By: John Holden of Legal Sports Report

The illegal sports betting market

Congressman Jim Sensenbrenner expressed skepticism that the illegal market will feel any pressure from the legal market.

Sara Slane of the American Gaming Association (AGA) responded to Sensenbrenner that there was clearly a need for the legal market to be competitive with the illegal market in order to convert bettors.

This is without question true. Sensenbrenner’s question/comment was based on the premise that most gamblers are ambivalent to whether a market is legal or illegal, something that is almost certainly untrue for most Americans.

Unfortunately, Slane doubled down on the statistic that 70 percent of people would move some money to the legal market (I detail the problem with this statement in part two).

There are advantages to the offshore market in that some of the features of betting in grey or black markets cannot be mirrored by the legal market because the social costs associated with the risks are too high. To assume that it is simply better to not create a legal market is an incredibly regressive view, not in touch with large segments of the population.

Underage gambling?

A follow-up comment from the committee asked about the children and how we can keep children from gambling.

Forgive my editorializing, but it appears that small-government Republicanism is dead. Keeping children off of gambling sites begins with responsible parenting. Obviously, there are age verifications that need to be implemented, but no system can stop a child who gains access to their parents log in information, or is allowed to wager on a parents account.

Indeed, a study of Adolescent Online Gambling in the UK showed that 10 percent of study participants had gained access with their parents’ permission (the study is available here).

The issue here is two-part; does prohibition stop children from accessing gambling sites? My response is: No. Second, is whether some regulation or checks is better than no regulation? My response is: Yes. I know it may be hard to find a good, reliable babysitter, but I would suggest that Congress is not the place to find one.

And age verification…

Rep. Bob Goodlatte enquired regarding age verification.

Les Bernal of Stop Predatory Gambling advocated for allowing small unlicensed gambling games, and claims that the issue with gambling is when the state puts the mark of legitimacy on the games by regulating and licensing them.

Jon Bruning of the Bruning Law Group relied on some headlines about underage gambling in the UK to argue that age verification protocols do not do adequately protect against underage access.

This is not a totally fair characterization. Age verification is not perfect. The UK currently does age verification as well as anybody, but stopping underage access begins at home with parents knowing what their children are doing online. The UK is also in a process of updating age verificationprocedures, an important aspect that often does not get discussed after regulations are passed.

There is a need for continued moderating and updating. Becky Harris of the Nevada Gaming Control Board detailed the procedure for registering to obtain access to online betting in the state, seeming to dispel with apocalyptic visions of several members on the panel who suggested that online legal wagering would result in widespread underage access to gambling.

What about the gambling laws already on the books?

Goodlatte inquired how do we get the Department of Justice to enforce the existing statutes against gambling companies.

Bruning and Bernal responded and expressed that this was their question as well. The Department of Justice has the ability to enforce federal law and they are also able to file both civil and criminal lawsuits against foreign actors. It is odd that a congressman chose to ask a witness about such enforcement procedures, when these are questions for the Attorney General.

Congressman Cedric Richmond of Louisiana stated: “when I go into a casino…far too often it appears that many of the people in there look like they should not be there.”

Richmond’s observations are obviously nothing more than anecdotal, potentially offensive, and are not based on statistical analysis. Bernal responded with an anecdote from Ireland that says 70 percent of Irish online gamblers went into debt to wager online, I have been unable to find a copy of this study.

Harris that it is quite difficult to wager with credit cards and because of that, in regulated markets like Nevada, there are barriers to accruing large amounts of debt.

Data security

Richmond then asked about personal data security.

Harris stated that she is unaware of any operators misusing data in Nevada; Bernal, however, elected to inform the committee that the gambling industry knows more about individuals than Google does. In one anecdotal story from Patrick Cain of Canada’s Global NewsCain requestedeverything Google knows about him. They sent him more than 20 gigabytes worth of data that is the equivalent of about 12 million pages of text.

Does the gambling industry know more than that about you? I do not know, but I have my doubts. The comment, however, sure made a good sound bite and one not likely to be questioned by Congress.

College sports

Rep. Martha Roby of Alabama inquired as to how college athletes can be protected from legal gambling.

One solution would be to pay them, but alternatively, Bernal suggested that legal gambling should be banned.

Unfortunately, there will always be a threat of match-fixing since the monster can never be totally eliminated, but threats can be reduced. Increasing costs for match-fixers is one potential avenue for deterrence, as long as college athletes remain unpaid workers in a multi-billion dollar industry, they will be potential targets for match-fixers.

It is likely that match-fixers would prefer to operate in illegal markets than legal markets, as illegal bookmakers are less likely to report suspicions to authorities because of their own exposure. For this reason, one of the best means to protect college athletes is to establish a robust legal market.

After the hearing…

The conclusion of the hearing left little indication of the direction that the House was interested in pursuing. More than anything, the hearing came across as a fact-finding mission, though the buckshot pattern of topics and interests left much ground to be covered before federal legislation becomes a realistic vision.

In addition to the verbal testimony, there were a series of filings. We have managed to track down several:

Americans for Tax Reform

Grover Norquist of the Americans for Tax Reform group urged: “There is no need for federal regulation in the area of sports betting.”

It is unclear if this is advocating for repeal of UIGEA and the Wire Act, or if the organization is simply referring to new legislation. In the second paragraph, Norquist incorrectly asserts that the Supreme Court’s decision in Murphy stood for the proposition that all 50 states must be treated the same.

While I have argued that this was a deficiency of PASPA, this (equal sovereignty) was not an issue that Justice Samuel Alito addressed in his decision.

