Sports Wagering and the Legalization Proposal

Anyone keeping tabs on the current state of affairs knows that these are dire financial times. The deficit continues to widen as tax intakes pale in comparison to the mounting cost of providing governmental services. Naturally, elected officials are searching for viable options to produce new revenue streams. Several choices are on the table, but politicians must be cautious when implementing new policies. Laws and regulations shape public behavior, and it would be foolish to promote unsavory activities for the sake of a dollar. One of the more controversial proposals took center stage in early February when California State Senator Roderick Wright introduced Senate Bill 1390 to legalize sports betting at locations in California that already have a gaming license. Passage in California’s legislature is only one of the hurdles to clear before gambling on sports will be allowed in the Golden State. A federal law, which takes precedent over any state decree, was passed in 1992 that prohibits wagering on sporting events except in Nevada, Delaware, Montana, and Oregon. These states were grandfathered in because they already had the practice in some form in place. Generally, the federal government defers to states on hard-to-enforce matters like marijuana use, and sports gambling should not be an exception. As Nelson Rose, an expert on gambling law points out, “It’s completely irrational. “It’s as if in 1929 Congress had decreed that a dozen states would be allowed to have sound in their movie theatres and all the other states would be able to show only silent films.” (Surowiecki) In order to clear a path for state regulation, the federal government should repeal the Professional and Amateur Sports Protection Act because public perception of sports wagering has shifted, and it would allow states to capitalize on the profitable industry by collecting needed tax revenues.

Some are quick to shoot down the legalization proposal on moral grounds. After all, wagering on sports interferes with the idealized view of athletic competition dating back to the days of the ancient Greeks. Purists argue that sports are about pushing physical limits in training, performing incredible feats, playing for the unbridled love of competition, and bringing honor to oneself. With such noble aspirations instilled in athletes, why would anyone allow a marriage between such a pristine activity and the allegedly degenerate world of gambling?

In reality, it is naïve to stand by this romanticized view of athletics. Like everything else, sports have undergone a drastic change. Unlike in ancient times, commercialization is a huge aspect of the game. Viewers are inundated with advertisements, and some teams even wear sponsors on their jerseys. The athletes command such exorbitant salaries that fans are left to question how many of them actually play for the love of the game. Furthermore, scandals rife with steroid use and misconduct have arisen so often now that most people are numb to them. William Morgan, a USC professor of ethics in sports, writes in his book Ethics in Sports, “…the moral standing of contemporary sports at all levels leaves much to be desired. Nor am I saying anything new when I decry the depressingly sorry moral state in which sports presently find themselves; the fact is, they have been feeding at the moral bottom for some time now.” That is not to say that sports don’t play an important role in our lives, but we should reconsider why we find them so entertaining and pervasive in today’s society. As Ernest Cashmore notes in his book Making Sense of Sports, humans are drawn to the confrontation with conflict it creates. “Challenge is important to the human condition: it’s one of the oldest preoccupations. Where obstacles—natural or artificial exist—we attempt to surmount them. And, where they don’t exist, we invent them.” Wagering on sports is not some immoral activity that poisons the very essence of sports. It is simply yet another challenge that appeals to the human psyche and a complement that enhances our interest in various contests. People find entertainment in trying to use their knowledge to beat the sports books, which employ some of the brightest statistical minds to handicap games.

While sports are on the decline morally, there is little doubt that the public perception of gambling is on the rise in America. It used to be a taboo subject that people were vilified for participating in, and many associated it with organized crime. Now, many adults participate in the activity and support its legalization. Forty-eight states host some form of gaming, and 80 percent of Americans find the practice acceptable. In California, a 2012 Field Poll found that 58 percent of registered voters support legalizing and taxing the sports wagering industry.

With the improved moral view of sports gambling, the practice has seeped into the mainstream and grown in popularity. Now, signs of sports gambling are ubiquitous. Open up the sports section of the newspaper and you will find a list of odds for the day’s contests. Watch the ticker on ESPN and note the point spread accompanying the time of the game. In addition, advanced technology has given gamblers reason to take even more interest. Websites such as Basketball-Reference contain a litany of statistics to plug into a regression model and help predict outcomes. Once a wager is made, bettors can follow the action on one of the hundreds of networks that carry virtually any athletic contest of importance taking place.

