Sports betting in the U.S. changed dramatically in the last year as states and businesses have rushed to pass legislation following the U.S. Supreme Court’s decision in Murphy v. National Collegiate Athletic Association.
In Murphy, the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) of 1992, which prohibited state-sanctioned sports betting (with certain exemptions for states that already had sports betting operations). The court held that § 3702(1) of the act the violated the anti-commandeering doctrine, which provides that the federal government cannot issue a “direct order to state legislatures.”
Though a draft bill has been circulated, Congress has yet to pass any federal legislation regulating sports betting.
In the wake of the Murphy decision, all but nine states have passed or proposed sports betting legislation for 2019. The states with legalized sports betting are utilizing various platforms, including land-based sportsbooks, racetracks, and casinos as well as online and mobile applications.
Legislation varies significantly from broad legalization of sports betting with few restrictions, to limited legalization with heavy restrictions and taxes. Rather than creating new commissions specific to sports wagering, most states are using existing state gaming commissions or lotteries to oversee these activities.
This rapid expansion of legalized sports betting across the nation creates a multitude of potential legal, regulatory and political challenges.
First, sports betting requires considerable resources and oversight. As sports betting is a new concept for most states, much of the legal and regulatory landscape is still unclear. Differences and potential conflicts among state integrity and enforcement guidelines may create compliance risks for businesses and other stakeholders.
Second, although states can authorize intrastate sports betting, interstate sports betting may violate the Wire Act. The Wire Act prohibits those “in the business of betting or wagering” from using a “wire communication facility,” such as a mobile sports betting app, to place bets or transmit money or information for bets across state lines.
This creates significant obstacles for online and mobile sports betting, which are (not surprisingly) experiencing the most rapid growth in states with legalized betting. For instance, of the $330,748,563 wagered on sports bets in New Jersey in November 2018, $238,615,611 (approximately 72%) came from online sports bets.
Some states are attempting to address these issues by strictly monitoring registration of accounts and the location of bettors, including by requiring bettors to register an online account in person or requiring a mobile device’s GPS to be activated to ensure the bettor is within the state’s boundaries. Though Murphy suggests that the Wire Act may not be an absolute bar to interstate betting where sports betting is legal in both states at issue, this has not been tested by the courts yet.
League Lobbying Efforts
Finally, in addition to these regulatory and legal challenges, politicians and sports leagues continue to lobby on a number of sports betting issues, including game integrity and proprietary information. Many leagues are seeking “integrity fees” as compensation for providing the games and data that wagers are made upon, and for the additional resources that they will likely expend on monitoring and investigations as sports betting becomes more widespread and the risk of match-fixing increases.
Leagues are also petitioning for legislation requiring bookmakers to use official league data streams to ensure accuracy and to protect the leagues’ proprietary information, though what constitutes intellectual property in the context of live sports is still an evolving area of law.
Despite the added costs for the leagues with respect to education, monitoring and investigations, sports betting also presents significant opportunity for financial gain. In their efforts to take advantage of these opportunities and protect their interests, the NBA, MLB, NHL, and Major League Soccer have each entered into an official partnership with MGM Resorts to govern use of the leagues’ intellectual property and enhanced statistics in sports betting.
Similarly, some leagues have formed partnerships with companies that collect and sell real-time sports data and provide integrity services.
We anticipate that additional states will enact sports betting legislation in the near future, and the industry will continue to grow as leagues and other stakeholders step onto the playing field notwithstanding the legislative and regulatory hurdles that will need to be navigated and overcome.
Whether the growth in the industry, potential tax revenues, league opposition, and the proliferation (and potential conflict) of state and local laws prompts Congress to act remains to be seen. But a sure bet is that the sports gambling industry has momentum and is here to stay.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Morgan, Lewis & Bockius LLP partner Jeffrey S. Moorad is head of the firm’s global sports initiative, partner David A. McManus is the deputy labor and employment practice group leader, and associates Joseph J. Mammone Jr. and Elizabeth C. Polido both advise on a wide range of employment matters.