The Modern State of US Sports Gambling
The sports gambling industry has long been an industry primed to explode with the stroke of a legislative pen, and that legislation has arrived.
Sports gambling is an American pastime. Millions of Americans wager their money on fantasy football, March-Madness brackets, pick-em pools and Super Bowl bets, even though its legality has always been rather blurred.
Over 100 years ago, scandal shocked the sports world when it was uncovered that the Chicago White Sox had thrown away their chance at a title. The professional baseball team had taken bribes to purposefully lose the World Series to the Cincinnati Reds in a fixed gambling syndicate led by Arnold Rothstein. During the NCAA basketball season of 1961, 37 students were arrested from 22 different colleges for participating in a fixed gambling cohort. Eighteen years later, Boston College was found taking bribes to purposefully “point shave” or win by a small amount to cover the spread.
As history tells us, our sports culture is not complete without gambling. Even thousands of years ago in the Roman colosseum, nearly everyone from the royalty to the poorest peasant gambled. Even emperor Augustus himself once lost the modern-day equivalent of over $100,000 gambling on a colosseum match.
In the United States, sports gambling seemed to come to a stop with the passage of the Professional and Amateur Sports Protection Act (PASPA) in 1992. PASPA, aimed at protecting the integrity of sports matches, prohibited states (other than Oregon, Montana, Nevada, and Delaware) from sanctioning sports gambling.
In 2012, however, the state of New Jersey sought to revitalize their failing casinos by legalizing sports gambling. After they passed legislation, they were sued by the National Collegiate Athletic Association (NCAA), along with the four professional sports leagues who claimed that their laws violated PASPA. After many battles in court, and initial losses for New Jersey’s Governor Murphy, the case was finally appealed to the Supreme Court. In December 2017, the Supreme Court heard Murphy v. NCAA.
The NCAA’s argument was simple: Congress can exercise its right to regulate interstate commerce. New Jersey, on the other hand, felt that Congress was overstepping bounds and involving itself in state affairs, breaking the “anti-commandeering” clause of New York v. United States. This clause states that congress cannot force a state to enforce a federal regulatory program. On May 14 of 2018, in a 6 to3 decision, the Supreme Court sided with the state of New Jersey. The decision held immense implications for the sports betting world; all states were able to legalize sports betting.
Since the ruling just two years ago, the list of states which have legalized sports betting includes Arkansas, Illinois, Colorado, Delaware, Indiana, Iowa, Mississippi, New Hampshire, New York, North Carolina, Pennsylvania, Rhode Island, Tennessee and West Virginia. Commissioners Adam Silver and Rob Manfred (of the National Basketball Association and Major League Baseball, respectively) have publicly embraced the future of sports gambling. Despite National Football League (NFL) Commissioner Roger Goodell’s opposition to sports gambling, the relocation of the Oakland Raiders to Las Vegas may serve as a soft introduction for the NFL to the world of legal gambling by ensuring that sixteen games per year are played in the gambling capital of the world.
Legalizing sports betting is sensical on the state level, with the first reason for it being popularity. In 2019, a Seton Hall poll found that 80 percent of Americans supported the legalization of sports gambling. Secondly, sports betting serves as another way for states to collect tax revenue. Although a gray area, states can now legally provide services for their constituents and take in small, likely volatile, tax revenue instead of using offshore gambling sites like Bovada and MyBookie.
In the last year, the industry of private sports gambling exploded. The rise of sports gambling companies is remarkable, especially during the current period of suspended professional play due to COVID-19. The stock of PENN National Gaming, which owns casinos and racetracks, has increased from $18/share in June 2019 to $53/share today. The loss in market share MGM and Caesars Entertainment Corporation have experienced in the past year is due to their reliance on physical travel to Vegas.
DraftKings, which is in its first full year as a publicly-traded company, is another sports gambling giant. A few months ago, DraftKings was selling for $11.30/share. Today, it trades at $36.32/share with a market cap of $11.8 billion. Many investors in DraftKings view this opportunity like a Silicon Valley start-up, sporting a P/E ratio currently at 745.42.
DraftKings began as a daily fantasy league. Every player pays real money to enter a competition. They can draft a team based on a DraftKings-assigned salary cap; then, if their team performs well enough in the competition, they receive a payout. States, however, started to ban DraftKings from operating. However, the finance industry sees the monetary value that DraftKings brings to the table. Morgan Stanley Analyst Thomas Allen called DraftKings, “an almost pure play on the early stage legal US sports betting and iGaming growth opportunity, with a customer acquisition advantage.”
DraftKings, anticipating the future of legalized sports gambling nationwide, began to develop a sportsbook. In charge of that sportsbook is Chris Fargis ’01. Instead of solely offering daily fantasy challenges, they would be ready to deliver an online product identical to what Las Vegas casinos have to offer. Legal, easy to use, and heavily funded, DraftKings has the potential to become the worldwide leader in sports gambling.
Of course, the road ahead for DraftKings isn’t a cakewalk. They will first have trouble differentiating themselves from the rest of the competition, like fellow popular daily fantasy company FanDuel (which has yet to go public). Additionally, the company currently outsources odds-making. If they hope to stay ahead of competing sportsbooks, they must eventually begin to odds-make in-house, giving them an advantage over sportsbooks who pay other companies to set their odds. Next, since the entire business of sports gambling can be taken away with the swipe of a pen in Washington D.C. DraftKings must also spend significant resources on lobbyists.
This is the current state of sports gambling in the United States; an exploding industry at the mercy of the US court system. Watching sports will never be the same, with daily fantasy roster drafts and a live sportsbook at viewers’ fingertips. While ethics have always raised a red flag for sports gambling, it is undeniable that the industry has brought a new level of thrill and amusement to an American entertainment mainstay.