Why Georgia Should Get Off the Bench and Profit from the Inevitability of Sports Betting
| Publication year | 2020 |
Why Georgia Should Get Off the Bench and Profit from the Inevitability of Sports Betting
Andrew Smith
Georgia State University College of Law, asmith461@student.gsu.edu
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Although Americans bet an estimated $80 to $380 billion annually on sporting events, only about $2.5 billion was wagered legally before May 14, 2018.1 Framed differently, at a minimum, the government has forgone collecting tax revenues on approximately $75.2 billion. Rather than retain the power to tax this figure, Congress passed the Professional and Amateur Sports Protection Act (PASPA) in 1992, which prohibited sports betting outside Nevada.2 In spite of the government's predilection for regulated oversight to reduce corruption, Congress believed a legalized sports betting market would increase fraud and ruin the integrity of sports.3 While the federal government cast a scarlet letter on sports betting, individual states retained discretion regarding the legality of other forms of gambling, such as casinos and lotteries.4 Despite its
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prohibition, America's affinity to bet on sports only rose, and the rise of illegal bookmakers and offshore markets virtually neutered PASPA's efficacy. Moreover, in reality, the effect of PASPA shriveled the pool of money used legally to bet on sports and effectively shielded millions of dollars from government taxation each year.
Influenced by the inevitability of sports betting and changes in public perception, the Supreme Court of the United States struck down PASPA on May 14, 2018.5 Each state now retains the ability to decide for itself the legality of sports betting.6 In light of such retained state discretion, this Note examines whether Georgia should legalize sports betting and assesses the potential legislative and regulatory challenges that would arise. Part I discusses the history of gambling in America and the state of gambling in Georgia. Part II examines particular states that have legalized sports betting and compares their legislative and regulatory schemes with Georgia's existing gambling framework.7 Part III assesses and proposes different structures that would allow for Georgia to legalize sports betting.
I. Background
The appearance of gambling in America coincides directly with the arrival of the earliest Puritan colonists who played dice, played card games, and bet on horse races. These activities, however, opposed Puritan ideology and were quickly outlawed.8 Although the
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early colonies similarly outlawed gambling, lottery participation was encouraged as a necessary fundraising remedy to help struggling settlements.9 Lacking a strong central government, the Continental Congress even used lottery revenues to fund the Revolutionary War.10 However, public perception of state-sponsored lotteries decreased throughout the early nineteenth century as a result of widespread fraud and misappropriation of funds.11 By the end of the nineteenth century, state legislatures had almost universally banned state lotteries, and they did not reappear until the 1960s.12
As lotteries disappeared, organized horse racing appeared, and by 1890, 314 tracks were operating across the country.13 Despite the formation of the American Jockey Club, which was created in part to combat corruption, fraud continued to plague the industry.14 By 1908, this instability, combined with the Progressive Movement's anti-gambling sentiment, left the nation with only twenty-five tracks.15 However, in 1908, pari-mutuel betting was introduced. Although this form of gambling served to stabilize the horseracing industry, interest in horseracing would fluctuate greatly throughout
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the ensuing decades.16 Nevertheless, all other forms of gambling were almost uniformly outlawed across the country throughout the early twentieth century.17
A. The Rise of Modern Sports Betting
As interest in horseracing declined, Americans began illegally betting on baseball games through organized crime syndicates.18 While baseball's popularity exploded after World War I, the 1919 "Black Sox Scandal" brought national attention to illegal sports gambling and immediately crippled the public's perception of sports gambling.19 The scandal involved members of the Chicago White Sox, who were accused of receiving money in exchange for intentionally losing the 1919 World Series.20 In the aftermath of the scandal, Major League Baseball (MLB) appointed Judge Kenesaw Mountain Landis as the first commissioner of any professional sports league to protect the "integrity of the game."21 Despite the appointment, corruption in MLB continued, and the public's perception of sports betting only worsened when Pete Rose, the all-time MLB leader in hits, was found to have gambled on games while he was the manager of the Cincinnati Reds.22
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1. Sports Betting Basics & Nevada's Legalized Sports Betting Monopoly