Interestingly, the group also comes out against an integrity fee, however, it attributes the requests/demands for a fee as originating from the NFLNHL and NCAA, instead of the two-most vocal advocates for the fee, the NBA and Major League Baseball.

National Conference of State Legislatures

The NCSL notes that PASPA “exemplified the failing of a one-size-fits-all federal solution to complex questions of policy.”

Much like the Norquist letter, there appears to be a misunderstanding as to what PASPA was. It was hardly a one-size-fits-all solution since a number of states were treated differently under the statute.

In the next sentence the NCSL refers to the “shackles of federal preemption being removed,” but again Congress was not preempting (something the Supreme Court said Congress could do); instead Congress was commandeering. Words matter, it is important that organizations use language accurately.

The NCSL letter argues that states should remain free to regulate sports betting as they choose.

Major County Sheriffs of America

The MCSA sent a letter to Sensenbrenner arguing that illegal sports gambling supports a number of other illegal activities including money laundering, extortion and drug trafficking.

The MCSA has also come out against integrity fees, noting that if integrity fees go to sports leagues, the money collected is not going back to help communities. This is an important point that the sports leagues have not been held to account for. If they receive a royalty, then that is money that is not going to community interventions, and the costs associated with the lost funds need to be covered by taxpayers.

The American Conservative Union

The ACU advocates for Congress to allow the states to make their own decisions regarding sports betting.

The ACU notes that state legislatures are in the best position to make decisions about allowing sports betting for their citizens. The ACU notes that a survey of Conservative Political Action Conference (CPAC) attendees found that more than 90 percent thought that the states, not the federal government, should be responsible for regulating sports betting.

It should be noted that a survey of CPAC attendees is not likely to be representative of a state’s population, as a key principal of conservative values is limited government with an emphasis on states’ rights.

National Fraternal Order of Police

The FOP weighed in, noting that it is a member of the American Sports Betting Coalition and that the black market operates outside the reach of law enforcement and that illegal betting fuels other illegal activities. FOP thus advocates that legalization is in the best interest of public safety.

The FOP argues that sports betting regulation should be left to the states, and “federal law enforcement should focus on the pursuit of criminals and their organizations beyond the jurisdiction of State and local law enforcement.”

Indeed, this has been the impetus for many of the federal sports betting regulations.

Consumer Action for a Strong Economy

CASE argues that consumers and taxpayers are the real winners because of the “many millions of dollars more in tax revenues, which relieves the pressure of politicians to raise taxes.”

While there will be some money for states, but sports betting is not going to see the government sending us sports betting dividends because they cannot spend all the money coming in. This narrative is unhelpful.

CASE also praised the Supreme Court for “their judicious ruling.” The Supreme Court’s job is to interpret laws. They are theoretically impartial. CASE does make an important point that unreasonable taxation threatens to suffocate the legal industry.

The organization also advocates for private partnerships like those between the NBA and MGM, while calling integrity fees a “laughable prospect.”

Citizens Against Government Waste

CAGW noted that PASPA was an anomaly and that gaming regulation has historically been left to states and localities. CAGW observed that Congressional intervention at this point would throw the nascent state-level industries into disarray.

CAGW appears to have a lot of faith in the efficiency of the market to ensure that best practices emerge.

Once again CAGW comes out in opposition to integrity fees. The CAGW statement is quite similar in scope to that of CASE.

Michelle Minton – Competitive Enterprise Institute

Minton’s testimony advocates for state regulation of sports betting, noting that states are best positioned to pass laws reflecting the morality of their citizens.

Minton notes that outside of Hawaii and Utah nearly all states have experimented with some forms of gambling policy liberalization.

Minton argues that the European market, which is regulated, has limited their vulnerability to corruption and this has “allowed them to successfully address match-fixing.” I think this is true for some countries in Europe, but I would argue there are regulated markets in Europe that are doing an inadequate job of preventing corruption of betting markets.

Minton argues that competition is necessary to shrink the illegal market. This is invariably true, though I would argue that as a country, the cited potential for $16 to $40 billion in economic output are not short-term outcomes.

In summary, Minton’s testimony largely advocates for minimal intervention in the betting market, and recommends that the regulation emerge from states as opposed to federal lawmakers.

Poker Alliance

The Poker Alliance (formerly the Poker Players Alliance) filed a statement for the House record. Again, another organization has taken an expansive view of Alito’s ruling, stating: “the Court held that PASPA violated the 10th Amendment’s “anti-commandeering” principle, which provides that if the Constitution does not give power to the federal government or take power away from the states, that power is reserved for the states or the people themselves.”

This seemingly downplays the fact that Alito stated (accurately) that Congress could preempt state regulations and ban sports betting, but they did not in the case of New Jersey. The Alliance claims that nearly 80 [percent] of wagering is done over the internet, which is certainly an interesting statistic that I have not previously seen, but would seem to suggest the importance of offering mobile betting, if the desire is to convert bettors from the black market to the legal market.

That’s a lot of opposition

The big takeaway from the hearing and the statements of witnesses and non-witnesses is that Congress faces significant opposition if it intends to usurp state-level regulation of sports betting.

With that said, I think we are a long way away from Congress taking a serious stab at usurping the state-level regulation of sports betting. This would not only be unpopular with public opinion according to some circulating polls, but would seem to fly in the face of what many conservative groups are advocating for.

Given that Republicans still control both houses of Congress and the Oval Office, I would expect these powerful conservative voices to be heard.