Betting on Improvements to Sports Gambling Regulations

Half of all Americans live in areas where sports gambling is permitted, and they have wagered $220 billion on sports in the five years since the betting was legalized.

A 2018 U.S. Supreme Court decision drove the one of the largest expansion of the sports gambling industry in the nation’s history. In Murphy v. NCAA, the Supreme Court held that federal laws preventing states from authorizing sports betting infringed on states’ sovereignty.

Since this decision, 38 states and the District of Columbia have legalized some form of sports gambling, including 29 states authorizing online or mobile bets.

But states only have the right to regulate sports betting within their borders. The Wire Act, a federal law prohibiting the use of telephones and the internet to place interstate wagers on sporting events, prevents the industry from operating across state lines. Consequently, each state that has legalized sports gambling developed its own independent regulatory scheme.

Advocates for legalizing sports gambling point to the opportunity to generate much-needed revenue for the state. Most states impose a flat tax or take a percentage of gross profits from sports betting companies and collect a one-time application fee for operating in the state. For example, New York earned $700 million in taxes from sports gambling in 2022.

Permitting interstate sports gambling also allows states to collect information on betting activity, facilitating the detection of illegal behavior.

On the other hand, opponents of sports betting worry about the negative effects of legalization. For example, despite the common ban on sports gambling for individuals under the age of 21, major sports betting companies, such as Caesars Sportsbook and DraftKings, advertise and host events for students on college campuses.

In addition, college and professional athletes experienced an increase in hostile behavior from losing bettors. A few days after Ohio legalized sports gambling, bettors sent threatening messages to college athletes on social media. State legislators passed laws that ban individuals who engage in violence against athletes, particularly college athletes, from future participation.

Other opponents point out the lack of federal funding for gambling addiction programs, even though an estimated 2 million Americans struggle with severe gambling addictions.

In this week’s Saturday Seminar, The Regulatory Review summarizes the work of scholars who offer varying suggestions on regulating sports gambling.

• To promote the integrity of sports wagering, Congress should pass a federal law authorizing states to operate professional sports gambling, recommend John T. Holden of Oklahoma State Spears School of Business, Marc Edelman of Zicklin School of Business, and Keith C. Miller of Drake Law School in an article in the Cardozo Law Review. Holden and his coauthors propose that the federal law would allow regulators to collect and share data on sports bets, which could help identify suspicious transactions. The funds collected from federal taxes on interstate sport wagers could fund a new agency to promote honesty, fairness, and transparency in the handling of sports wagers, explains the Holden team. Although recent initiatives to establish federal oversight of sports wagers have failed, the industry’s growth could strengthen the call for ethical standards to prevent corruption, Holden and his coauthors suggest.
• In an article in the University of Nevada Las Vegas Gaming Law Journal, Matt Jones of the Securities and Exchange Commission and practitioner David E. Aron argue that federal laws making sports betting illegal may preempt state laws by preventing local regulators from enacting laws legalizing sports wagering. Even if the federal government were to determine that no grounds for preemption exists, however, Jones and Aron suggest that policymakers could take steps to regulate sports betting under existing federal law. Jones and Aron contend that sports betting can be classified as a commodity—similar to contracts, swaps, or options—which federal regulators arguably have authority over.
• If states fail to balance imposing financial barriers on sports betting companies with profitability, bettors will turn to the illegal sports betting market, predicts law clerk Elijah Bunde in an article in the Washington University Journal of Law and Policy. According to Bunde, these barriers intended for sports gambling companies—taxes and license application fees—will then be passed on to consumers. To illustrate this point, Bunde compares Indiana and Pennsylvania sports gambling regulatory schemes. Sports betting companies are encouraged to operate in Indiana because the license application fee is significantly lower than in Pennsylvania. Indiana taxes 9 percent of gross revenue instead of 34 percent in Pennsylvania, explains Bunde. The Indiana model generates the most revenue for the state because lower fees allow smaller businesses to enter the marketplace, expanding consumers’ options to place wagers, suggests Bunde.
• Lawmakers should amend their taxation schemes to maximize the use of revenue from sports betting, John T. Holden of Oklahoma State University and Kathryn Kisska-Schulze of Clemson University urge in an article in American University Law Review. Holden and Kisska-Schulze argue that Congress should promote equity across the lucrative sports industry by redirecting tax revenue from sports gambling into higher education. They point out that even though taxes collected in states that have legalized sports gambling exceed $570 million, only a handful of states have reinvested these earnings into colleges and universities.
• The Federal Trade Commission (FTC) should adapt the existing regulatory regime used for tobacco advertising into a federal framework for sports gambling, suggests practitioner Cole Eisenshtadt in an article in the Administrative Law Review. In the same way that the Food and Drug Administration places marketing restrictions on tobacco companies to safeguard public health, the FTC should prevent sports gambling firms from misleading bettors, proposes Eisenshtadt. He urges regulators to display the gambling hotline number and the odds of a winning bet so that consumers can make informed decisions.
• In an article in the University of Miami International and Comparative Law Review, practitioner Jake Bland argues that more states should legalize gambling on eSports, which are online multiplayer video game competitions. States could then profit from the $150 billion that Americans currently illegally spend on overseas eSports bets, suggests Bland. In addition, the demand for eSports will only continue to grow as the game’s most avid users become of legal gambling age, explains Bland. Many competitors, however, are individuals under the age of 18, and all states ban wagering on high school sports, notes Bland. Instead, Bland recommends that state regulators allow bets on sports where the majority of competitors are over the age of 18.