HomePublicationsNewsletter ArchiveVolume 24Issue 3CHANGING SPORTS WAGERING LANDSCAPE CALLS FOR A THOUGHTFUL APPROACH TO LEGISLATION

As Michigan’s Legislature considers authorizing sports wagering the national landscape continues to evolve.

Last January, Rep. Robert Kosowski (D) introduced House Bill 4060 which seeks to amend the Michigan Gaming and Revenue Act to specifically authorize sports wagering.  In February, Rep. Kosowski introduced a second bill expanding the sports wagering provisions to include sports betting agents via House Bill 4261.  As the Michigan legislature considers the Bill, the issue has also been a hot topic on the national stage.

As reported in issue Volume 23 Issue 39 of the Michigan Gaming Newsletter (http://www.michigangaming.com/publications/newsletter-archive/234-newsletters/volume-23/issue-39/924-supreme-court-hears-arguments-in-sports-wagering-case-), New Jersey has challenged the constitutionality of the federal Professional and Amateur Sports Protection Act of 1982 (“PASPA”).  Oral arguments were heard in the case in early December, and the Supreme Court is expected to issue a decision by the end of June of this year.  PASPA has effectively prohibited most states from enacting legislation that permits sports wagering (with limited exceptions for the state of Nevada).  New Jersey has argued that this violates the 10thamendment to the United States Constitution, which states that any powers not expressly delegated to the federal government by the Constitution are reserved for the states.   One possible outcome of the New Jersey case is that each state may become free to decide its own policy (and pass its own laws) about sports wagering.

The issue of sports wagering has garnered national attention. In January, the National Council of Legislators from Gaming States (“NCLGS”) held its winter meeting. Nine members of the Michigan Legislature (including the Bill sponsor Robert Kosowski, Rep. Brandt Iden, and State Senator Michael Kowall) attended.  A key topic of discussion was sports wagering, where a panel discussion occurred addressing all the ramifications. The meeting came at a critical time, as many different states are currently working towards enacting legislation.

On a parallel path, the American Gaming Association (“AGA”) has played a key role in educating policy makers on the unique aspects of the business of sports wagering, and the need for a thoughtful approach to any legislation enacted to assure that it provides for a practical model that will help eliminate the proliferation of illegal operations.  The AGA is a key supporter of the American Sports Betting Coalition (“ASBC”) which maintains a website  http://www.sportsbettinginamerica.com/ chock full of relevant information for those focused on the topic.

One key issue of focus is the appropriate level of taxation for sports books.   Sports books have a very low profit margin by design conceptually.  For example, if a sports book has equal wagers on both sides of a line, the sports book receives a very low percentage of the overall transaction.  Worse yet, if the sports book has more wagers on one side of a bet, it can end up in a losing situation.   In any event, typically the margins on sports wagering are very small and, out of this revenue, all the overhead costs and labors costs to the operator need to be paid.

A recent example of the AGA’s advocacy is in the state of Indiana, where a bill was introduced to authorize sports wagering that included a provision that would impose, in essence, a 20 percent fee or tax (after winnings are paid out) which would go to sports leagues. 

Chief Executive Officer Geoff Freeman made the following comment regarding the legislation:

“While we applaud Representative Morrison’s efforts to bring legal, transparent sports betting to Indiana, handing sports leagues 20 percent of what's left over after winnings are paid out, undercuts its economic viability. Doing so will ensure the illegal market continues to thrive in the state, and gut the tax revenues available to fund essential public services. We believe Indiana taxpayers deserve better.

“We encourage Indiana to reject this short-sighted, misinformed idea, which simply replaces a failed federal prohibition with bad state policy. Our goal is to eliminate the illegal market, protect consumers and strengthen the integrity of the game. We invite all stakeholders to join us in working together in a thoughtful and transparent fashion.”

As Michigan grapples with these issues, it is worth noting that in addition to Indiana, many other nearby states are also working toward authorization. 

In Iowa, Republican gubernatorial candidate Ron Corbett is pushing for legislation.  This week he released online poll results to the Lynch Times Bureau which show that 70 percent of Iowans support legalization of sports betting. 

In West Virginia there are now two bills pending (S-106 and H 2751) which attempt to authorize sports betting regardless of the federal ban expressly citing PASPA’s unconstitutionality.   The bills propose a two percent tax on handle, and authorize the state lottery to oversee the regulation of sports betting at the state’s casinos. 

In Kentucky, Senator Julian Carroll has introduced SB 22 to authorize sports wagering.  The bill gives regulatory oversight to the Kentucky Horse Racing Commission, and seeks to impose a 20 percent rate of taxation. 

Additionally, in New York, a legislative hearing is expected to take place on January 24thto take up whether sports betting should be offered at racinos and Off-Track Betting facilities in the state.  Notably, New York has already passed a state law legalizing sports wagering at the commercial casinos in the event that the federal law ban is overturned.  

And in Pennsylvania, a bill passed last year already authorizes sports wagering if the federal ban is overturned or lifted.  The Pennsylvania law has a ridiculously high rate of taxation (given the low margins that sports books have) that likely will prevent any meaningful action until further legislative changes occur. 

All of these rapidly occurring developments suggest the need to be fully informed on the impact of sports wagering legislative provisions and tax rates.  Thus, the resources that the AGA and the ASBC have made available, and conferences such as the recent NCLGS conference, clearly are playing an important role in educating policy makers and making sure that any legislation passed is done right with a realistic approach to the unique topic. 

 

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