States (NCLGS) on July 13 in Cleveland, Ohio, on “the potential impact of Sports Betting on Pari-mutuels”. On July 26 I was a panelist on a GiGse webinar entitled “U.S. Sports Betting & Wire Act – addressing key issues and questions for a successful regulation and operation of sports betting roll-out across states.”. It seems that sports betting is the flavor of the day in Gambling seminars. This post will deal with my NCLGS comments. I intend to post soon on my GiGse webinar comments.
At NCLGS, I pointed out that the absolute fiscal impact of sports betting at the Pari-Mutuels is likely to be negligible, but that the opportunity is great. Let me elaborate.
Nobody knows what is the total amount of wagering that currently occurs on sports betting. The most common numbers I’ve seen are between $100 and $300 billion, so let’s assume it’s $200 billion. Much of that is “sticky” meaning it will stay where it is, with illegal bookies and in office pools, etc. This is even more likely to occur if there are high taxes on sports betting. On the other hand, there may be large untapped demand, which would expand if sports betting is legalized. Anyone that pretends to know what the actual number is probably is just making it up…, excuse me, I meant to say is simply doing exact calculations on an inexact number, to come up with an educated projection. In other words, making it up. However, most of that expansion would occur in Internet sports betting, which, as I will explain in my comments on the GiGse webinar, is probably illegal. Since I can make up numbers as well as anyone else, my scientific calculation is that there will be approximately $150 billion in Sports betting. Just guessing.
The takeout (Gross Gaming Revenue, or GGR) on sports betting is generally around 4-7% in Las Vegas casinos. Let’s assume 5%. 5% of $150 billion is $7.5 billion. If states increase the takeout much more than that, too much of the gambling will stay illegal. If states raise tax rates above a certain unknown number (10-20%??), they will make it unprofitable for operators. Let’s just assume that the state tax rate is 12%, the Federal excise tax rate is .25% of the wagering (not the GGR), the sports leagues and individual teams ask for their percentage (either of GGR or wagering), and we see that there’s not a lot left for the operators to make money on. In Nevada, the expenses for running sports gambling before taxes and the other issues I’ve discussed approach 50%. Further assume that Nevada will continue to attract most big rollers for sports wagering, and we can see that there isn’t much left to spread around as profit for individual operators in the rest of the Country.
However, there is some good news for pari-mutuel operators, if they take advantage of it. I believe that at least initially, most states will restrict sports betting to their existing licensed gambling facilities. I think that this will occur because the existing facilities have substantial political clout in their states, because Internet sports wagering may be illegal (because of the Wire Act, which wasn’t thrown out when PASPA was), and because of a desire to at least start in a more conservative fashion. In Las Vegas, we’ve seen that sports betting isn’t that big of a revenue generator for the casinos. The casinos use sports betting to attract customers to their casinos, and they do this well. If pari-mutuels around the country take advantage of this, upgrade their facilities, diversify their gambling base, and use sports betting to attract new customers, then sports betting may indeed be a huge boost to pari-mutuels. I won’t hold my breath.
On May 31, 2018, I spoke at the GigSe conference in Miami on the topic of Sports Betting after the recent Supreme Court ruling invalidating PASPA. My comments reflected the same position that I made in my last blog post, that the Wire Act still appeared to prohibit Sports betting, even from states where such gambling is legal to states where such gambling is legal. During the Question and Answer period, one person asked me if I was familiar with Former U.S. Solicitor General Ted Olson’s remarks that because PASPA was gone, that meant that Sports Betting among states could be legalized, and therefore the Wire Act would no longer apply. I advised that I had not heard that Olson had made these remarks, but that I’d check.
I cannot find anywhere that Olson has flatly come out and said that the Wire Act doesn’t apply any longer. I have located articles where he has questioned whether the Wire Act still applies. I have reviewed the literature on this, and I have reached several conclusions. These conclusions are my current opinion, are based upon my own knowledge and the opinions that I have read from or discussed with other experts in the field. They are still preliminary, and are subject to change, as I have not researched this area as thoroughly as I would if I was representing a client in this area. With all of those caveats, here is my opinion.
