Moneybox

Sports Betting Is About to Be Legal! But … Where Exactly?

Patrons of a bar hold up beers as the watch a soccer game.
Soon with more betting?
Thinkstock

Long confined to Nevada—and restricted everywhere else to horse racing, which wouldn’t be any fun without it—sports betting was freed of its federal shackles on Monday by the Supreme Court. That puts the multibillion-dollar business in the hands of state legislatures, several of which have already voted to permit bets on football, basketball, and anything else up to and including the Binghamton Rumble Ponies, who were available on Monday at 2-5. Baby needs a new pair of shoes!

Advocates for sports betting compare the practice to drinking during prohibition: a widespread, harmless pastime whose illegality rewards shady actors and keeps a gargantuan market untaxed. How much money do Americans spend betting on sports now? The truth is no one has any idea. It’s probably somewhere in the low hundreds of billions.

And how much if it were legal? Well, that—and a lot else—depends on how states decide to regulate sports betting.

The biggest wild card is whether states will permit online wagering. The Wall Street Journal reports on one study that imagines the internet could make up more than half the market: “A study last fall from industry consultant Eilers & Krejcik Gaming LLC found that total annual revenue from sports betting only at casinos and racetracks in all 50 states would amount to $7.1 billion, whereas adding online wagers would more than double the annual revenue to about $16 billion.”

Keep in mind, those numbers refer only to bookies’ revenues, not to the total degree of economic activity. Hundreds of billions will be bet; Americans will lose more than we win. As a nation, we could soon be losing $16 billion a year betting on sports.

In the meantime, though, the immediate effect of the Supreme Court’s decision will be to increase the stakes of a lobbying battle happening in state capitals, where lawmakers are trying to decide who gets to enter this new and lucrative market. The consensus so far: casinos and race tracks. Several states have already allowed sports betting in anticipation of Monday’s decision, and more than a dozen state attorneys general supported New Jersey in the Supreme Court.

In New Jersey, sports betting could be open to the public within a matter of days at “authorized facilities” such as casinos and racetracks. Legalizing the practice has been the rare issue on which former Gov. Chris Christie, who signed the law, and Democratic Gov. Phil Murphy, who will implement it, have agreed. The state’s bet on gambling-related economic development in Atlantic City has foundered in recent decades as Connecticut, New York, and Pennsylvania all saw major casino expansions. There shouldn’t be much of a first-mover advantage in betting on the NBA playoffs, but Atlantic City is ready to seize it and make sports a big part of its offering. Pennsylvania and Mississippi are in similar positions, with sports betting set to be permitted inside the state’s existing casinos.

In Connecticut, Gov. Dannel Malloy said he was prepared to call the state’s Legislature to an emergency session to draft betting regulations, but it’s not clear what they might look like. The state’s only licensed off-track betting operator, the U.K.’s Sportech, has been marketing itself as an obvious candidate to usher in the state’s sports betting era. It operates in venues like New Haven’s Sports Haven Bar and Grille, a dismal cave where betting is currently only legal on horse racing and jai alai. In Stamford, Connecticut, Sportech runs off-track betting at Bobby V’s Restaurant & Sports Bar, right downtown—run by former Mets manager Bobby Valentine. Another path would see the state’s casinos, such as Mohegan Sun, inherit the rights to what looks to be a business worth many hundreds of millions of dollars.

The precedent set by New Jersey and Pennsylvania is very good news for casino and racetrack operators, who would suddenly find themselves in control of a lucrative business model, as well as spillover effects from big draws. Gaming stocks jumped on the news. Those types of state laws will give casinos more leverage in what has so far been a successful business of soliciting tax breaks and other handouts from local governments. “There’s evidence there’s at least a short-term modest positive impact from casinos, though probably not a significant impact on wages,” says Doug Walker, a professor of economics at the College of Charleston and author of Casinonomics.

But betting may not be so geographically limited everywhere. State lottery systems might vie to enter the fray, offering wagers on big-ticket events alongside Powerball tickets in convenience stores. There’s plenty of precedent for retail betting, like New York’s shuttered off-track betting system. Until 2010, the nation’s largest city was home to dozens of off-track betting storefronts—smoke-filled, brightly lit rooms where men (almost all men) gambled on whatever was happening at Saratoga or Churchill Downs. A system like that would likely be far more profitable for bookmakers than one limited to out-of-the-way casinos and racetracks. It would be a boon for downtown sports bars and a big loss for the gaming industry. It would also vastly increase the presence of gambling in American life.

That’s basically (minus the cigarette smoke) what sports betting looks like in the betting-mad United Kingdom, where no High Street is complete without storefronts from the major bookmakers offering odds on everything under the sun, and local governments try to stop new bookies from opening. Not surprisingly, the big U.K. companies are already involved in the U.S. market, with William Hill partnering with New Jersey’s Monmouth Park racetrack. Paddy Power Betfair, another big U.K. player, says it could be ready to operate in new U.S. markets by the fall. (U.K. bookmaker stocks rose by double digits on Monday.) An advantage of this structure is that it removes sports gambling from the boozy, sequestered halls of the gaming industry; a drawback is that it sets it right at the heart of British civic life.

The Association of British Bookmakers argues retail betting helps sustain commercial strips that would otherwise go vacant. And even puritans may concede that retail betting (in casinos or storefronts) may be socially preferable to online betting, which now makes up more than 30 percent of the U.K. market. At least it encourages people to look up from their phone for a second.

A huge victory for the gaming industry outside Nevada now devolves into bitterly opposed factions. The most powerful opponent of online gaming in the U.S., for example, is not a Bible-thumping Protestant moralist, but billionaire casino owner (and GOP megadonor) Sheldon Adelson.