Statement for the Record- Post-PASPA: An Examination of Sports Betting in America Hearing

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Statement for the Record before the House Committee on the Judiciary
Subcommittee on Crime, Terrorism, Homeland Security, and Investigations

 “Post-PASPA: An Examination of Sports Betting in America”

September 27, 2018

Thomas Schatz
President
Citizens Against Government Waste
Washington, DC

Citizens Against Government Waste (CAGW) is a private, nonprofit, nonpartisan organization representing more than one million members and supporters nationwide. CAGW’s mission is to eliminate waste, fraud, abuse, mismanagement, and inefficiency in government. Founded in 1984 by the late industrialist J. Peter Grace and syndicated columnist Jack Anderson, CAGW was established to follow up on the work of the President’s Private Sector Survey on Cost Control, also known as the Grace Commission.

On behalf of the more than one million members and supporters of CAGW, I offer the following statement for the September 27, 2018 hearing on “Post-PASPA: An Examination of Sports Betting in America.”

On May 14, 2018, the Supreme Court in Murphy v. NCAA invalidated the Professional and Amateur Sports Protection Act (PASPA), which prohibited most states from legalizing sports betting. PASPA did not apply to Delaware, Montana, Nevada, and Oregon, where sports betting was legal in 1992. The Court held that PASPA represented an improper exercise of congressional power and violated “what has been dubbed the ‘anticommandeering’ principle” by “[dictating] what a state legislature may and may not do.”[1] If it wanted to, Congress on its own could regulate, authorize, or prohibit sports betting, but it does not have the power to give such orders to state legislatures.

Following the decision in Murphy, the ball is now in the court of state legislatures and should stay there. Congress should not get involved in the sports betting business; PASPA was an anomaly in the history of gambling in America. The federal government does not regulate the gaming market in Atlantic City, Las Vegas, or Oklahoma. States and localities determine the forms of gaming, if any, that will be permitted within their jurisdiction and how they will be regulated, and these matters should remain under their purview.

Legislators around the country, many of whom longed for the benefits of legalized sports betting during the unfortunate days of PASPA, have now jumped at the opportunity to bring legal, regulated gaming to their states. New Jersey Governor Phil Murphy (D), the named plaintiff in the case, inaugurated legal sports betting in his state with an ill-fated $20 bet on Germany to win the World Cup.[2] Hollywood Casino in West Virginia took its first wager on sports on West Virginia University winning the college football national championship.[3] It is expected that sports betting bills will proliferate during the 2019 state legislative sessions. Giving Washington, D.C. authority over the sports betting industry would throw the states’ efforts into chaos.  

Although legal sports betting is new in America, the field itself is not new. One estimate suggests that Americans wager $150 billion on sports betting each year, including the illegal bets that occurred while PASPA was in effect.[4] Other countries, including Australia and the United Kingdom, have long facilitated popular legal sports betting markets. Legalized sports betting allows for transparency and accountability; robust consumer protections; fair competition; and innovation. It creates new jobs. Legal sports betting will raise revenue for state governments without raising taxes.

The American system of federalism uniquely enhances these benefits. The 50 states function as the laboratories of democracy. Competition will occur not only between casinos and other sports betting services but also among states like Louisiana, Mississippi, New Jersey and Pennsylvania. Bets could take place at brick-and-mortar casinos, a race track, or on mobile devices. Bets could be placed on the outcome of a baseball game, or on whether the next pitch is a ball or strike. As a legal, regulated sports betting market comes to life, legislators, consumers, and the gaming industry will share best practices and exchange information as they work together to promote a strong gaming environment and tackle any associated challenges.

But, there are a few catches. As with any new product, some policymakers will be tempted to treat legalized sports betting as a cash cow to fund wasteful projects and programs, or as a pot that they can dip into whenever they feel so inspired. They could seek to impose cripplingly high taxes that will drive the business back underground or offshore. Sports betting is a low-margin business, much lower than slot machines or the lottery, and thus is extremely sensitive to any such interference. Punishing a fledgling industry with high taxes is sure to create more problems than it solves. Taxes on sports betting should be low, fair, and predictable.  