From a dollars-and-cents point of view, sports wagering is a fantastic industry for government entities to tax. Betting on sports is the largest form of gambling in the United States, and the industry has seen tremendous growth over time.  From 1974 to 1994, the amount of money bet legally skyrocketed 2,800 percent. In 1998, Las Vegas casinos booked $122.5 million in gross gambling revenues alone; they accepted a whopping $2.4 billion in wagers in 2009. The large revenue numbers translate into robust tax for the state of Nevada. Oregon has also benefitted greatly from including wagering on NFL games with its state lottery. The niche game allowed the state to pledge $2.5 million towards scholarships in 2002. The proceeds are enough to fund four years of education for 40 in-state students.

The financial data reported by Las Vegas and Oregon represents only the tip of the iceberg. Analysts believe legal wagers represent between one and three percent of all action nationwide. A National Gambling Impact Study Commission conducted in 1999 estimated that the scope of illegal sports betting in the United States ranges anywhere from $80 billion to $380 billion annually. Furthermore, it is believed $2.5 billion was illegally bet on the NCAA men’s basketball tournament in 1995. The underground gambling market is not confined to physical transactions, either. Offshore websites, often based in Latin America, have gained immense popularity. Over $300 million was bet online in 1998, and Costa Rica earns roughly three times as much as Las Vegas.

Gamblers, faced with a dearth of legal avenues to lay down a wager, seek out illegal bookmakers to take their bet. Projections indicate as many as 20,000 bookmakers run illicit operations in New York City alone. These unscrupulous organizations have been known to charge absorbent interest rates on outstanding loans or resort to physical violence to collect debt, creating public concerns. Legalization would push many of these illegal wagers into the lawful realm and solve market inefficiency. The demand for betting is immensely high, as evidenced by the billions of dollars placed on the line. However, there is a tremendous shortage of trustworthy places for gamblers to conduct their business. With local bookmakers, bettors worry about the company they are associating with. In the online realm, many have complained about inconsistent payout policies. Thus, it is reasonable to believe a sizable portion of the underground market would flock to state-regulated operations. The convenience and reliability offer a superior advantage over the competition, and both parties gain as states see a spike in tax revenues.

As with any public policy decision, a thorough discussion must include a study of the social impact in addition to the fiscal impact. Opponents of sports wagering argue that the practice threatens the integrity of the matches.  In an imperfect world, sports provide an escape full of entertaining competition where athletes put forth their best effort to secure a victory. Fans sit down to watch athletic contests anticipating that the playing field is level and the outcome has not been predetermined. However, sports fall down a slippery slope when there is doubt and suspicion that the outcome of the game was not completely decided by the players on the field. Brian Phillips of Grantland sums up the quandary best:

“You can still have sports if players are cheating. You can still have sports if fans are fighting in the parking lot. Those are problems, big problems, but they can be addressed without threatening the basic concept of the game. When the outcomes of matches are being dictated from the outside, though? You no longer have a game at that point. You have something else, a weird simulacrum, pro wrestling without the feather boas. (And, almost as crucially, without the fun.) The essential idea of athletic competition — let’s both show up and try to win — is no longer operating.”

The fears of match fixing are well founded. History has seen countless cases of scandal involving gambling on various levels. Dating back to 1945 when Brooklyn College basketball players admitted to throwing a game against Akron, the college ranks have seen over 30 documented cases of point shaving or game fixing. Furthermore, a 1992 study indicated that four percent of college basketball players surveyed admitted to betting on their own team. Less than one percent acknowledged they had accepted money to not perform well. The professional leagues have not been immune from scandal as well. The baseball world was turned upside down in 1919 when eight players on the Chicago White Sox intentionally lost games in the World Series. In 2007, the New York Post broke the story of NBA referee Tim Donaghy’s involvement in a betting operation with organized crime. Donaghy was accused of altering his calls to produce favorable outcomes. Most recently, INTERPOL revealed it found 680 possible instances of match fixing in soccer from 2008 to 2011, and the extent of the scandal is shocking. Some matches carried little importance, but others played a role in determining the winner of the prestigious UEFA Champions League or who qualified for the FIFA World Cup.

