Yesterday, the Supreme Court handed down its much anticipated ruling in Murphy v. NCAA and it was pure win for states and casinos itching to offer legalized sports betting, although there was some predictable disapproval. As Arizona Attorney General Mark Brnovich said, “This is an important constitutional decision reaffirming principles of federalism and state sovereignty. I have always believed decisions related to gambling should be left to state and tribal governments.” According to an American Gaming Association analysis, “While the Court had ways to decide the case narrowly, the Court chose to strike down the entire law. The opinion makes clear that, unless Congress acts to prohibit sports betting directly (which it is unlikely to do), states are now free to decide for themselves to legalize (or not) sports betting. And because the opinion struck down the law in its entirety, states will be able to directly license and regulate operators; states will not be limited to the partial repeal and indirect regulation that New Jersey was forced to employ.”
According to CNN, “The court said the federal law violated constitutional principles limiting the federal government from controlling state policy, unconstitutionally forcing states to prohibit sports betting under their own laws.” As Justice Slammin’ Sammy Alito put it, “The legalization of sports gambling requires an important policy choice, but the choice is not ours to make.” He added that Congress could directly regulate sports betting but, if it chooses not to, it is purely a matter for the states now. “Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. [Protection of Amateur & Professional Sports Act] is not.” (Technically, Justice Clarence Thomas did not rule with the majority but wrote a concurring opinion.)
The ruling swung upon the principle of ‘comandeering,’ or of Congress arrogating to itself the prerogatives of the states. Justice Alito wrote that the Bradley Act “unequivocally dictates what a state legislature may and may not do. … It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals. A more direct affront to state sovereignty is not easy to imagine.”
The AGA analysis says the high court “reasoned that, without PASPA’s ban on states authorizing and licensing sports betting, Congress never would have enacted the remainder of the statute.” “This is first and foremost a victory for states’ rights but also for the overall gaming industry,” said Global Market Advisors exec John English.
As expected, SCOTUS broke 6-3 in favor of New Jersey, exactly as was expected after oral arguments before a skeptical Court. The latter agreed with arguments from 20 states that “Congress could compel the entire machinery of state government — legislatures, executives and courts — to maintain and enforce repealed state laws at the behest of the federal government.”
DraftKings wasted no time in announcing that it was getting into for-real sports betting (whether it continues to bother with DFS remains to be seen), as did FanDuel in a me-too statement. As for Garden State Gov. Phil Murphy (D), it was full steam ahead: “Today’s ruling will finally allow for authorized facilities in New Jersey to take the same bets that are legal in other states in our country,” ending a seven-year battle with the NCAA and professional leagues. Writing for the minority in the decision (which included Justices Sonia Sotomayor and Stephen Breyer), Justice Ruth Bader Ginsburg faulted the majority for taking an ax to the Bradley Act rather than simply pruning it in such a way that states were liberated from the act’s constraints while private parties had to continue to obey it.
However, Notorious R.B.G.’s logic held little sway in the Roberts Court, whose ruling found quick acquiesence from the NCAA, which said it “will adjust sports wagering and championship policies to align with the direction from the court.” Similiarly, Major League Baseball, which has had a particularly tortured relationship with gambling, said “Our most important priority is protecting the integrity of our games” and that it would support legislation to that end, within the new reality.
While most sports leagues were grudging in their acceptance of SCOTUS’ ruling, Washington Wizards owner Ted Leonsis embraced it, blogging that “It brings a multibillion dollar industry out of the shadows and into the sunlight, where its integrity can be guaranteed and consumers can be better protected.” Ex-Gov. Chris Christie (R), who carried the mail on this issue for most of the case’s long course, tweeted, “New Jersey citizens wanted sports gambling and the federal Gov’t had no right to tell them no. The Supreme Court agrees with us today.”
In Christie’s home state, Monmouth Park could offer sports betting within a fortnight. Delaware (which already offers a tortured form of sports betting), Mississippi and West Virginia could be quick out of the gate, too. Connecticut, Illinois, New York, Massachusetts and Rhode Island were other states mentioned as potential actors. States which have already wrapped their legislative sessions are out of the action, as it were, until next year, which may help explain why 32 states are expected to legalize sports betting … in five years. A bill in Maryland, to put the issue to voters, died between houses of the Lege. Global Market Advisors takes a skeptical tack, putting likely movers at New Jersey, Delaware, Mississippi, New York, Rhode Island, and Illinois.
