Sports Gambling: The Noble Experiment II

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The Good, the Bad and the Ugly

By now you have heard of the United States Supreme Court’s decision to allow individual States in the Union to pursue gambling legislation and regulatory schemes within their borders. The prospect for gambling in 49 States not named Nevada was made possible by the Court declaring that a 1992 law, the Professional and Amateur Sports Protection Act (PASPA), was unconstitutional. The 6-3 majority wrote in their opinion: “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.” Referring to New York v. United States, 505 U.S. 144 (1992), the Court reasoned that the States could not be commandeered to enforce a federal regulation.

The Good

The rewards are straightforward: the potential for added revenue with a reduction in the black and gray gambling markets. Legalized gambling also means more business creation, jobs, related opportunities and work for lawyers.

Specifically, professional sports leagues stand to gain by charging a premium for copyrightable and trademarkable content, namely its players, brands, and potentially its statistics when analyzed and formulated in a specific way. If the gambling houses want to play it smart, they will include the professional sports leagues’ senior leadership and the players associations’ to grow the gambling programs together, to avoid getting sued, with the players, teams, leagues, gambling houses, casinos and bettors participating in the profits. Of course, all of this assumes a regulatory scheme is in place to protect consumers and all parties involved before the gambling begins.

In addition, it will be interesting to see if sports broadcasting companies (NBC, ABC, Fox, TNT, etc.) and technology distribution platforms/companies (Verizon, AT&T, Hulu, Amazon, Facebook, Apple, etc.) seek a piece of the pie since they are the ones broadcasting and distributing the copyrightable and trademarkable sports content.

The Bad

There is roughly a 5 percent margin for profit in gambling. A profit for new partners involved in the process, namely the leagues and the players associations, requires that the profit come from somewhere. An increase in profit assumes that more people will gamble or that current gamblers will be brought out of the darkness (e.g., illegal online gambling) and into the light of legalized gambling. It also assumes that any regulatory scheme will pass the “cost of doing business” (i.e., gambling fees and taxes) onto the consumer so that the profit margins are maintained.

The Ugly

Rhetorically speaking, was PASPA the second iteration of the original noble experiment, the prohibition against alcohol? Did PASPA seek to regulate moral behavior? Will there now be an explosion in sports betting as there was after prohibition, the first noble experiment? What are the potential consequences of legalized gambling in the United States?

First, imagine navigating the federal and state regulatory schemes as a participant, manager, owner, or lawyer in the gambling space, interpreting both federal and state law. For example, leaders in the United States Congress have already discussed presenting a federal regulatory scheme for gambling. Moreover, each State will also have to have its own law on the books before proceeding with state-sponsored or legal gambling. The process and implementation alone will be fascinating to follow. Hopefully, Congress and the State’s provide clear vision as to what legal gambling is allowed and where so as to avoid confusion. A regulation is after all only as good as its enforcement and interpretation.

Second, collegiate and professional athletes stand to be in a precarious situation. Unfortunately, baseball legend Peter Rose learned the hard way with illegal sports gambling. Since the door is now open through legalized gambling, however, a regulatory scheme at both the legislative (federal and state) and administrative (sports leagues) levels will be important to make sure that the integrity of sport and its participants are maintained. To that point, any gambling regulatory scheme would likely include a provision that direct participants in sports not be allowed to place a sports bet to avoid the appearance of impropriety.

Third, is more gambling a good idea for a society mired in debt? It means more revenues for States and the federal government, but what about the consumers? Is more regulation good for business? However, again, back to regulating moral behavior through a noble experiment law. In the end, it should be celebrated that legislation outlawing something without the federal government entering the space before or since was at the least awkward, and at its worst, unconstitutional, as the U.S. Supreme Court held.

Congress and the States will now get a second bite at the apple to set the course for legal sports gambling in America.

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