SAT, 29TH APR 2017

In-Depth Analysis for the gaming industry

IN-DEPTH 14 March 2017
A realistic opportunity to regulate sports betting in the US?
President and CEO of the American Gaming Association, Geoff Freeman, has stated that the next President of the USA will hopefully have the issue of legalising sports betting on their desk. Tom Lewis looks into the current prospects of efforts to allow Americans to have a punt on their favourite sports
By Tom Lewis

It was first reported by ESPN towards the end of October that a congressional committee is reviewing three major pieces of federal legislation that relate to betting, namely the Federal Wire Act 1961, the 1992 Professional and Amateur Sports Protection Act (PASPA), and the Unlawful Internet Gambling Enforcement Act 2006 (UIGEA).

Without wishing to stray too far into the dry and legally complex, the Federal Wire Act, following a 2011 Justice Department memo, outlaws wire communications relating to sports betting, UIGEA restricts financial institutions from processing gambling related payments, while PASPA, with a few exemptions, prohibits sports gambling under state law.

These three statutes, which all touch on the issue of sports betting in the USA, were pilloried as “obsolete” and “in desperate need of updating” by US Representative Frank Pallone Jr. as news of the congressional review broke in October, with Pallone looking to paint a picture of a set of regulations in need of “wholesale review to see how they can actually work together and create a fair playing field for all types of gambling.”

“This review is long overdue”, states David Schollenberger, who heads the Gaming and Leisure team at law firm Healys. “In a country where over half of the states now have casinos, the demand for gambling services and DFS is clearly high and ever-growing. Why should sports betting be left to the hands of unlicensed and untaxed operators? Rather than hiding its head in the sand, the US Congress should recognise the evolving tastes of modern society in the US to enjoy gambling in moderation. Its role should be to pass legislation to enable legalisation by states. State regulation should make it safe as possible for users, not to prohibit it as it did with alcohol in the 1920s.”

Pallone’s desire for change is certainly justified by the patchwork nature of federal statute law covering online gambling in the country, with his home state of New Jersey currently engaged in a Supreme Court battle to see sports gambling legalised.

Geoff Freeman, President of the American Gaming Association, has firmly laid his cards on the table on this issue, stating in 2016 that: “The next President is going to have the issue of legalising sports betting on their desk.” Freeman expressed optimism about working with the Trump administration in particular, noting the new President’s leaning towards the Republican championing of small government and states’ rights, registering hope that the Trump administration will offer “significantly more restrained federal agencies than what our industry (and many others) experienced over the last eight years”.

Is a timeline that would see sports betting legalised in the USA in the coming 12 months an at all realistic one? Such a vision is very hopeful, according to David Schollenberger. Speaking to Gambling Insider on the subject of whether regulation is likely in 2017, Schollenberger is unequivocal in his response: “No. Gambling is regulated in the US both by state and federal law. Only Nevada currently has legalised sports betting and it will be a slow process to change this in other states and at the federal level.”

His take on the issue is shared by Steve Ruddock of the Online Poker Report, who tells Gambling Insider: “It seems overly ambitious. There’s been little appetite for it in the past, and gambling is never really a big focus of lawmakers in the US. It’s a subject they would rather avoid than vote on either way, regardless of what their personal opinions on the matter are.

“In short, it’s a very ambitious timeline. There has been movement on the DFS front, which may give some hope to the AGA and other groups trying to push for the introduction of legal sports betting into the US, but it seems like a state issue with gambling in the US. I’m not sure, practically speaking, how a federal bill would work. Congress has trouble passing budgets. Asking them to look into PASPA is a bit of a stretch.”

In short, given the time frames involved in federal lawmaking and the limited appetite of US legislators to tackle gambling related issues, 2017 is unlikely to be the year that proponents of online gambling regulation in the United States will be popping the champagne corks.

However, Schollenberger expressed optimism that while expecting a grand sweep of federal change in the next year or two is on the farfetched side, a legal framework for sports betting in several states in the USA will inevitably, albeit slowly, start to take shape in the coming years: “I believe over the next ten years several states will adopt legalised sports betting and at the federal level impediments to state lawmaking in this area will be removed. Three states have now legalised recreational cannabis use, so attitudes towards traditional ‘sinful activities’ are changing.”

It is driving that change in attitude towards sports betting in the USA that will be the AGA’s biggest challenge, and is undoubtedly to prove a significant factor if a regulatory framework for sports betting in the United States is to be established. As Steve Ruddock notes: “Gambling remains a very taboo subject in the US. Legislatures both in states and at the federal level are a decade behind, usually, on social issues of this nature, with the slow legalisation of marijuana being a strong case in point. Public opinion moves forward before legislation does. I think the major hurdle that the AGA and similar groups will have is mobilising public opinion behind the issue, and making it something people want to see happen.”

