Legal Betting on NBA Finals After High Court Flushes Federal Ban? (1)

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By Ryan Prete

Experts and lawyers are certain that New Jersey—among other states—is just weeks away from offering legalized sports betting now that the U.S. Supreme Court has ruled to undo a 26-year-old law.

The high court ruled in favor of New Jersey May 14 in Murphy v. NCAA, repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA), which formally prohibited states from “authorizing” gambling related to professional and amateur sports leagues.

New Jersey is ready to take its high-court win to the bank as soon as possible, according to Marc Dunbar, a partner at Jones Walker LLP in Tallahassee, Fla. Dunbar told Bloomberg Tax he expects people will be able to place sports bets in the Garden State by the end of the week, if not sooner.

“I mean, I wouldn’t surprised if New Jersey even took bets tomorrow,” Dunbar said. “New Jersey is by far the most prepared state, with Mississippi not far behind.”

Five states—Mississippi, New Jersey, New York, Pennsylvania, and West Virginia—have already enacted legislation to legalize sports betting, but will need time to start taking bets now that PASPA is dead.

‘No Wild West’

Ethan Wilson, policy director of commerce and financial services with the National Conference of State Legislatures, told Bloomberg Tax he didn’t think New Jersey sports books would begin taking bets potentially for months.

“The court’s ruling allows states to pass legislation to partially or fully lift PASPA’s ban, so this is no Wild West situation,” Wilson said. “These things take time, there are regulations to follow, and from a logistics standpoint, I can’t see this being that quick of a process.”

However, Dunbar said New Jersey’s Monmouth Park, a racetrack, has built a sports book and is ready to take bets. Still, many other states won’t be ready to take bets until Super Bowl LIII in February 2019, he said.

“New York, West Virginia, and other states will need time to establish a strategy, understand who will be the state’s operator, and tackle other administrative related issues,” he said.

Currently, 32 proposals to legalize sports betting are active in 12 states, according to the American Gaming Association.

Rapid Rollout Expected

Geoff Freeman, AGA president and CEO, told Bloomberg Tax he expects New Jersey to begin taking bets in a matter of weeks, and that other states should be ready by the start of the 2018-19 National Football League season, which begins in September.

Freeman was confident that gamblers in New Jersey will be able to wager on National Basketball Association and National Hockey League championship games, which run through June.

Freeman expects the spread of legal sports betting to expand “quicker than any market we’ve ever seen,” he said.

Paul Martino, general partner at Bullpen Capital, a venture fund, told Bloomberg Tax that states are so eager to begin taking sporting wagers that “if the Supreme Court overturns PASPA on a Monday, we’d have New Jersey taking bets by Friday.”

Death of Black Market?

Freeman said he is confident that overseas-based gambling services such as Bovada, which allows U.S. users to place sports bets and gamble through an unregulated market, will fade away thanks to the May 14 ruling.

“Consumers no longer have to consider unregulated options, as services like Bovada cannot fully protect users,” Freeman said.

Dunbar wasn’t as certain that offshore services would become extinct.

“If you’re in Utah, a state which has no plans to legalize sports betting, then offshore services might be your only choice,” Dunbar said. “Also, if states establish ridiculously high tax rates, residents will still be driven to alternative options.”

Sports Leagues Want Taste

Professional leagues have largely supported the campaign to end PASPA, but that support has come with a price.

Sports leagues have lobbied for “integrity fees” of 1 percent of all wagers placed. The leagues have, in part, argued that the fee protects the integrity of the game, and that teams should benefit from the revenue created by bets.

Some states have attached the integrity fee to their sports-betting legislation. New York and Kansas have proposed a 0.25 percent integrity fee. Indiana, Kansas, and Missouri have lobbied for a 1 percent integrity fee.

It would work like this: if there was a 1 percent integrity fee ($1) on a theoretical $100 bet, that would be almost three times as much as Nevada would receive ($0.34) in state tax revenue, based on its 6.75 percent state tax on gross gaming revenue.

Freeman previously told Bloomberg Tax the fee would hurt the integrity of the NBA and Major League Baseball and would dwarf any revenue returned to state governments, but he said on a May 14 press briefing that the AGA is “working through issues” with multiple leagues. He wouldn’t comment on whether the AGA supported or opposed integrity fees.

Dunbar called the integrity fees “total B.S.”

“You’re telling me I have to give the NBA commissioner one percent of my wager so he can maintain the integrity of the game? This is just a profit center scheme,” he said.

What’s Next

For many states, the 2018 legislative period has closed, but Wilson said multiple proposals to legalize sports betting are likely in 2019.

“This past session, we saw proposals from at least 17 states, and I would expect this same volume in 2019 at a minimum,” he said. “Much of the revenue structure and demand for sports betting is still widely unknown, and there will be growing pains for states, who will work with multiple frameworks until they find one that catches on.”

Wilson said the court’s ruling was a great win for state sovereignty.

“PASPA was just a really goofy law,” he said.

The case is Murphy v. NCAA , U.S., No. 16-476, 5/14/18 .

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

Copyright © 2018 Tax Management Inc. All Rights Reserved.

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