“Despite the decision, the process of regulated sports betting spreading across the United States will be a gradual one,” wrote PlayUSA.com lead analyst Chris Grove. “Some states will act quickly; others will be more deliberative. Some states will ultimately decline to authorize regulated sports betting. But enough will move in the next five years that regulated sports betting in the U.S. will be worth more than $5 billion in revenue annually by 2023.”
Mind you, legislative action may not cause the black market to go away, particularly if the major leagues are successful in their demand for a kickback known as an “integrity fee,” a hefty skim (up to 20% of operating revenue) that could result in less-favorable odds for punters. “One of the greatest opportunities may lie with Native American gaming tribes who pay much less in gaming taxes and are not as susceptible to the political need to work with the leagues,” says GMA’s English (mind you, compacts will have to be amended to reflect the new reality). “Integrity exists in the games due to proper regulation and oversight by legal sports books, not through a money play by sports leagues. States should not be bullied, as the Governor of West Virginia recently has been, by the sports leagues,” seconded GMA Director of Government Affairs Brendan Bussman.
Added his colleague Steve Gallaway, “The State of Nevada has demonstrated a path to successful sports betting implementation through strict regulation. We encourage states to reach out to the Nevada Gaming Control Board to fully understand its successful model of regulation and integrity.”
AGA President Geoff Freeman, who has fought long and hard for yesterday’s outcome, took an understandable victory lap, citing a recent Washington Post poll, “a solid 55 percent of Americans believe it’s time to end the federal ban on sports betting. Today’s ruling makes it possible for states and sovereign tribal nations to give Americans what they want: an open, transparent, and responsible market for sports betting. Through smart, efficient regulation this new market will protect consumers, preserve the integrity of the games we love, empower law enforcement to fight illegal gambling, and generate new revenue for states, sporting bodies, broadcasters and many others.”
As though to throw cold water on Freeman, Deutsche Bank analyst Carlo Santarelli warned that it was no revenue panacea, writing, “we think the time to play the impact of sports betting in the US is sooner than later, as we believe the 10K foot view of what the opportunity could mean, is likely to be better than the reality of what it ultimately does mean. We believe this was the case when online gaming was legalized in NJ in 2013, as estimates of market size far outpaced the ultimate reality of the market. While we don’t want to be overly dismissive, we believe; 1) market size is likely to be lower than expectations as player conversion to legal markets could be lower than perceived, 2) a state by state rollout will take time, as will the ramp periods, & 3) [cash flow] margins will be thin.”
Santarelli doesn’t see any legalization of sports wagering — excepting those states that have already done so contingent on a favorable SCOTUS outcome — until 2019, adding, “and we believe the ramp period, of the legalized states, to broad revenue penetration, will be lengthy.” He thinks per capita sports wagering will be $53, mostly online. Following further number-crunching, “we arrive at a total market size of ~$4.0 bn in sports book revenue across 13 states in 2023.”
While Santarelli thinks sports betting will be a modest negative for Las Vegas (“it removes another differentiator from the market”), companies that stand to benefit are Boyd Gaming, Penn National Gaming, Scientific Games and International Game Technology. Also-rans are MGM Resorts International and Eldorado Resorts, since “MGM’s regional benefit will be limited and could be further curtailed should it curb the allure of the LV sports book, while ERI’s more limited footprint leaves it with less opportunities to capitalize on state by state legalization.” Still, that’s better than Caesars International which, despite its broad geographic spread, didn’t even make Santarelli’s tip sheet.
* In a related story, Golden Nugget owner Tilman Fertitta is paying out Houston Rockets bets as though the NBA season were over. Why? Because Fertitta owns the Rockets, too. “We’ve already graded [the Golden State Warriors] a winner. Bring your ticket and you’ll get paid,” said the Nuggets’ Aaron Kessler. It’s ironic that, as sports betting is soon to spread, more and more casinos are dealing themselves out of pieces of the action — take WNBA franchise owner MGM, for one — because the romance of owning a team outweighs the revenue at the sports book.
