Inevitable: Sports Gambling, State Regulation, and the Pursuit of Revenue

Abstract

Balancing the protection of private business interests against governmental regulation is one of the most significant legal frictions of the modern era. Over the course of the past twenty-eight months, this conflict has manifested itself through a federal sports gambling lawsuit involving New Jersey. However, the ongoing lawsuit between a plaintiff quintet of the most powerful sports entities in the United States — the National Collegiate Athletic Association (“NCAA”), the National Basketball Association (“NBA”), the National Football League (“NFL”), the National Hockey League (“NHL”), and the Office of the Commissioner of Major League Baseball (“MLB”) (collectively “sports leagues”) — and the Governor of New Jersey over the possibility of regulated sports wagering in the state is not about gambling. It is about control: control of events, control of data, control of marketing opportunities, and control of current and future revenue streams. This is a clash between sports leagues looking to reserve opportunities to monetize sporting events as commodities and cash-strapped states intent to raise tax revenue via regulation of an industry with a massive volume of underground activity.

The sports gambling industry, legal and illegal, is vast. The National Gambling Impact Study Commission estimated that up to $380 billion was wagered illegally in the United States in 1999. The International Centre for Sport Security reports a range of $250-650 billion gambled globally on both U.S. and international sports. The state of New Jersey and in effect forty-eight other states receive no taxable share of such revenue.

Sports betting economic activity in the U.S. is largely constrained by the Professional and Amateur Sports Protection Act (“PASPA”). Nevada is the main exception, and its licensed sports books generated a handle of $3.45 billion in 2012. New Jersey has assumed a key role in challenging PASPA’s effective federal ban on sports betting by attempting to implement Las Vegas-style sports betting at casinos and racetracks. Should New Jersey ultimately prevail in its PASPA challenge, other states may follow in efforts to capture taxable portions of the presently elusive sports betting marketplace.

Keywords: Private business, government regulation, federalism, sports betting, gambling, gaming law, fantasy sports, professional leagues, NCAA, PASPA, standing, rights to games, intellectual property

JEL Classification: K00, K10, K11, K19, K20, K23, K29, K30, K39, K40, K49, L50, L59, L80, L83, L89, O34