The majority of the opinions from people that I respect seem to range between saying that the Wire Act still applies to saying that the Wire Act may still apply, but that they have some questions. The majority seem to believe that the “safe harbor” section of the Wire Act would permit sharing of information from a state where sports betting is legal to a state where sports betting is legal, although it would not permit the actual betting over the internet, even if sports betting is legal in that state.
I have largely ignored the many articles written by non-lawyers, who appear to believe that if they want it to be legal, it must be legal, or whose major source of information is what they read in a general purpose newspaper. In reading articles, papers, and presentations written by attorneys, the predominant position seems to be “that’s a good question.”, or “The Wire Act currently seems to prohibit it, but it would require litigation or a ruling from the USDOJ to conclusively respond”, or some variation thereof.
Having now reviewed the literature, I slightly amend my prior position, from saying “it currently appears to me that the clear wording of the Wire Act and the December 2011 DOJ memo both, at a minimum, continue to prohibit internet wagering on sports betting” to saying that that “the clear wording of the Wire Act and the December 2011 DOJ memo both, at a minimum, appear to continue to prohibit internet wagering on sports betting but it would require litigation or a ruling from the USDOJ to conclusively respond”.
The United States Supreme Court has issued its ruling in Christie v. NCAA, Case 16-476, stating that the Professional and Amateur Sports Protection Act (PASPA) is unconstitutional. Many people mistakenly think that this has legalized Sports Betting. I expect the ruling to be far less consequential than many think, especially in Florida.
No one knows how much is wagered on illegal Sports Betting in the US today because it’s, well, …illegal. I’ve seen estimates ranging from $107 billion to $300 billion. I think that today’s accurate number is probably somewhere between $150 billion and $200 billion, based on averaging the numbers I’ve seen, even though they’re only guesstimates. Some people assume that all of those wagers and more will immediately go into legal Sports Betting. I disagree.
People enjoy the traditional Office Pool on things like the NCAA Basketball tournament, and other events. Most of those people won’t stop the pools to go wager at a casino. Some people wager on credit with illegal bookies who have “creative” ways of collecting debts. Those people will still go to bookies because of the credit issue. States will tax sports betting (some will do so with heavy taxes), private operators will want to make a profit, and the Sports Leagues have already demanded a cut. I think that the Sports Leagues and states are expecting a larger cut than will prove to be feasible. With all of those takeouts, a bookie should be able to offer better odds.
The biggest issue about the size of the market is whether or not Sports Betting will be able to be offered online. Most boosters say yes, but I don’t know why. I believe that Sports Betting will, at least initially, be limited to bricks and mortar casinos.
Many people think that the famous December 23, 2011 “Christmas Surprise” ruling from the United Stated Department of Justice, Office of Legal Counsel, authorized internet gambling, including Sports Betting. Incorrect. The OLC ruling was much more limited. It was based on an acknowledged conflict between the prior interpretation of the Wire Act of 1961, and the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). The interpretation of the Wire Act had been that any type of Internet Gambling was illegal, but UIGEA specifically excluded Intrastate online gambling from penalties. OLC issued the Christmas Surprise ruling announcing that their longtime previous interpretation of the Wire Act was incorrect, and that the Wire Act should only apply to Sports Betting, and that only Sports Betting is illegal over the internet. Department of Justice Ruling December 2011 on Internet Gambling. Let me include quotes from that opinion:
“We conclude that interstate transmissions of wire communications that do not relate to a “sporting event or contest,” 18 U.S.C. § 1084(a), fall outside of the reach of the Wire Act. Because the proposed New York and Illinois lottery proposals do not involve wagering on sporting events or contests, the Wire Act does not, in our view, prohibit them.”
“The Criminal Division’s conclusion that the New York and Illinois lottery proposals may be unlawful rests on the premise that the Wire Act prohibits interstate wire transmissions of gambling-related communications that do not involve “any sporting event or contest.” See Crim. Mem. at 3; Crim. Supp. Mem. at 2. As noted above, both Illinois and New York dispute this premise, contending that the Wire Act prohibits only transmissions concerning sports-related wagering… We conclude that the Criminal Division’s premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.”
