In a landmark decision, the US Supreme Court voted 7-2 to overturn the 1992 Professional and Amateur Sports Protection Act (PASPA) and uphold a 2014 New Jersey law permitting sports betting at casinos and racetracks across the state. The state had filed suit, claiming the law was a direct violation of the 10th Amendment’s “Commandeering Clause.”.
The issue at stake was not the legality of sports betting, but whether or not Congress can force states to enforce federal prohibitions. Although New Jersey had voted to legalize sports betting in 2011 and again in 2014, they had been successfully sued by the NCAA, as well as the four major American sports leagues, claiming the new laws were a violation of PASPA.
The courts had ruled against New Jersey at every turn and, after a federal appeals court ruled in 2016 the PASPA prohibited states from allowing sports betting, the Supreme Court agreed to hear the case. Ex-New Jersey governor, Chris Christie tweeted today, “It’s a great day for the rights of states and the people to make their own decisions.”
Casino stocks were up sharply after the news broke, with the big winners being Caesar’s (up 6%) and Penn National Gaming (up 4%). The other big winner was fantasy sports giant DraftKings, who had earlier expressed a desire to expand their operations to include sports betting.
Industry analysts estimate that $150 billion is wagered by Americans on sporting contests with just 3% coming from legal wagers in Nevada. Today’s ruling opens the way for states to set their own rules regarding what can and cannot be wagered on, as well as what percentage of the “take” will be paid in taxes. Christie had testified that New Jersey could have a system up in running “in two weeks.”
In anticipation of today’s ruling, the NBA and MLB have already lobbied some state legislatures with a plan for how sports betting would work. Both plans include a 1% “integrity fee” which would be paid directly to the respective leagues. The NCAA’s chief legal officer, Donald Remy said in a statement, “Today the United States Supreme Court issued a clear decision that PASPA is unconstitutional, reversing lower courts that said otherwise. While we are still reviewing the decision to understand the overall implications for college sports, we will adjust sports wagering and championship policies to align with the direction from the court.”
However, anyone looking to download an app and start throwing money down like they’re Jimmy the Greek, needs to take a deep breath. There’s a couple of things that need to happen. First of all, this decision gives Congress the choice of creating a national law or simply letting each individual state set their own rules. The smart money is on Congress taking a hard pass , but it hasn’t happened yet. Secondly, each state will then have to craft their own legislation to regulate the industry within their borders. New Jersey and West Virginia have both passed legislation and could conceivably be taking bets by the 4th of July. Many other states have bills in the hopper but many state legislatures have adjourned for the summer and won’t take action until they get back.
While today’s ruling is certainly a victory for sports bettors across the country, what still remains to be seen is how the states choose to wet their beak. Their first instinct will be to tax the hell out of it to generate as much revenue as humanly possible. Two quick words of caution: Tread lightly. If they try to take too much pie, they will have no choice but to raise the odds. Sure they’ll still get the tourists and the casino regulars who are accustomed to playing carnival games with a -10% house edge. But, once they’ve learned it isn’t as easy it seems, those players will dry up and blow away. What you’ll be left with are the grinders like me. Guys who like playing but don’t do it for a living. We manage our bankroll, we research our bets…and we line shop. If I can get the Celtics -1 at -110 at my offshore book or -130 at my local casino, what do you reckon I’m going to do? What are most of us going to do? We’re going to play smart, knowing full well that the difference in odds can be the difference between grinding out a small profit or being in the red.
The most important aspect of how it gets implemented will be which states have the vision and the best grasp of modern technology. Because this won’t be a game-changer until they give us the ability to place our bets over the internet from the comfort of our own homes. Again, using myself as an example, am I more likely to drive 25 minutes from my house and bet in a casino sportsbook, or will I choose to stay home and make my picks from the comfort of my recliner? The same goes for the derivatives market. I’m much more likely to make an in-game bet from my phone than I am to spend the entire day in a sports book waiting for optimal opportunities.
The bottom line is, it’s like playing a three-team parlay. We were a slight dog in the first game, but we hit it. However, we still have two games to go and we’re probably not the favorite in either one of them. Betting on politicians to not be greedy and to not only understand, but to embrace modern technology is a tall ask. So, we’ve hit the first game and we’re still holding our tickets tightly. It’s now up to state legislatures around the country to send us home winners.
