The morning of May 14 started like any other for Jake Williams at Sportradar U.S.
Hours later, following the U.S. Supreme Court decision legalizing sports gambling nationwide, he felt like a fourth round National Football League draft pick — happy for the news yet aware of the long and uncertain road ahead.
Williams is the general legal counsel for the U.S. branch of Sportradar, a European-based company that provides sports data to bookmakers, sports federations, and media companies worldwide. He called the court ruling "a landmark moment for our business."
“It was really a moment where we realized everything has changed, and it's going to be an interesting six to 12 months coming up and a scramble — a mad scramble,” Williams said.
That scramble has states, sports leagues and some businesses racing to grab a seat at the table, while the rest of the nation ponders what happens next.
Why the hurry? Billions of dollars are up for grabs. And the states want a sizable share of the pot to help finance government.
The American Gaming Association estimates about $150 billion is illegally wagered on sports each year in the U.S.
In 2017, betters placed $4.7 billion on the Super Bowl, according to AGA estimates, with a whopping 97 percent of that — or $4.5 billion — illegal wagers. It said $10 billion in illegal betting occurred in March on the NCAA Basketball Tournament.
“The U.S. market, besides China, is probably the biggest untapped market in the world,” Williams told CNHI.
The Supreme Court ruling that declared a 1992 law — the Professional and Amateur Sports Protection Act (PASPA) — unconstitutional has freed states to establish legal sports betting operations and a potential bonanza in new revenue.
Delaware and New Jersey have already launched legal betting operations. Mississippi, West Virginia and Rhode Island are positioned to soon follow. Lawmakers from many other states are in a rush to get started.
"Everyone is going to eat our lunch" if New York does not act soon, said State Sen. John Boracic, chairman of the New York Senate Racing, Gaming and Wagering Committee.
Meanwhile, Congress may also play a role.
Utah Sen. Orrin Hatch, an original sponsor of the overturned federal law restricting sports gambling, has said he will unveil a proposal to establish minimum standards targeting issues such as underage gambling and the participation of players, referees and coaches.
Congress may also be the professional sports leagues’ best shot at receiving gambling proceeds.
“What Congress really needs to do is go in and create some uniformity between the scattered gaming laws that are out there so that states really know what they can and can’t do,” said Steven Silver, an attorney who is teaching a class on sports betting law this fall at the University of Maine.
A few days after the Supreme Court ruling, the NCAA made it clear in a statement from president Mark Emmert that it favors federal regulation.
"While we recognize the critical role of state governments, strong federal standards are necessary to safeguard the integrity of college sports and the athletes who play these games at all levels," Emmert said.
For nearly 30 years, Nevada dominated legal sports gambling as the only state authorized to allow it. In 2017 alone, Nevada sportsbooks had a $248 million win amount and a 5.1 percent profit margin on a record $4.8 billion bet, according to the Nevada Gaming Control Board.
That stranglehold, at least part of it, changed for good in early June when Delaware and New Jersey, became the first states to open up their doors for sports gambling.
Mississippi and West Virginia approved sports gambling regulations June 21, and Rhode Island joined the game on June 22. Mississippi can implement sports gambling 30 days from the bill's signing, while West Virginia hopes to be up and running by football season, West Virginia Lottery Commissioner Alan Larrick told reporters. Connecticut passed legislation in 2017. An additional 14 states have recently introduced sports gambling legislation, according to an ESPN tracker.
"It's going to be a revenue producer for the casinos," said Larrick. "It will bring more people to the casinos, who will spend more nights there, purchase more meals and drinks there, and play more table games while there."
Sara Slane, senior vice president of public affairs at the American Gaming Association, predicts a dozen states will implement sports betting by next year. Five years from now, she expects that number to balloon to 30, with the sports gambling marketplace eventually mirroring the 40-plus states currently offering other forms of gaming.
Based on economic projections, the AGA anticipates the evolving sports gambling market could be similar to Las Vegas — an $8.5 billion industry.
“That's certainly going to take years to get up and running in each state and it depends on the business model and the policy in place, tax rate and the platforms that are offered to sportsbook operators,” Slane said. “But it's certainly a great opportunity for the industry to take advantage of.”
Of the two new sports betting states, the Delaware Lottery regulates sportsbooks at three casinos. New Jersey’s Division of Gaming Enforcement oversees that state’s sports betting.
New Jersey’s law allows bets, in person right now and soon online, at casinos and racetracks. Gross revenue from on-site wagers are taxed at 8.5 percent. Online bets, which can be placed anywhere in the state, are taxed at 13 percent. Additionally, the law allows a 1.25 percent local tax to support state licensed horse race tracks.
Not all states will dabble in the online and mobile phone betting market. Rhode Island and Delaware don't have those options in their legislative bills. Mississippi's proposed regulations restrict mobile gaming to casinos. Williams said he thinks states will readjust their stances once a "teething" period commences.
"That's the norm globally. We expect that to happen here as well," Williams said of mobile and online gaming, noting expansive markets in Europe and Asia. "It's sort of a growing pains period where getting that understanding of that's what happens and that's what people want and what people will want. That needs to be part of the legal and regulated framework."
Tax rates vary from Nevada's 6.75 percent of gross gaming win (the amount casinos keep after paying out winnings) up to 51 percent in the proposed Rhode Island law. Mississippi and West Virginia feature tax rates of 12 percent and 10 percent, respectively, on adjusted gross sports wagering receipts (defined as gross receipts minus winnings paid to wagerers) once their sportsbooks open. New York has proposed an 8.25 percent fee. Pennsylvania's proposal would include a sports wagering license fee of $10 million, with a 34 percent tax rate on winnings. A proposed bill in Kentucky calls for a 3 percent excise tax on the handle (total amount wagered).
