Is Legal Sports Betting Soon to Put Illegal Betting Out of Business?

The American Gaming Association has released a report that indicates that the war against illegal sports betting may finally be over. The AGA surveyed individuals across a wide spectrum of American society and found that, if given the opportunity to engage in Vegas casino legal sports betting, 38% would be willing to use a regulated platform exclusively and 71% would use a regulated platform at least part of the time.

That finding is certain to impact the decisions of multiple state legislatures that are currently considering regulating sports betting in their states.

History

In May of 2018, the Supreme Court struck down a 25-year-old federal ban on sports betting. The decision means that states now have the authority to legalize sports betting in their own jurisdictions.  Some states, notably Nevada, have been accepting sports bets all along, since the original legislation included a grandfather clause that allowed them to continue the practice which they had been doing before the ban was enacted. 

To date, New Jersey, Delaware Rhode Island, West Virginia, Mississippi, and Pennsylvania have passed laws that legalize sports betting in the respective states. In addition, there are almost a dozen states where legislation is pending, or is about to be introduced, that would allow sports betting in those jurisdictions.

2019

States with massive markets such as New York and California, plus others including Kansas, Arizona, Iowa, Kentucky, Michigan, Louisiana,  Connecticut, Maryland, Missouri, Indiana, Illinois, Ohio, and South Carolina could pass sports betting bills in 2019. The states can hardly ignore the huge revenues that sports betting can bring to state coffers as they collect taxes on the operators, percentages of the profits as state revenue and licensing fees.

The lawmakers in the states that are considering legalizing sports betting are well aware that states with legal betting draw in tourists. They want to see the money that those people spend in hotels, restaurants and entertainment venues provide employment for their states’ residents and bring in additional tax avenues. 

Benefits

Legal betting is also beneficial to the bettors. Placing bets outside states with a legal framework generally involves betting with an unlicensed bookmaker or at an illegal off-shore website. In such cases, there’s nothing to protect the bettor from an unscrupulous bookmaker. An unregulated operator might decide to keep the bet and refuse to pay out on a win, leaving the bettor with no recourse.  Many sports bettors recognize this and prefer to work within a legal betting framework when it exists.

However, the AGA survey shows that there are two key requirements that must be met for bettors to patronize a legal framework over an illegal one.

They include the necessity for an option for mobile betting and easing of tax rates and other operator fees.

Mobile Betting

Probably the largest driver of modern underground American sports betting involves easy access to mobile betting platforms.  Currently, American bettors have access to hundreds of offshore sports betting websites and they use them liberally, especially in areas in which they don’t have access to legal mobile betting options.

The offshore sites are often unreliable, particularly those that are unlicensed by any international body. However, their mobile-friendly interfaces allow sports bettors to place bets easily wherever they have Internet access and that’s what today’s bettors want.  Modern sports bettors aren’t willing to give up that ease of access, even though the channel may be unregulated and, sometimes, illegal.

In creating new sports betting legislation, state legislators have frequently overlooked the need for online access when they draft the legislation for sports betting in their state.

Currently, only Nevada, Pennsylvania, and New Jersey have a legal framework for mobile betting. Mississippi is considering expanding its current framework in which mobile betting is allowed only within the confines of one of the state casinos, so as to allow off-site mobile betting.

It’s not that lawmakers in states that offer sports betting didn’t consider mobile betting options when they passed their bills. But in many cases, they simply hoped that, by bypassing mobile, they would succeed in directing sports bettors to physically visit casinos. The goal would be to get those gamblers to spend money on accommodations and other games. Observers say that that strategy will backfire and will drive bettors to place mobile bets elsewhere.

ERG recently published an article about how legalizing sports betting will impact the American sports betting black market. The article cited a Nielsen survey that said that almost half of sports betters are 35 or under.  That’s the age bracket that is most focused on completing tasks online and it’s not likely that they will choose to travel to a local land-based casino to place bets on-site.

Fees and Taxes

The second reason that many sports bettors prefer to wager offshore or via illegal bookmakers involves fees and taxes. Currently, Nevada takes 6.75 percent on gross revenue from sports betting while West Virginia, Delaware, and New Jersey collect approximately 10 percent.  Pennsylvania heads the list, taxing winnings at 36%, which is one of the reasons that most Pennsylvania casinos aren’t even bothering to apply for a license.

Licensing fees are also high, especially in Pennsylvania. All of these expenses are added onto the casino’s sportsbook costs, which are then passed down to the bettor. So, at present, a person who places a sports bet at a state-regulated land-based site pays more on a bet and realizes less of a profit on a win.

Is it any wonder that the individual would prefer to forgo the state casino for an offshore or unlicensed venue?

Lack of mobile access and high added fees and taxation could derail sports betting even in states where it's legal. Legislators need to consider these issues before they draft their bills. States that have already started providing sports betting will need to re-evaluate their current methods to make state-sanctioned sports betting just as accessible and equally financially appealing.

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