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The Downsides of Legalized Sports Gambling

Regulated bookies! Betting at your local bar! More tax dollars! There’s plenty to like about the Supreme Court’s recent ruling, but much like with the increased legalization of marijuana, not everyone wins when vices go mainstream.

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On Monday, the Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992 (PASPA), which had for more than 25 years prevented states from coming up with their own laws regulating sports gambling. The court’s ruling in Murphy v. NCAA opens the door for states to allow casinos and bookmakers to get in on an industry in which as much as $400 billion is wagered each year, almost all of it illegally and under the table. The Super Bowl and March Madness both generate multiple billions of dollars in illegal bets on their own, more than the entire legal Las Vegas–based American sportsbook industry takes in all year.

The logical result of Murphy v. NCAA is a legitimized and aboveboard sports gambling industry. Most, if not all, of those hundreds of billions of dollars will be wagered in legitimate betting shops, which can be regulated, taxed, and monitored closely for irregularities and misconduct. The Murphy in Murphy v. NCAA is New Jersey Governor Phil Murphy, who inherited the lawsuit from his predecessor, Chris Christie, as part of an effort to revitalize the moribund Atlantic City casino industry. Sports betting, the argument goes, would kick-start flagging casino revenues, save jobs, and generate tourism revenue. Moreover, it would eliminate the pretense that gambling on sports is some shady and illicit enterprise, and not an entirely mainstream American undertaking.

The average consumer would benefit from choice in bookkeepers, each of them guaranteed to be on the up-and-up by government regulation, all safer, fairer, and friendlier than the neighborhood bookie. Gambling would be respectable, open to the casual bettor who tosses down a token World Series prop bet each spring and nothing else, as well as more serious repeat customers. And most important, it’d be available anywhere in the country, not just in Nevada.

In a 2011 article in the UNLV Gaming Law Journal, Eric Meer cited a 1999 report by the National Gambling Impact Study Commission that estimated that Americans bet $380 billion a year on sports—a number that’s certainly much higher now, but that still gives us a rough estimate to work with. As Meer writes: “Assuming, for argument’s sake, that the entire $380 billion could be legally wagered in the United States and that 4.6 percent of total wagers are kept by the sportsbook operator (i.e., the gross gambling revenue), legal sportsbooks would gross approximately $17.48 billion nationwide, to be taxed and distributed at appropriate levels to state and local governments.”

Meanwhile, American sports fans could go lay down the odd $20 on the Falcons to cover +4.5 against the Vikings at a local casino, corner betting shop, or even a machine in the corner of a sports bar. Sports media would have new avenues from which to cover games, and leagues would rake in increased revenue from betting partnerships and new gambling-related interest. This all sounds like a net positive in theory, and it probably will be in practice, but it also calls to mind another mostly-illegal-but-not-socially-unacceptable vice that’s also going legit in the United States: marijuana.

Marijuana is still illegal at the federal level, but states across the union have either legalized or decriminalized marijuana to some extent or another over the past 20 years. And as they’ve done so, the production, distribution, and sale of the drug has become big business, and a huge revenue generator for state and local governments. For example, marijuana excise taxes and licensing fees in Colorado generate about $40 million a year for school construction, along with another $117 million for other projects.

It’s good for consumers, it’s good for the state, and it’s good for investors who get in on the ground floor. But it’s a cruelly ironic slap in the face for many of the people who suffered worst during the war on drugs, which disproportionately targeted people of color. Now that marijuana is a legal commercial product, most of the big investors are white men, while firms owned by people of color struggle to get licensed.

Douglas A. Berman, a professor at Ohio State’s Moritz College of Law, addressed the issue last month in a paper titled “Leveraging Marijuana Reform to Enhance Expungement Practices,” in which he argues that any effort to decriminalize or legalize marijuana must go hand in hand with expunging criminal records.

“People with marijuana convictions are typically excluded from, or disfavored for, participation in [the] new legal marijuana industry,” Berman writes. “Even if state laws do not formally limit participation in the industry among those with past marijuana convictions, any criminal history still can be a significant burden for those seeking state-issued licenses or even employment. And because persons of color have suffered from marijuana prohibition disproportionately, certain communities are disproportionately impacted by new collateral consequences created by new legal marijuana opportunities.”

Berman sees potential parallels between the commercial marijuana industry and the future sports betting industry, an industry he foresees as being dominated by already-wealthy corporate interests and potentially indifferent to consumers, small businesses, and the public good.

“The big folks have an incentive to try to police out or regulate out the small-timers,” Berman told me. “That’s what we’ve seen a lot in the marijuana space, in legalization states like Colorado, where there’s a lot of regulations that the mom and pop industry struggles to live up to, but that the big-time industry players have no problem with and want enforced rigorously so that they’re the only ones who can reasonably comply and compete in the space. My instinct is that’s what you’re getting to in the sports betting universe—some big operators are going to emerge, whether that’s the leagues themselves or the leagues’ partnerships with major media companies and the like.”