Conventional wisdom dictates that legalizing wagering on sports will only decrease the public’s confidence in the integrity of sports. All of the sports leagues subscribe to this theory, and they are staunchly against legalized gambling. Commissioners worry that scandal will harm their brand and affect the bottom line. They believe fans are less likely to buy tickets or purchase apparel if a cloud of match fixing hangs over the sport. While their fears are well intentioned, the relationship they draw between legalizing sports wagering and an increase in match fixing is unfounded. League executives argue that as the convenience of placing a legal wager increases, the temptation for people to alter the outcome of the game and bribe participants will only grow.

In fact, legalizing gambling on sports will make it easier to detect corruption and serve as a deterrent. Currently, the majority of gambling corruption flies under the radar. Since there are few places to place a wager legally, most of the money bet on sports is done underground. There is little, if any, record of it, and the police are charged with the impossible task of trying to uncover fraud with few leads and often no evidence.  By contrast, legalized sports books in Las Vegas are equipped with sophisticated software. They can detect suspicious betting patterns and match them with statistically improbable outcomes to raise red flags about the legitimacy of a game. Thus, the casinos have been a valuable resource to the authorities in providing leads on illegal activities and exposing gambling fraud.

Though legalizing sports wagering offers a new stream of revenues, the proposal is not without fault. Gambling—like alcohol or drugs—can be incredibly addictive. Bettors, who often have very competitive personalities, can fall into several traps. Some win large sums of money early and believe their luck will never run out. Others lose early and continue to chase their bets unwilling to accept defeat. Whatever the cause, addicted gamblers can’t control the urge to gamble, even if they are aware of the harm it is causing. Gambling addiction can launch people into severe debt and force them into a dire financial situation. Some feel so trapped by the debt that they resort to drastic measures to deal with their problems. Moe Pergament, 19, ran up $6,000 in debt betting on the 1997 World Series. The teenager felt so awful about the money that he drove around erratically in his car brandishing a toy weapon so that the police would shoot him out of his misery. Keith Tubin robbed $89,000 from eight Las Vegas banks to cover his debt. These are just two examples of the destructive behavior caused by gambling. It can also strain personal relationships and cause people to lose their houses.

Gambling addiction is not a problem that effects a minute portion of the population. In fact, the statistics are alarming. Ten million people—roughly three percent of the population—are believed to have a gambling addiction, and that number is expected to grow. Research suggests that the problem starts early, and the profile of the typical gambler continues to get younger and younger.  Nearly fourteen percent of high school students have or at risk of developing a gambling addiction. Five percent of college students are compulsive gamblers, and the average age of people seeking help at Gamblers Anonymous has fallen from fifty to thirty over the last twenty years.

Legislators need to include several provisions in the bill to put safeguards against destructive behavior in place. First, they need to require sports books to pledge a certain percentage of their revenues towards gambling addiction education and recovery programs. These locations should also be required to post numbers for anonymous hotlines, hang signage with warning signs, and provide pamphlets that offer suggestions for dealing with the problem. Furthermore, betting windows should only accept wagers in cash. Requiring cash to place a wager provides a few advantages over credit cards. Hopefully, the policy would prevent bettors from wagering with money they do not have. They could conceivably go out and get a cash loan, but that would be very hard to come by. Meanwhile, gamblers could max out credit cards and use funds they do not have assets to back. In addition, ATM withdrawal limits would force customers to walk into a bank branch during working hours to withdraw large amounts of cash, which could dramatically limit impulse bets. Most importantly, parting with cash is psychologically more significant than swiping a credit card. Bettors are forced to physically peel off bills and see the magnitude of their wager.

With thoughtful and responsible implementation, sports gambling is a fruitful source for states to derive revenues. The industry attracts a notable percentage of the population’s discretionary dollars, and the profit potential will continue to rise. Currently, the federal government is arbitrarily preventing 46 of the states from regulating the practice. Societal norms have clearly changed. Surveys indicate that more people view gambling as an acceptable practice than ever before. Furthermore, there is no proof that changing the laws will interfere with the integrity of the matches being played. The proposal put forth by State Senator Wright is not perfect, and states must work in conjunction with betting operations to combat addictive behavior. However, it is a progressive step towards creating viable and sustainable options for curbing the mounting fiscal deficit, and the time has come for Capitol Hill to allow states to choose whether they want to offer sports gambling.