This provision contains two broad clauses. The first bars anyone engaged in the business of betting or wagering from knowingly using a wire communication facility “for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.” Id. The second bars any such person from knowingly using a wire communication facility to transmit communications that entitle the recipient to “receive money or credit” either “as a result of bets or wagers” or “for information assisting in the placing of bets or wagers.” Id.5”
“Reading the entire subsection, including its second clause, as limited to sports-related betting also makes functional sense of the statute. Cf. Corley v. United States, 129 S. Ct. 1558, 1567 n.5 (2009) (construing the statute as a whole to avoid “the absurd results of a literal reading”). On this reading, all of subsection 1084(a)’s prohibitions serve the same end, forbidding wagering, information, and winnings transmissions of the same scope: No person may send a wire communication that places a bet on a sporting event or entitles the sender to receive money or credit as a result of a sports-related bet, and no person may send a wire communication that shares information assisting in the placing of a sports-related bet or entitles the sender to money or credit for sharing information that assisted in the placing of a sports-related bet.”
Based on the DOJ opinion, a consensus has emerged among serious attorneys that the Wire Act prohibits interstate internet gambling, but permits intra-state internet gambling if authorized by the legislature of that state. It is not clear if interstate compacts are permitted. Information on shared pari-mutuel pools through the internet, although apparently otherwise prohibited by the Wire Act, are expressly permitted through the later Interstate Horse Racing Act.
It currently appears to me that the clear wording of the Wire Act and the December 2011 DOJ memo both, at a minimum, continue to prohibit internet wagering on sports betting. It is not clear to me at this time if even sports betting at local brick and mortar casinos in states that authorize sports betting would be permitted if that wagering is part of interstate pools. Remember that the Wire Act prohibits not only wagering on sport events, but also prohibits “ information assisting in the placing of bets or wagers.”
Finally, the prospects are even worse in Florida. Florida is unlikely to have an opportunity to have a Special Session of the Legislature prior to the elections. There will be a referendum on the November ballot pertaining to voter control of gambling that may or may not impact sports betting. It is also certainly possible that competition between the different gambling industries in Florida, and opposition from the same forces that are pushing the anti-gambling referendum (such as Disney) may result in an inability of Florida to pass any sports betting legislation.
Florida House of Representatives Majority Leader files major Gambling bill; Article on showdown over Seminole gambling agreement quoting me; McCain calls for re-examination of PASPA; Poarch Creek band of Indians threatens to sell marijuana from their Florida land if not given gambling; Comprehensive gambling deal in Florida described as “Enormous, Gargantuan Lift; Quotes from Orlando Sentinel gambling panel; Geller speaks at NCLGS
• Florida House of Representatives Majority Leader Dana Young filed a major re-write of gambling laws in Florida on March 2. This bill is over 320 pages, and will permit destination resorts, historic racing, and many other types of gambling in Florida. We will print a more complete analysis of this bill after we have time to review it, and see what the official Bill analysis says.
• Nick Sortal, the excellent gaming columnist in the Fort Lauderdale SunSentinel, wrote a column entitled “Showdown looming over Seminole gambling agreement.” One of the experts quoted in that article was … me. Sortal quoted Geller as saying “The one thing I can tell you with pretty good certainty is that anybody that tells you with certainty that they know what’s going to happen is wrong”.
• United States Senator John McCain has said that the U.S. Congress needs to reexamine the Federal ban on sports wagering [PASPA]. According to the Washington Post, McCain said “We need a debate in Congress… We need to have a talk with the American people, and we need to probably have hearings in Congress on this whole issue so we can build consensus.”
