The future of USA sports betting

The future of USA sports betting; Interview with AG Burnett

When New Jersey filed briefs with the Supreme Court on the future of sports betting last August, many legal experts predicted that the conservative court would rule in favor of Gov. Christie and strike down the Bradley Act as unconstitutional.

After Gov. Christie left office, the action was renamed for the current governor, and on May 14, 2018 the High Court handed state’s rights advocates and legalized betting proponents a victory in Murphy v. National Collegiate Athletic Association (NCAA). The 7-2 decision drove sports betting interests in 46 states currently without legal sports betting into the end zone.  The Professional and Amateur Sports Protection Act of 1992 (PASPA/Bradley Act) was shut out in overtime.

The sports leagues, who helped champion the law in the early 1990s, retreated to the sidelines while betting interests took to the field and to the locker rooms to start hammering out a vision for the future. Betting company stocks soared on the news, and the first of many expected mergers and acquisitions took place with the UK’s Paddy Power Betfair snatching up American fantasy sports company, FanDuel.

While the Supreme Court’s decision was predictable – about 20 states already had legislation in the works or on the books prior the Court’s final action – this is still a very important time wherein bad decisions could set some states back in the race to capture much-needed revenue streams. With potential competition all around them now, will Pennsylvania hold on to the thought they can levy a 34% tax on action? How will West Virginia integrate sports betting regulation into a lottery commission that already oversees gaming at racetracks and a casino?

For these answers and more, we turn to one of the nation’s most experienced lawyers and regulators in the matter, AG Burnett.

Mr. Burnett is currently a partner at McDonald Carano, a Nevada business and gaming institution of almost 70 years. Prior to that he was Chairman of the Nevada Gaming Control Board (NGCB) from 2012 through 2017. During that time he also served on various committees, was responsible for gaming related security investigations, negotiated and held oversight of tribal gaming compacts, and had direct involvement with the Nevada legislature on all gaming matters during his tenure.

He also worked extensively with regulators in other jurisdictions on gaming industry matters of common interest.

Before heading up the NGCB, Burnett was Senior Deputy Nevada Attorney General representing the Nevada Commission on Sports and the NGCB at the time the State Gaming Commission lifted a long-held ban on gambling on college sports in Nevada, much to the displeasure of the the NCAA and federal lawmakers who were attempting to ban all betting on college sports.

(WCN): What do you see as the best way forward – a common national regulatory framework, or individual states setting up their own without a set of mandatory standards for intra-state pools?

AG Burnett (AG): I think the gaming states, as evidenced by the media release the chief regulators put out recently, are more than capable and able to regulate sports betting.  Sports betting regulation, at its core, is the same overall style of regulation as that for other gaming industry components.  The state regulators have the experience, know-how, and ability to do it and do it well.  I have literally no questions on that.  There are nuances to sports betting, but the regulators around the country have been studying those and are well-equipped to adapt them into their normal course of business.

(WCN): As a regulator, you found yourself in a few seemingly untenable positions over the years, such as the 2015 amicus brief request in a major Nevada operator lawsuit. My understanding is that you were between a rock and a hard place, yet somehow the GCB managed to maintain its statutory distance without the help of independent outside counsel. In light of that experience, if sports betting is regulated at the state level, do you think it’s imperative that individual boards be given sufficient budgets to employ outside counsel and remove at least that possibility of political influence over their operations?

(AG): I don’t think the addition of sports betting regulation changes that analysis.  Regulators must do the jobs they are tasked with in an independent, non-political manner.  Sometimes the regulators in gaming states are also lawyers themselves, as is often the case in Nevada, and that can come in handy in difficult situations.  I think there’s a reason that is often the case.  Some states have former law enforcement officials in gaming regulatory jobs, and I would imagine that’s for a good reason too.    

(WCN): In the absence of immediate action by the US Congress, many states will move forward on their own to capture the revenue streams through taxation and fees. If individual states set up their own regulatory bodies – should they be an extension of existing land-based governing or separate bodies? New Jersey aside for the moment, do you think it’s a good idea for states like West Virginia to relegate the authority to their lottery boards?

(AG): I don’t want to step in the shoes of legislators in the various states, but in my opinion having those who currently regulate gambling be the ones who regulate sports betting is reasonable.  I’m not sure why you’d reinvent wheel, unless you have a team of professionals ready, willing, and able to start regulating sports betting from scratch.  Again, regulating sports betting in its basic form is very similar to regulating gaming.  There is an investigative process, a licensure mechanism, and ongoing regulatory requirements to fulfill.  As long as the basics are there, you have what you need to start with.  There are nuances to sports betting that do require expertise, so having current gaming regulators add that expertise to their ongoing repertoire seems reasonable to me.