The major professional leagues themselves have largely abandoned their puritanical aversion to gambling in the past decade, particularly the NBA, which was the last major professional league to be rocked by a major gambling scandal. In 2007, referee Tim Donaghy was caught betting on games and was later sentenced to 15 months in prison. Then-commissioner David Stern called it “the most serious situation and worst situation that I have ever experienced either as a fan of the NBA, a lawyer for the NBA or a commissioner of the NBA.”

But just seven years later, Stern’s successor, Adam Silver, penned an op-ed in The New York Times titled “Legalize and Regulate Sports Betting,” which called on the federal government to do just what the title suggested. “[T]the laws on sports betting should be changed,” Silver wrote. “Congress should adopt a federal framework that allows states to authorize betting on professional sports, subject to strict regulatory requirements and technological safeguards.”

Why would Silver and the NBA be attracted to an enterprise that had just dealt an embarrassing blow to the league’s credibility? Because if people were going to bet on sports anyway, legally or not, the league wanted a piece of the action. Earlier this year, NBA senior vice president Dan Spillane proposed that the league should collect a 1 percent “integrity fee” on all money wagered on the NBA. In his New York Times column, Silver put the value of illegal sports bets at $400 billion a year. Last year, total NBA revenue was $7.4 billion—if NBA betting made up even 10 percent of that $400 billion, a 1 percent integrity fee would add another $400 million a year to the league’s coffers.

However, dwelling on the increased tax revenue sports gambling would generate elides the fact the amount of money gambling makes for things like school construction or youth recreation programs will be dwarfed by the amount it makes for the billionaires who own casinos and sports teams. That’s just normal everyday capitalism, but Berman cautions against giving the whole enterprise over to the free market. After all, gambling is highly regulated in part to protect working people from being swindled.

“Among the potential parallels between gambling and the marijuana industries is the recognition that there are externalities that can flow from making this product so widely accessible,” Berman said. “It feeds certain people who struggle with addiction, it feeds folks for whom this isn’t being used in a responsible, or at least harmless kind of way.”

Of course, people get in over their heads gambling on sports now, and owing money to a casino is probably less scary than owing money to the mob. But if the government legitimizes sports gambling, the trade-off for whatever casino jobs and tax revenue come out of it is that the government has a responsibility to protect its most vulnerable citizens. For that reason, Berman says, some states and municipalities will choose not to get involved, the way many state and local governments either entirely outlaw the sale of alcohol, let alone marijuana, or restrict it to state-owned liquor stores.

“Everything a government chooses to do is a certain kind of moral choice,” Berman said. And even for more permissive governments, the juxtaposition of amateur sports and a multibillion-dollar gambling industry presents a huge problem.

In the early days of Major League Baseball as we know it, gambling was a gigantic problem, and not just around the edges. In 1919, New York Giants stars Hal Chase and Heinie Zimmerman were both blacklisted for bribing teammates to throw games. On September 25 of that year, Ty Cobb, Tris Speaker, Smoky Joe Wood, and Dutch Leonard allegedly conspired to fix a Tigers-Indians game, though the league never found them guilty of any wrongdoing. And most famously, the White Sox threw the 1919 World Series, which is a monumental feat of criminal interference. As much as we mythologize the Black Sox, it still feels like we don’t appreciate how wild it is that a team fixed the World Series.

Back then, it took a couple of hundred dollars to bribe a ballplayer. Now that a century of Black Sox and Pete Rose hand-wringing has driven home that throwing games is baseball’s mortal sin, I struggle to imagine what it’d take to convince a ballplayer making millions of dollars a year to throw a game.

Amateur athletes, however, could be bought more cheaply. Most modern match-fixing scandals involve not top-level athletes but lower-paid participants: referees, like Donaghy, or low-level tennis players who are easier to entice with cash alone. Unpaid amateur athletes would seem particularly vulnerable to bribes.

The NCAA has traditionally opposed legalized sports gambling; when Delaware tried to legalize betting on sports in 2009, the NCAA threatened to move any postseason games out of the state. But the NCAA’s initial statement on Murphy v. NCAA was noncommittal.

Beyond that consideration is the black eye the NCAA would take if another revenue stream opened up and its athletes still played for scholarships and school pride. “The question is whether particularly college athletes are being exploited—and particularly in high-profile sports, students of color—whether they’ll be fueling yet another industry in which they won’t get a piece of the action yet again,” Berman says.

Legalized sports gambling might be good for business, create new jobs, generate tax revenue, fuel interest in sports, and amuse the public. But even if most people benefit from it, not everyone who benefits will benefit equally. Predictably, the people and businesses who will benefit the most from it are those who have power and money to spare already. Everyone else just has to take their chances.