Similar to investing in a company's public stock, sports wagering generally entails committing an immediate cash outlay while making a prediction about a future performance. Various types of wagers exist, and the most common forms of betting include point-spread bets,23 money-line bets,24 and parlay bets.25 To insulate themselves from volatility and to ensure a profit, sportsbooks and other entities that accept wagers will charge a commission on each bet, colloquially called the "vig."26 As a result, sportsbooks develop betting spreads that seek to attract half of the bettors on one team and the other half of bettors on the other team.27
While other states continued to prohibit sports gambling, Nevada capitalized on this lucrative activity and became the first state to legalize sports betting in 1949.28 Nevada initially imposed a 10% tax on all sports bets and accordingly, the tax confined sports betting to
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small clubs and organized crime.29 By 1983, Nevada reduced the tax to 0.25%, and the economics of sports betting encouraged Las Vegas casinos to open and operate their own sportsbooks.30 As the only state to offer unrestricted sports betting, Nevada developed and refined a regulatory system that protects against corruption and produces honest wager outcomes.31 At the same time, Nevada has also benefitted from its de facto sports betting monopoly. In 2017, Nevada sportsbooks handled $4.8 billion in bets and reported revenue of $248.8 million.32 For Super Bowl LII alone, Nevada sportsbooks accepted $138.5 million in bets, although this figure pales in comparison to the $4.6 billion the American Gambling Association estimates people bet illegally on the game.33
2. Legislative Action
To combat illegal sports gambling, Congress passed the Interstate Wire Act of 1961 to curb organized crime's underground bookmaking operation.34 Aimed primarily at "bookies" and not
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bettors, the Interstate Wire Act made it illegal for anyone engaged in the business of betting to use a wired communication to accept or facilitate interstate bets.35 Despite further congressional action aimed at reducing organized crime's underground sports gambling operations, illegal betting and bookmaking thrived throughout the 1970s and 1980s.36 Notably, in 1976, the Commission on the Review of the National Policy Toward Gambling proclaimed "effective gambling law enforcement [is] an impossible task," and although the Commission recommended the current prohibitions remain, it deemphasized enforcement against illegal sports wagering.37
Despite nearly all states prohibiting sports betting, corruption continued to plague professional and collegiate sports leagues. In 1978, a member of the Boston College men's basketball team was convicted of conspiracy to commit sports bribery after being found implicated in a point-shaving scheme that involved members of organized crime.38 Further, in 2007, a National Basketball Association (NBA) referee, Tim Donaghy, was convicted and imprisoned after being found to have personally accepted bribes and placed bets on basketball games that he officiated.39
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Although most states independently prohibited sports betting, Congress remained largely silent on the topic and instead deferred to state lawmakers in a manner consistent with congressional involvement regarding the legality of other forms of gambling.40 However, on October 28, 1992, Congress, with the support of the major professional leagues, enacted PASPA, which virtually prevented any government entity or individual from sponsoring or authorizing wagering on either professional or amateur athletic events.41 Created to protect the integrity of sports and shield America's youth from unvirtuous ideals, PASPA effectively made sports gambling illegal nationwide.42 Notably, however, Delaware, Montana, Nevada, and Oregon received exemptions from PASPA as each of these states previously offered sports wagering in some form.43
B. Public Acceptance of Sports Betting
In the years after PASPA's enactment, illegal sports betting continued to grow, and despite the prohibition, nonregulated outlets, such as illegal bookmakers and offshore betting companies, continued to provide a host of avenues to wager on sports.44 With
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increased popularity, the negative stigma that previously accompanied illegal wagering gradually dissolved, leading the general public, politicians, and sporting executives to entertain and even encourage legalization.45 Essentially, it became evident to these former opponents that sports betting had become a normative social activity. Although measuring the amount bet in unregulated markets is impossible, a 2015 Ernst & Young survey found that 28% of American adults bet on sports and estimated these adults wagered approximately $107 billion annually.46 Alternatively, a 1999 report by the National Gaming Impact Study Commission estimated the illegal sports betting market to be between $80 and $380 billion.47...
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