(WCN): The four segments of legal casino gambling industry in the US [not counting sports betting or lottery tickets], already generate annual revenues in excess of $70 billion. The American Gaming Association estimated that Americans wager roughly $154 billion a year on sports illegally. Considering the extent of the market that operates offshore and on the street, what would be the incentive for online operators and illegal bookies to come in from the dark and work under federal or state regulators?

AG Burnett (AG): There is a great burden to overcome when one has to get a state gaming license.  The investigations are thorough and in-depth; the ongoing requirements post-licensure are strict.  When an already-existing black market business is regulated, you’ve got two choices, don’t you?  Either come in from the cold and get a license, or go back into the shadows and disappear.  The illegal bookies and offshore non-licensed operators have that choice.  Regulation means the illegal operators eventually become extinct, or so small that they might as well be.    

(WCN): While there’s really no way yet to project how much of the billions currently bet underground and flowing offshore can be captured for state or federal revenues, do you have an opinion on how that money should be spent in regard to funding regulators?

(AG): It would be up to each individual state, but I would assume revenues from sports betting will be commingled with other gross gaming revenues, and distributed accordingly.  

(WCN): In a survey conducted by the Mellman Group from January 28th – February 11th, 2018, (PDF) where they examined the pervasiveness of paid-entry sports betting pools in America, they found that nearly one-quarter of American adults participated in a pool in 2017, with their total spent across all sports nearly $18 billion. NCAA basketball pools alone generated more than $2.6 billion in entry fees over the past year. Do you think there should be some separation between professional and college-level sports betting and if so what would that look like?

(AG): Years ago we went through a similar analysis in Nevada.  Eventually the state regulators allowed betting on college sports.  To date, I cannot think of one scandal since that time that has occurred that involved legal, regulated, sports betting.  The sports betting licensees are in the business of wagering; they stand to lose everything if they do it wrong and if a regulators takes their license.  They have become the first line of defense in sports integrity.  They are the ones who have the expertise to notice shifts in betting patterns or other types of suspicious wagers.  They have a duty to report that to the regulators, and that’s when the whole law enforcement mechanism kicks in.  So no, I don’t see the need for any such separation.  The protections are there and are the same for both. 

(WCN): Do you see the potential for an uptick in match-fixing with more players and new operators entering the market? Do you believe the sports leagues should be granted licensing rights and royalties from all legal bets? Is the NBA and MLB 1% tax, or “integrity fee” a viable option or does the concept need more work to accomplish its primary goal of integrity monitoring?

(AG): I do not see that potential, as long as states legalize and regulate sports betting like Nevada does.  The college teams and pro teams already have strong mechanisms in place to educate players, staff, coaches, and all relevant stakeholders on gaming.  I assume those protections have been in place for a long time.  As long as everyone is on the same page, which I believe they are, this can be done and done right.  

(WCN): Thank you again, AG,  for taking the time to share your thoughts and vision with our readers. Our team certainly has a better understanding of what’s at stake and what to look for as things develop. Could you be a little more specific on whether a 1% league fee is needed at all and if it would help or harm the industry?

(AG): Anything that takes from the handle is going to kill legitimate, regulated sports businesses.  That will leave the illegal operators in the same position they are now:  Thriving.  Taking a percentage of handle is like taking a percentage of coin-in on a slot machine. 

When states move to regulate, monitor, and ensure licensed books are operating in compliance with the law, things seem to be solved on the gaming side.  In fact, I would argue that there is great benefits in looking at how gaming is regulated, and perhaps taking some of those notions and installing them within an organization that may have concerns about illegal betting or other activities.

While there is a great deal of money to be made on legal sports betting, just how much money is at stake is debatable.

American Gaming Association (AGA) CEO, Geoff Freeman’s recent letter to Congress in support of state level regulation, a secure betting system, and replacing the illegal market, cites an AGA estimate of $150 billion a year in illegal betting.

That number is much too high according to a report in MarketWatch. Economist, Jay L. Zagorsky, explains in detail why $67 billion is a more realistic number based on a US betting market on par with the UK’s, and adjusting for currency and population.

One thing nearly all of the experts agree on, is that a single federal betting law is unnecessary and possibly counter-productive. The Supreme Court opened the new state marketplaces on a Constitutional issue of state’s rights, and from what we’ve learned since the ruling, the states are more than ready to deal with regulating their own commerce, bringing in experts to handle nuances in crafting the laws where necessary.

Sports betting is just about the last thing on federal lawmakers’ minds right now and the states are moving ahead without them. When the new House and Senate are seated in January 2019, they could consider modifying the Wire Act of 1961 to make interstate sportsbetting legal – but don’t count on it.