As Supreme Court Weighs Landmark Sports Betting Case, Push To Curb Underground Market Intensifies
Matt Rybaltowski
Forbes
If a prominent bookmaker fielded a request to set a line on whether the Supreme Court will rule in favor of New Jersey in the landmark sports gambling case before the nation's top court, the sportsbook may opt instead to keep the wager off the board.
partially repealing the Garden State's ban on betting on sports.
Gaming advocates, however, have been more vocal in discussing how a victory by Christie could lead to widespread reform of sports gambling throughout the nation, while curtailing the influence of an illegal, underground market estimated at $150 billion annually, according to the American Gaming Association. Ahead of the hearing 15 states introduced sports gambling bills in 2017, spanning as far as New York to Hawaii. Four of the states, Pennsylvania, Connecticut, Mississippi and Montana, have already enacted legislation that could pave the way for in-state betting on sports if the law, more commonly known as PASPA, is deemed unconstitutional.
Already, two policymakers in the House of Representatives have taken action. On Dec. 4, the same day the Court heard oral arguments, Rep. Dina Titus (D - Nevada) sent a letter to the House Energy and Commerce Committee requesting a hearing on sports betting. Days later, Rep. Frank Pallone Jr. (D - New Jersey) introduced a comprehensive bill, the Gaming Accountability and Modernization Enhancement Act, or GAME Act, which could provide states with the legal framework to adopt sports betting at their discretion, if appropriate consumer protections are established.
Without a federal regulatory scheme in place, the possibility exists for a patchwork, state-by-state eruption of sports gambling, said Nevada Gaming Control Board chairman A.G. Burnett, in areas that may lack the proper safeguards for customers. Nevada's model contains an onerous, intrusive application and investigative process before licensing a casino to accept sports bets, along with continuing audits and enforcement requirements once the company is approved, he added. The strict procedures prompted Titus to describe Nevada as the "gold standard," for other states to emulate when designing a regulatory model for sports gambling.
"Most of the jurisdictions in the United States that have gaming already have models that are similar to Nevada," Burnett said. "There's concern that some states or tribal jurisdictions could adopt their own form of regulation that could be vastly different," Burnett said.
For legislators, attorneys and lobbyists alike, patron protection ranks as their top priority as the Court weighs its decision in the coming weeks. Since the committee held a hearing at Pallone's request 19 months ago to examine the intersection between fantasy sports and gambling, the New Jersey congressman has conducted an extensive review of federal gaming statutes and their impact on both the legal and underground betting markets. The system, according to Pallone's study, has been largely ineffective as illegal gambling operations that skirt state and federal laws remain widespread.
The sentiments are echoed by American Gaming Association President and CEO Geoff Freeman, who has taken issue with several aspects of PASPA, namely in its inability to restrain the wave of criminal activity associated with offshore gambling. While a host of casinos on the Las Vegas strip have taken steps to cater to millennial gamblers by offering mobile sports wagering platforms in recent years, state laws limit customers from placing bets outside of Nevada. On the contrary, experienced sports bettors returning home from a vacation to Las Vegas can still access apps from websites such as Bovada and BetOnline, which are domiciled outside the U.S.
"The truth is that the customer can pop open their phone, go on their Bovada site and place a bet as fast as they can order an Uber," Freeman said. "If our goal is to shut down the illegal market, then we need policymakers to understand what makes that market tick and what can make the legal market an effective counter to that illegal opportunity."
Nevada has done its best to fight back. During a legislative session in 2015, the Nevada State Legislature passed Senate Bill 40, an act that intended to criminalize illegal activity by associates of offshore books. In response, the board periodically sends undercover agents to a number of sports gaming locations throughout the state in an effort to deter offshore websites from maintaining a presence at sportsbooks in Nevada, Burnett said. Although Burnett was unable to disclose the number of cases currently under investigation, he noted that the undercover operations generally seek to determine whether the associates are observing betting lines and communicating line movements to offshore betting houses outside the U.S.
Over the last several years, federal authorities have ensnared sports gambling rings for engaging in illegal conduct in at least two highly publicized incidents that took place in the Las Vegas area. In October 2016, CG Technology, LP, formerly known as Cantor Gaming, entered into a non-prosecution agreement and agreed to pay a total of $22.5 million in penalties to resolve an illegal gambling and money laundering investigation. In an effort to attract bettors who placed large wagers on sports contests, Cantor Gaming allegedly offered higher limits and provided preferential treatment to certain customers over a five-year period through 2013, according to the U.S. Department of Justice.
Then, during the 2014 FIFA World Cup, the Department of Justice charged eight people, including Malaysian poker player Paul Phua with running an illegal gambling operation from a hotel room after the FBI raided Phua's villa at Caesars Palace. Subsequently, the Nevada Gaming Control Board determined that the defendants allegedly set up a "wire room," replete with five computer stations, three large screen televisions and eight Digital Subscriber Line (DSL) lines to handle nearly $400 million in wagers, ESPN.com reported. Eleven months later, a federal judge dismissed illegal betting charges against Phua shortly after prohibiting prosecutors from using evidence seized by the FBI during the raid.
