Pennsylvania and New Jersey Eyeing Lucrative Sports Betting Industry

Bookies beware, it might be time to find a new job.

Recently, two of the most gambling-friendly states in the Northeast have signaled that they are eager to embrace the multi-billion dollar a year sports betting industry –- federal law be damned. A state senator’s proposal in New Jersey and a study commissioned in Pennsylvania both signaled that these two states are about to go all in on sports betting.

The only catch is that pesky law known as PASPA.

PASPA, which stands for the Professional and Amateur Sports Protection Act became law in 1992 thanks to strong lobbying by the major professional sports leagues and the NCAA. PASPA banned sports betting in all states except those that offered it at any time between 1976 and 1990. This solidified Nevada as the only state offering fully legalized sports betting, which they have done since 1949. It also allowed much more limited parlay bets on NFL games in Delaware, a now discontinued sports lottery in Oregon, and sports betting pools in Montana.

Notably, PASPA exempted horse racing and dog racing because, you know, those sports were clearly immune from the gravely feared cheating scandals plaguing human athletes.

However, in recent years, PASPA has come under attack as cash-strapped states search for new revenue sources.

In 2009, Delaware tried unsuccessfully to implement single-game sports betting, only to be shut down in court thanks to the best legal teams the NFL and NCAA could buy.

But then New Jersey took up the cause. As has been well documented, New Jersey is taking its fight to legalize sports betting all the way to the United States Supreme Court after losing in U.S. District Court and a 2-1 split decision at the Third Circuit Court of Appeals. The Supreme Court is expected to decide whether to hear Gov. Chris Christie’s appeal in June.

It is only a matter of time before this scene is common at sportsbooks in New Jersey and Pennsylvania.

Yet even if New Jersey loses at the Supreme Court level, one state senator is not giving up the fight. Just last week, Sen. Ray Lesniak announced at the East Coast Gaming Conference in Atlantic City that he is preparing a bill to allow for private operation of sports betting at the state’s racetracks and casinos – threatening to call the bluff of the federal government regarding sports betting

Sen. Lesniak has gone so far as to promise sports betting by February 2015.

“Right now, book your hotel room [in Atlantic City]] for the Super Bowl next year and the NCAA Final Four, because you won’t be able to get one,” Lesniak declared at the Conference. “We are going to have sports betting in New Jersey next year. Go to the bank on it, because if the [Supreme Court takes the case], it will be overturned.”

If New Jersey manages to legalize sports betting, legislators acrosse the Delaware River are quite anxious to jump on board too.

This month, the long awaited Report by the Pennsylvania Legislative Budget and Finance Committee on The Current Condition and Future Viability of Casino Gaming in Pennsylvania came out with lofty expectations for sports wagering.

The report found that Internet sports betting would increase the market size by 170 percent and result in $160.5 million in new revenue for Pennsylvania casinos, with $64.6 million coming from football.

When comparing land-based sports betting models, the report compared markets across the world including Canada where sports books earn $5 per adult and Greece where books earn $37.70 per adult. The average estimate is that Pennsylvania casinos could earn $137.7 million from only land-based sports betting.

One concern about sports betting in Pennsylvania is the tax rate because the house keeps less than 10 percent of all money wagered. According to the UNLV Center for Gaming Research, the total amount bet on sports in Nevada in 2013 was $3.6 billion, while the total gross gambling win for the industry was $203 million, or 5.6 percent. In comparison, the total amount wagered for gaming overall in Nevada was $137 billion with the gross industry win of $11.1 billion, or 8.08 percent.

Based on these figures, the Pennsylvania report projected total tax revenue for the state to range from $20 million to $113 million.

Remarkably, this legislative report also explored the potential for fantasy sports revenue. According to Bloomberg, the fantasy sports industry earned $3.38 billion in revenue in 2012.

Fantasy sports is a $3 billion a year industry that has become ingrained in American society. There are even hit television shows about fantasy sports such as The League on FX.

But wait, how is paying to play fantasy sports legal, but placing actual game wagers isn’t?

As aptly summarized in Pennsylvania’s report, despite the apparent similarity to traditional sports betting, fantasy sports remains legal and generally recognized as a non-gambling activity. While the legal definitions vary by jurisdiction, there are typically three elements that a game must have to constitute gambling: consideration, chance, and prize. The legal differentiation of fantasy sports as non-gambling is due to the generally agreed upon importance of skill in determining winners. The recognition that skill predominates over luck for fantasy sports is explicit in the Unlawful Internet Gambling Act (UIGEA) of 2006.

This law effectively banned online gambling in the US, but created an exemption for fantasy sports, where “winning outcomes reflect the relative knowledge and skill of the participants.” Aside from this explicit legal exemption, the lack of legal challenges by the professional sports leagues supports the view that fantasy sports is a legal activity that does not constitute gambling.

The idea in Pennsylvania is to relax certain regulations to allow casinos to sponsor their own fantasy contests to drive foot traffic as players would come to the casino to cash-out or claim other prizes. Additionally, running their own fantasy contests would serve as a valuable marketing tool to attract new customers and collect data on them.

No matter what form it takes, sports betting will not remain solely in Nevada. There is simply too much money on the table for states to sit back and let the NFL and NCAA dictate what they can and cannot do. Pennsylvania and New Jersey are currently leading the charge, but expect other states to follow as PASPA starts to crumble in the next few years.

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