It is here that those backing a regulatory framework for sports betting in the USA will have a tougher job than those pushing for regulation of daily fantasy sports have encountered. According to figures released by the AGA, $90bn will be bet on American football in the coming season, of which $88bn will be wagered illegally. Broadly speaking, the players that the AGA and similar interest groups must call upon in order to foster the groundswell of public opinion required to accelerate change at a federal level are already having their needs met by illegal bookies, with that $88bn generally heading off shore.

Could DFS and the slow spread of regulation– with ten states now having passed bills legalising the activity – be a factor in changing attitudes towards sports betting? Steve Ruddock is quick to draw attention to the fact that “DFS certainly helps to normalise all types of gambling – they can say it’s not gambling all they like, but I think most people would lump it into that category”.

However, that does not mean there are no complications as far as this interpretation is concerned. As Ruddock points out, DFS “was able to mobilise its player base to push for regulation, which is something sports betting doesn’t have the luxury of. When New York was considering passing a law on DFS, DraftKings and FanDuel users were greeted by a pop-up requesting they write to the their state legislator. Sports betting doesn’t have that luxury as they are all off-shore”.

The most significant practical attempts to allow sports betting by individual states have come courtesy of New Jersey, which suffered another defeat in its bid to establish sports betting at its racetracks and casinos. The Garden State has twice now passed acts that would have repealed the prohibition on sports betting in the state, with the latest struck down in federal court back in August due to its being adjudged to have violated PASPA. ▶

It is overcoming PASPA that will be the most important hurdle, in Steve Ruddock’s estimation, as clearing that hurdle would in some way circumvent the issues offered up by the Wire Act and UIGEA: “If it’s just PASPA that gets revisited at the federal level, or if New Jersey or another state manages to win a legal case that finds PASPA unconstitutional, then the other two really don’t apply so much, as they are interstate laws. UIGEA would still apply on the banking front, but the Wire Act really wouldn’t make much of a difference.”

The “nuclear option”, according to Ruddock, is the one New Jersey now finds itself presented with, given that odds of a serious challenge to PASPA and the law being revisited are remote, that option being to effectively allow any Tom, Dick and Harry to run an unregulated sports book, which Ruddock does not imagine the state will go for, “as it opens another tremendously difficult can of worms”.

Everything circles back to PASPA, but, put bluntly, it is optimistic to expect that we will see Congress take a serious look at options including providing states with a second chance to exempt themselves from its terms, as was the case at its passage in 1992, earlier than 2022 at least.

At a presidential level, in spite of Geoff Freeman’s aforementioned confidence, will Donald Trump actually have much impact in terms of changing the landscape for sports betting regulation in the US? As with many facets of his impending regime, the answer remains an unclear one. When quizzed on the subject, Steve Ruddock offered his take on matters: “It depends. Everything is still very unclear with regarding Trump’s presidency at the moment. He has a states’ rights streak in him, which means he probably won’t want to overturn the 2011 decision on the Wire Act.

“He’s also very socially conservative – he signed onto a 1997 bill that would have made online gambling illegal. Needless to say it’s very difficult to judge which way these guys are going to go.”

Many have noted Trump’s links and long history within the gambling industry. While he no longer has any control over the shuttered casinos which bear his name, Trump has a lot of experience in the field, with many making the obvious connection that this may mean an executive branch aligned to the industry once he has assumed office on 20 January 2017.

However, complicating matters is Trump’s close political relationship with long-time Republican Party donor Sheldon Adelson, who has sought to crush the expansion of i-gaming at every opportunity afforded to him. Adelson poured $25m of his own money to a Super Political Action Committee supporting Trump’s campaign. While this was an amount smaller than anticipated, apparently due to Adelson’s reservations over Trump’s tendency to introduce his foot to his mouth and make frequent gaffes, it would be naive to imagine that Adelson does not to at least some extent have the incoming President’s ear on these matters.

Although David Schollenberger acknowledges that “there is some optimism” that Trump may move to legalise sports betting, his “close ties” with Adelson make this a more distant prospect than that optimism would suggest.

Trump’s Vice-President, Mike Pence, has also been a committed opponent to the expansion of gambling in all its forms. He signed on to the Restoration of America’s Wire Act as a governor, and voted for UIGEA in 2006, as well as the failed Restricting Indian Gaming to the Homelands of Tribes Act. Pence’s voting record makes abundantly clear his opposition to gambling, with Ruddock going on to emphasise that gambling also does not appear to be a “top level” issue for him.

Certainly, gambling being far from a top level issue for political representatives in the United States is a sure fire bulwark to any hopes of regulating sports betting. On this issue, Steve Ruddock explains: “The Republican Party is stuck between a rock and a hard place on this issue. On the one hand, they don’t like gambling, and on the other they don’t like the federal government telling the states what to do. They would rather simply not deal with it, as opposed to voting one way or the other. I don’t really know what Trump’s leanings are now, nor his cabinet appointees. If you’re an elected official in the United States, it’s an issue you would prefer to avoid.

“Having a Lindsey Graham figure, coming out and standing clearly on one side of the debate, is the exception rather than the rule.”
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