For its part, Nevada gaming facilities are required to pay a 0.25% federal handle tax on sports wagers for a fund intended to investigate illegal gambling, Titus said. But when Titus made an inquiry with the Internal Revenue Service to determine the whereabouts of the payments, she was informed that the revenue instead became redirected into a general fund. In 2013, gaming operators in Nevada sent roughly $9 million to the IRS, according to Titus, based on more than $3.5 billion in college and pro sports wagers.
"We tried to find out where that money went and nobody could tell us," Titus said. "I tried to get it diverted back to the state."
Freeman, meanwhile, expressed other concerns regarding the competitive advantage offshore books enjoy in the current landscape. The aforementioned bill in Pennsylvania, for instance, includes a 36% tax on sports wagering revenue, on top of a $10 million licensing fee assessed to any casino looking to establish a sportsbook operation. The high tax rates will not serve as a panacea for those who believe that sports betting could be used as a mechanism for closing considerable state budget deficits, Freeman said. Instead, the rates could affect the odds the legal sportsbook can offer vis-a-vis the illegal market.
When the Supreme Court issues its ruling in the first half of 2018, there are two potential favorable outcomes for New Jersey, said Dennis Drazin, Chairman, CEO Monmouth Park. The Court could determine that PASPA is unconstitutional, a ruling that would enable the state to begin offering sports gambling weeks later, according to Christie. Alternatively, the Court could hand down a nuanced decision by in effect ruling that the state's 2014 partial repeal is valid.
Either outcome could help resuscitate a thoroughbred racing industry in New Jersey that has fallen on hard times without a key revenue stream from racetrack slot machines that have helped its peers stay afloat. Without sports betting at tracks such as Monmouth, Freehold Raceway and Meadowlands Racetrack, top horses could leave New Jersey for larger purses while the breeding industry could move to a state with larger benefits, Drazin argues.
"What sports betting enables New Jersey to do is maintain its world class venue, its competitive edge in the marketplace," Drazin said. "It's like if one store can only sell vanilla ice cream and every other store can sell every flavor that is out there. Where are people going to go?"
With a plethora of options available to sports gamblers, Freeman is hopeful that the betting public gravitates away from the illegal market. For Freeman, sites like Bovada represent the most challenging opponent to a legalized sports betting market in the U.S.
"They have been stealing money from this country for years," Freeman said. "Their days are numbered."
Matt Rybaltowski
Forbes
If a prominent bookmaker fielded a request to set a line on whether the Supreme Court will rule in favor of New Jersey in the landmark sports gambling case before the nation's top court, the sportsbook may opt instead to keep the wager off the board.
partially repealing the Garden State's ban on betting on sports.
Gaming advocates, however, have been more vocal in discussing how a victory by Christie could lead to widespread reform of sports gambling throughout the nation, while curtailing the influence of an illegal, underground market estimated at $150 billion annually, according to the American Gaming Association. Ahead of the hearing 15 states introduced sports gambling bills in 2017, spanning as far as New York to Hawaii. Four of the states, Pennsylvania, Connecticut, Mississippi and Montana, have already enacted legislation that could pave the way for in-state betting on sports if the law, more commonly known as PASPA, is deemed unconstitutional.
Already, two policymakers in the House of Representatives have taken action. On Dec. 4, the same day the Court heard oral arguments, Rep. Dina Titus (D - Nevada) sent a letter to the House Energy and Commerce Committee requesting a hearing on sports betting. Days later, Rep. Frank Pallone Jr. (D - New Jersey) introduced a comprehensive bill, the Gaming Accountability and Modernization Enhancement Act, or GAME Act, which could provide states with the legal framework to adopt sports betting at their discretion, if appropriate consumer protections are established.
Without a federal regulatory scheme in place, the possibility exists for a patchwork, state-by-state eruption of sports gambling, said Nevada Gaming Control Board chairman A.G. Burnett, in areas that may lack the proper safeguards for customers. Nevada's model contains an onerous, intrusive application and investigative process before licensing a casino to accept sports bets, along with continuing audits and enforcement requirements once the company is approved, he added. The strict procedures prompted Titus to describe Nevada as the "gold standard," for other states to emulate when designing a regulatory model for sports gambling.
"Most of the jurisdictions in the United States that have gaming already have models that are similar to Nevada," Burnett said. "There's concern that some states or tribal jurisdictions could adopt their own form of regulation that could be vastly different," Burnett said.
For legislators, attorneys and lobbyists alike, patron protection ranks as their top priority as the Court weighs its decision in the coming weeks. Since the committee held a hearing at Pallone's request 19 months ago to examine the intersection between fantasy sports and gambling, the New Jersey congressman has conducted an extensive review of federal gaming statutes and their impact on both the legal and underground betting markets. The system, according to Pallone's study, has been largely ineffective as illegal gambling operations that skirt state and federal laws remain widespread.