Another major concern is that state governments and sports leagues will insist that “integrity fees” are added to the sports betting mix. Leagues spent years opposing legal sports betting and defending the black-market status quo. Now that they have lost their fight, some sports leagues and their allies are urging that they be guaranteed a cut of the revenue.

Simply put, an “integrity fee” would be a tax on each bet, transferring money from the sports book operators to the leagues. The concept was introduced in Indiana, where the National Collegiate Athletic Association has its headquarters.[5] As the margin for gaming operators is generally about 5 percent, a 1 percent integrity fee would cut profits by 20 percent, dramatically affecting the industry’s profit margin, and the costs would be passed on to consumers. Gaming operators would be forced to offer worse odds and fewer perks for bettors. Less revenue would go to state governments.  

There is no need for an integrity fee to be included in bills to legalize and regulate sports betting. The leagues have no role in the administration of betting, nor is there any reason to believe that this tax is necessary to root out improper behavior by athletes or betting operators. In other countries with legal sports betting, and in states like Nevada, the process has worked well without these fees. The gaming industry, leagues, law enforcement, and consumers work together to identify and interdict game-fixing and illegal gambling. Advocates of integrity fees want a part of the profits for themselves, despite playing no role in the industry. In fact, the professional sports leagues have offered constructive commentary after the Murphy decision, realizing the opportunities for an improved experience for their millions of fans. This can be easily accomplished without integrity fees.

Another potential pitfall is the imposition of governmental mandates that would require participants in the gaming industry to purchase data from sports leagues. The sharing of data is a good thing; mandates are not. In August 2018, MGM signed a deal with the National Basketball League that makes it the exclusive official gaming partner of both the men and women’s basketball leagues.[6] This is an example of appropriate cooperation. These deals should be voluntary; regulations stipulating that these agreements must be made would represent a misguided attempt to intervene in the sports betting market. Forcing private parties to do business with each other does not comport with the promise of legal sports betting.

As legal sports betting starts to take off in America, state policymakers should keep taxes low, avoid the urge to impose “integrity fees” and unnecessary mandates, and work constructively with all stakeholders to tackle the challenges facing this new market.

These matters must be handled at the state level. To create a one-size-fits-all approach to sports betting from Washington, D.C. would offend the principle of federalism and squelch the new marketplace.

If you have any questions or concerns, please contact me at (202) 467-5300. Thank you for your consideration of our remarks.

Sincerely,

Thomas A. Schatz
President, Citizens Against Government Waste

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[1] Supreme Court of the United States. Murphy, Governor Of New Jersey, Et Al. V. National Collegiate Athletic Assn. Et Al., May 14, 2018, p. 3, https://www.supremecourt.gov/opinions/17pdf/16-476_dbfi.pdf#page=3.
[2] Wayne Parry, “Gov. Murphy places first legal sports bet on World Cup, NHL,” The Press of Atlantic City, June 14, 2018, https://www.pressofatlanticcity.com/news/press/new_jersey/gov-murphy-places-first-legal-sports-bet-on-world-cup/article_77b6fe2d-065b-5560-95ae-67421fc9f07c.html.
[3] Eric Ramsey, “Hollywood Casino Launches West Virginia Sports Betting Ahead of Schedule,” Legal Sports Report, August 30, 2018, https://www.legalsportsreport.com/23427/wv-sports-betting-launch-hollywood/.
[4] Adam Liptak and Kevin Draper, “Supreme Court Ruling Favors Sports Betting,” The New York Times, May 14, 2018, https://www.nytimes.com/2018/05/14/us/politics/supreme-court-sports-betting-new-jersey.html.
[5] Dustin Gouker, “New Version of Indiana Sports Betting Bill Includes Hefty ‘Integrity Fee’ Paid to Sports Leagues,” Legal Sports Report, January 8, 2018, https://www.legalsportsreport.com/17400/indiana-sports-betting-integrity-fee/.
[6] David Purdum and Darren Rovell, “NBA signs deal with MGM to be gaming partner,” ESPN, August 9, 2018, http://www.espn.com/chalk/story/_/id/24245142/nba-first-league-betting-sponsor-deal-mgm.

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