By Lydia Beyoud
Sports betting may become a new growth industry for blockchain companies following the U.S. Supreme Court’s May 14 decision striking down a prohibition on states regulating the practice.
Blockchain has obvious applications for betting on college and professional football, basketball, and other sports. The distributed ledger technology could bring efficiency to manual procedures in place within casinos to verify identities and flag problematic transactions, to tracking payouts, anti-money laundering compliance, and taxes.
Blockchain and cryptocurrencies are already used in e-sports and other games of skill. The question is how easily those technologies will translate over to traditional sports betting where users are instantly placing bets and transaction times of as little as a fraction of a second during a match can affect huge wagers, Steve Silver, an associate at Pierce Atwood in Portland, Maine, specializing in sports law and litigation, told Bloomberg Law.
Blockchain use could help resolve some of the concerns dividing professional sports leagues and the gambling industry, Matt Corva, counsel for ConsenSys, one of the leading blockchain development companies, told Bloomberg Law by email.
“A betting business built on blockchain technology might assuage some of the historical concerns held by people about sports betting in the U.S., such as the threat of collusion, money laundering, and tax evasion, all of which would be more easily identifiable and enforceable against with a trustworthy shared ledger and the robust identity frameworks blockchain can provide,” Corva said.
Sports and gaming consulting and analysis firm Eilers & Krejcik Gaming, LLC projects the industry in the U.S. could bring in as much as $6 billion in revenue by 2023, and likely be regulated by as many as 30 states. Currently, the industry operates primarily in Nevada and estimated annual revenues are only $250 million, according to an Eilers & Krejcik Gaming report.
The biggest “X factor” for the growth of the sports betting industry is whether professional sports leagues and gambling industry stake holders can get on the same page to help authorizing legislation advance at the state level, Chris Grove, head of Eilers & Krejcik’s Sports & Emerging Verticals Segment, told Bloomberg Law.
The two industries are in disagreement over some aspects of proposed legislation in various states, with sports leagues worried about the potential for match fixing whenever betting is involved in their matches, Grove said.
In addition to helping make gambling transactions more transparent, blockchain could also help ensure states seamlessly collect their share in the form of taxes.
“State regulators could even bake in their tax-cut directly to the payout contract if so desired, similarly to how sales tax is collected by sellers on transactions today,” Corva said.
But technology development will likely outpace regulatory acceptance of both the practice of sports betting and the use of blockchain to power it.
The first thing to watch for is how quickly states move forward with laws to authorize sports betting, Peter Dugas, managing principal for the Center of Regulatory Intelligence with Capco, a financial services consultancy.
New Jersey, Delaware, West Virginia, and Mississippi all look positioned to be first movers in authorizing it, he said. State-level money transmitter licensing issues are a major regulatory issue for blockchain or cryptocurrency companies that might want to support sports betting, Dugas said.
Identifying federal regulations that supercede state regulation in terms of payments and wagers is another critical step, he said. Those include not only know-your-customer rules for verifying individuals’ identities, but also Bank Secrecy Act compliance, and anti-money laundering rules, he said.
Potential regulatory changes on the horizon could support the growth of the industry he said. The Consumer Financial Protection Bureau is reviewing regulations impacting payments systems, particularly for larger and business-to-business transactions. The CFPB is expected to modify the regulations to help the U.S. take advantage of new technologies and remain globally competitive in payments technology, Dugas said.
“It’s going to take some time before that analysis is done, and I doubt seriously the regulators are going to be taking in sports betting as a potential functionality of that review, but that potentially could something” for virtual currency companies, payments companies and clearing houses to review, he said.
The U.S. has competition in creating a regulatory environment open to both blockchain and sports betting.
“The U.S. will likely be a little slower, a little later to the party than some international jurisdictions,” Eilers & Krejcik’s Grove said.
Malta has been one of the most proactive jurisdictions in looking at how to incorporate the technology into regulatory structure, he said. “That certainly sets the stage for them then to embrace the sports betting applications of the technology as they come up,” Grove said.
U.S.-based betting companies have taken note, Dugas said. “A lot of the operators here in the U.S. want to be able to compete. They don’t want to push it offshore, much like the concerns were with online gambling,” he said.
The case is Murphy v. Nat’l Collegiate Ath. Ass’n , U.S., No. 16–476, Opinion 5/14/18 .
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