The sentiments are echoed by American Gaming Association President and CEO Geoff Freeman, who has taken issue with several aspects of PASPA, namely in its inability to restrain the wave of criminal activity associated with offshore gambling. While a host of casinos on the Las Vegas strip have taken steps to cater to millennial gamblers by offering mobile sports wagering platforms in recent years, state laws limit customers from placing bets outside of Nevada. On the contrary, experienced sports bettors returning home from a vacation to Las Vegas can still access apps from websites such as Bovada and BetOnline, which are domiciled outside the U.S.
"The truth is that the customer can pop open their phone, go on their Bovada site and place a bet as fast as they can order an Uber," Freeman said. "If our goal is to shut down the illegal market, then we need policymakers to understand what makes that market tick and what can make the legal market an effective counter to that illegal opportunity."
Nevada has done its best to fight back. During a legislative session in 2015, the Nevada State Legislature passed Senate Bill 40, an act that intended to criminalize illegal activity by associates of offshore books. In response, the board periodically sends undercover agents to a number of sports gaming locations throughout the state in an effort to deter offshore websites from maintaining a presence at sportsbooks in Nevada, Burnett said. Although Burnett was unable to disclose the number of cases currently under investigation, he noted that the undercover operations generally seek to determine whether the associates are observing betting lines and communicating line movements to offshore betting houses outside the U.S.
Over the last several years, federal authorities have ensnared sports gambling rings for engaging in illegal conduct in at least two highly publicized incidents that took place in the Las Vegas area. In October 2016, CG Technology, LP, formerly known as Cantor Gaming, entered into a non-prosecution agreement and agreed to pay a total of $22.5 million in penalties to resolve an illegal gambling and money laundering investigation. In an effort to attract bettors who placed large wagers on sports contests, Cantor Gaming allegedly offered higher limits and provided preferential treatment to certain customers over a five-year period through 2013, according to the U.S. Department of Justice.
Then, during the 2014 FIFA World Cup, the Department of Justice charged eight people, including Malaysian poker player Paul Phua with running an illegal gambling operation from a hotel room after the FBI raided Phua's villa at Caesars Palace. Subsequently, the Nevada Gaming Control Board determined that the defendants allegedly set up a "wire room," replete with five computer stations, three large screen televisions and eight Digital Subscriber Line (DSL) lines to handle nearly $400 million in wagers, ESPN.com reported. Eleven months later, a federal judge dismissed illegal betting charges against Phua shortly after prohibiting prosecutors from using evidence seized by the FBI during the raid.
For its part, Nevada gaming facilities are required to pay a 0.25% federal handle tax on sports wagers for a fund intended to investigate illegal gambling, Titus said. But when Titus made an inquiry with the Internal Revenue Service to determine the whereabouts of the payments, she was informed that the revenue instead became redirected into a general fund. In 2013, gaming operators in Nevada sent roughly $9 million to the IRS, according to Titus, based on more than $3.5 billion in college and pro sports wagers.
"We tried to find out where that money went and nobody could tell us," Titus said. "I tried to get it diverted back to the state."
Freeman, meanwhile, expressed other concerns regarding the competitive advantage offshore books enjoy in the current landscape. The aforementioned bill in Pennsylvania, for instance, includes a 36% tax on sports wagering revenue, on top of a $10 million licensing fee assessed to any casino looking to establish a sportsbook operation. The high tax rates will not serve as a panacea for those who believe that sports betting could be used as a mechanism for closing considerable state budget deficits, Freeman said. Instead, the rates could affect the odds the legal sportsbook can offer vis-a-vis the illegal market.
When the Supreme Court issues its ruling in the first half of 2018, there are two potential favorable outcomes for New Jersey, said Dennis Drazin, Chairman, CEO Monmouth Park. The Court could determine that PASPA is unconstitutional, a ruling that would enable the state to begin offering sports gambling weeks later, according to Christie. Alternatively, the Court could hand down a nuanced decision by in effect ruling that the state's 2014 partial repeal is valid.
Either outcome could help resuscitate a thoroughbred racing industry in New Jersey that has fallen on hard times without a key revenue stream from racetrack slot machines that have helped its peers stay afloat. Without sports betting at tracks such as Monmouth, Freehold Raceway and Meadowlands Racetrack, top horses could leave New Jersey for larger purses while the breeding industry could move to a state with larger benefits, Drazin argues.
"What sports betting enables New Jersey to do is maintain its world class venue, its competitive edge in the marketplace," Drazin said. "It's like if one store can only sell vanilla ice cream and every other store can sell every flavor that is out there. Where are people going to go?"
With a plethora of options available to sports gamblers, Freeman is hopeful that the betting public gravitates away from the illegal market. For Freeman, sites like Bovada represent the most challenging opponent to a legalized sports betting market in the U.S.
"They have been stealing money from this country for years," Freeman said. "Their days are numbered."