The AGA's Slane said between 6 and 15 percent is a reasonable tax rate, adding anything higher is not advantageous to the legal sports gambling market.
Regardless of regulation, there's no overstating the hype surrounding sports gambling. Kenny White, a longtime Las Vegas oddsmaker, now the vice president of data integrity at Don Best Sports, told CNHI a Mississippi casino recently told him it received 200 resumes for a sportsbook director job.
But between tax rates and the risk of starting a sportsbook — White said each book should have a bond and the money on hand to safeguard against poor betting days — the initial venturing into sports gambling for some may not be as rosy as it seems.
"They've just heard these large numbers being thrown around," said White, who also consults for SportsLine, a division of CBS Sports. "They start hearing billions, and they start thinking this is such a tremendous industry. The bottom line is the state holds a percent year in and year out. If you're not going to do a lot of volume, holding a percent is not going to make you a lot of money."
For example, in Delaware, the state's sports betting contractor, Scientific Games, receives a 15.66 percent cut after winners are paid, and the state takes half of the remaining money, with 40 percent to the casino. Delaware had $322,135 in sports bets on opening day, ESPN reported. That averages out to $117.6 million over the course of a year. Assuming 5 percent of wagers are held (percentage of total money gambled that casinos/sportsbook keep as revenue) like in Nevada, Delaware's cut could fall somewhere in the $2.5 million range. The casinos would end up with around $2 million.
Pro sports leagues want in
With states legislating their take, some professional sports leagues and their players want a share, too. Sports betting isn’t as lucrative as table games like craps, roulette or baccarat — recent AGA data from 2016 shows consumer spending on gaming at commercial casinos reached a record $38.96 billion — but Nevada’s 2017 figures show there’s revenue to gain as states expand gambling. Revenue from basketball and football wagers totaled $164 million, according to the Nevada Gaming Control Board.
“Can I get rich off that?” joked New England defensive back Devin McCourty, who serves as the Patriots’ player rep for the NFL Players Association.
Not exactly. But depending on the state, some lawmakers — with backing from leagues like the NBA and MLB — have proposed integrity fees (New York uses the term royalty fee). The NFL and NCAA don't support such a fee. The NHL, meanwhile, prefers not to use the word “integrity,” yet believes it deserves a cut based on intellectual property.
Proposed laws in New York, Indiana (HB No. 1325), Illinois (SB 3432) and Kansas (HB 2792) have built-in fees, ranging from 1 percent in Indiana to .25 percent in Kansas and .20 percent in New York. New York's proposal failed to gain traction in this year's legislative session.
In theory, the fee from the handle (total amount wagered) would help organizations finance efforts to prevent corruption.
Not everyone is on board, though.
AGA would like to work with the leagues, but Slane made it clear AGA doesn’t support an integrity fee, adding business decisions and deals should be done through private contracts and not statutory obligations.
The rationale? A 1 percent fee is "not really 1 percent," Slane said. The NBA and MLB want a 1 percent cut of wagers — a $100 bet would produce $1 for the leagues. However, sportsbooks generally win about 5 percent of wagers (5.11 percent in Nevada in 2017), thus a $100 bet, in this example, would only provide $5 in revenue to the casino, and the leagues cut amounts to 20 percent.
"When we talk about having sustainable business models in place in order to be able to compete with the illegal market, if you add an additional 20 percent tax off the top, that's just not going to work," AGA's Slane said.
The debate has also made its way down to college athletics. West Virginia University and Marshall University are vying for a .25 percent integrity fee for all in-state bets wagered on their schools.
West Virginia Athletic Director Shane Lyons said the funds would be used to hire additional staff and educate players on the pitfalls of gambling.
There have been at least a half-dozen high-profile point-shaving scandals in NCAA history, although one former gambler thinks times may have changed with more players courting professional aspirations.
“Am I going to piss that away because somebody's going to give me $2,000 to not win by 20, but to only win by 15?” said Tim Otteman, assistant professor at Central Michigan University, who has researched gambling tendencies. “Those are tough stories to sell in today's day and age to student athletes unless you have something over them.”
More gambling, more problems?
Experts say it's hard to predict what the marketplace for sports gambling will look like in 10 years.
Daily fantasy sports giants DraftKings and FanDuel have reached on-site deals to offer sports gambling — DraftKings with New Jersey's Resorts Casino and FanDuel with New Jersey's Meadowlands Racetrack and New York’s Tioga Downs. Mobile, online and live in-game betting are gaining popularity. Iowa State Athletic Director Jamie Pollard sees a day where kiosks are in stadiums for fans to place bets.
The excitement is clear. Others aren’t so thrilled.
The multi-billion dollar industry has its downfalls, according to the National Council on Problem Gambling. It said approximately 2 percent (5 million) of U.S. adults experience gambling problems.
Keith Whyte, executive director of the council, fears not only more problem gamblers but also more severe related issues.
The council wants the equivalent of 1 percent of revenue from legalized sports betting dedicated to problem gambling services, to help promote responsible gambling, although Whyte questioned if states will embrace the proposal.
“It's left to nonprofits like us to try and raise the money to sort of cover the industry's (tail) in all 50 states as they try and expand betting,” he said.
“Unfortunately, it's kind of like a race to the bottom to see who can legalize first and see if you can beat your neighboring state to the game. It's not leading to a lot of policy outcomes.”