• The Poarch Creek Band of Indians (Poarch) is an Alabama-based tribe that owns about one acre of land in near Pensacola, Fl, where it is claiming the right to build a casino. According to the Associated Press, the Poarch currently operate a casino in Atmore Alabama, a few miles away from the Pensacola site. The Poarch are not currently a Federally recognized tribe in Florida, but they contend that they have the right to have casino gambling in Florida, based on the amount of time that the Florida land has been owned by the tribe. The Governor Rick Scott administration disagrees, stating that it is ‘premature” to negotiate with the Poarch until they have the necessary Federal recognition in Florida. The AP states that the Poarch are threatening to take advantage of a December opinion by the U.S. Department of Justice which will permit Tribes to raise and sell marijuana on their tribal property, and are stating that they will consider doing this in Florida if the Poarch do not get “a seat at the table” on Florida gambling issues.
• News Service of Florida has published a lengthy analysis of the difficulty in passing a comprehensive gambling bill under the headline “Gambling Deal ‘Enormous, Gargantuan Lift’ This Session”. That quote was from Rep. Dana Young. The article talks about Senate President Andy Gardiner’s repeated statements that he is fine with the Legislature doing nothing this year, and letting that portion of the Seminole Gaming Compact dealing with banked card games “sunset”, or expire. Gardiner has appointed Senate Majority Leader Bill Galvano as the lead on gambling for the Florida Senate. Galvano was the lead for the Florida Legislature five years ago when the Seminole Gaming Compact was originally approved [Although not in the article, it should also be noted that Galvano is currently national Vice-President of the national Council of Legislators from Gaming States (NCLGS), and is expected to become President of that group in 2016]. The article quotes Galvano extensively. The article goes on to say that “any gambling measure runs the risk of being overloaded with wish lists from industry operators, including pari-mutuels in Broward and Miami dade Counties that already have slots but want a lower tax rate and card games to better compete with the nearby Seminole Hard Rock Hotel and Casino in Hollywood.”
• Nick Sortal also wrote an interesting piece in the SunSentinel, including interesting quotes from many top players in the gambling debate from a panel discussion hosted at the Orlando Sentinel, the sister paper of the SunSentinel. Among those quoted were Geoff Freeman, President of the American Gaming Association; Mark Wilson, President of the Florida Chamber of Commerce; John Sowinski, President of CasiNos.org; and Izzy Havenick, a member of the family that owns Magic City Casino in Miami, as well as having other Florida Pari-mutuel interests.
• Since I mentioned NCLGS earlier, I want to point out that they had a very successful conference in Las Vegas in January. I spoke on three topics at their committee meetings, which may be a record for any single speaker. I spoke on updates in pari-mutuel technology, pari-mutuel decoupling, and gave an update on Indian gaming state compacts and Tribal recognition. The next NCLGS meeting is in June in Atlantic City.
The United States Supreme Court has ended the State of New Jersey’s current hope for sports betting, at least for now. The Supreme Court denied certiorari, and refused to hear an appeal from the Third Circuit Court of Appeals, which had upheld a lower court judge who ruled against the State. This ruling was expected by most experienced appellate attorneys. The Supreme Court rules against even hearing most appeals where there are not conflicting opinions from different Circuit Courts of Appeal, and there were not conflicting rulings here. By refusing to hear the appeal, the Supreme Court offered no opinion on the underlying merits of the lower court rulings (nor do I).
In 1992, the United States Congress passed the Professional and Amateur Sports Protection Act (PASPA) which prohibited sports wagering, but grandfathered in four states that had some form of sports wagering. Nevada had full sports wagering, while Delaware, Montana, and Oregon had certain limited sports wagering. New Jersey was given one year to opt in to sports wagering, but failed to do so at the time. In 2011, the voters of New Jersey approved a referendum placed on the ballot by the Legislature calling for approval of sports wagering. In 2012, Governor Chris Christie signed legislation permitting sports wagering in New Jersey. The NFL, NBA, MLB, NHL, and NCAA filed suit against New Jersey, alleging that the 2012 law violated PASPA. The Trial Court Judge ruled against New Jersey, and by a 2-1 vote the Third Circuit Court of Appeals upheld the Trial Judge.
State Legislators from New Jersey have pledged to continue the fight for sports betting by other methods, which may include asking the Federal Government not to enforce PASPA, asking Congress to amend PASPA, or trying to further change New Jersey laws in a way that could bring sports wagering to New Jersey in a way that would be consistent with PASPA.