A Decision Worth Billions: A Supreme Court Ruling On Legal Sports Betting Could Arrive Anytime

While legalized marijuana represents a burgeoning industry and tax boon for states, its finacial impact could be eclipsed by the potential of legalized sports betting.

Estimates of the size of the illegal sports betting market in America range from the American Gaming Association's figure of $150 billion annually to a $500-billion estimate in a 2012 report from Princeton University professor Robert Willig. In comparison, a recent Cowen note predicted legal marijuana would reach $50 billion in annual sales by 2026.

Challenge To New Jersey Law Reaches High Court 

Legalized sports betting in the U.S. is not a matter of if anymore, but when.

In a recent Height Capital Markets report, analyst Stefanie Miller said she expects one or two more states to pass sports betting legislation before the U.S. Supreme Court decides on the Professional and Amateur Sports Protection Act, or PAPSA, a federal sports betting ban that was was enacted in 1992.

West Virginia, Mississippi, Pennsylvania, New York and New Jersey have sports betting legislation signed into law, Miller said.

Sports attorney Darren Heitner told Benzinga he expects those states to pounce on legalized sports betting if PAPSA is overturned and said the High Court could issue an opinion at any moment.

“Everyone is focusing on the Supreme Court and what it does. There’s really one of three things the Supreme Court can do. It can either keep PAPSA in place, completely eradicate PAPSA [by ruling] it unconstitutional, opening the floodgates of legalized sports betting, or it could be a limited opinion that focuses on New Jersey."

New Jersey voters passed a referendum in 2011 to allow sports betting at casinos and racetracks and it became law in 2012. The major sports leagues sued to stop the law from taking effect and said it violates PAPSA. The case, Christie v. NCAA, has since been renamed Murphy v. NCAA to reflect the election of the Garden State's new Governor Phil Murphy.

The case revolves around the 10th Amendment and whether the federal government can make states enforce federal law, a question that also affects marijuana, among many other industries.

New Jersey race tracks and casinos are prepared to offer sports betting immediately in the event of a favorable Supreme Court ruling, Heitner said.

"New Jersey has led the battle. This is the one that has reached the highest court and you better believe the state is ready to allow sports betting within its borders,” the attorney said.

Why It's Important

The NBA and MLB have reversed their tone on gambling in recent years, positioning themselves to capitalize on legalized sports betting and its massive revenue potential.

This could explain why both the NBA and MLB are moving to shed their equity stake in the daily fantasy sports companies FanDuel and DraftKings, potentially to avoid any questions from lawmakers regarding their stake in daily fantasy and therefore hindering the possibility of landing the big whale in legalized gambling.

The NBA took the lead on the issue and proposed a 1-percent fee on all bets involving the league’s games, calling it an "integrity fee." The MLB followed suit and introduced their own integrity fee.

The reality is that the leagues will have little control over bets, Heitner said.

“Some states have adopted the full 1 percent, New York narrowed it down to 0.25 percent and West Virginia said 'no way' — and part of that is that there are no pro sports teams in the state and they are not succumbing to the pressure of the leagues," he said.

Critic: 'There's No Value Creation' 

Not everyone is pleased with the possibility of jeopardizing the health and integrity of professional sports for a questionable new revenue stream. Both the MLB and NBA have underwent devastating betting scandals that threatened their integrity. One passionate critic, AllSports Market CEO Zack Ward, calls the bill blatant deception.

“The incentives really help the state, but where does the money come from?" Ward asked.

"You're taking the money from people who have a problem and want to gamble and you're giving it to the people who own the casino. You're dealing with more unemployment, more people that can’t pay their bills — and what do they do when they are desperate? There’s no value creation, this is just stealing your money."

Ward compared sports gambling's potential impact on the integrity of the game to cyclist Lance Armstrong's doping scandal and former MLB player and manager Pete Rose's gambling. 

"Sports and integrity are the exact same thing," Ward said. "Sports are about overcoming adversity through force of will and effort. That’s why when you watch the Olympics, it matters — and that’s why the Russians were not in the Olympics this year."

Ward and AllSportsMarket are pushing an alternative: a regulated sports investing stock market where fans and investors can invest in teams rather than bet on them.

“$400 to $450 billion goes out of this country in sports betting, and that’s why all the leagues are scrambling to grab a piece of that money. We create new opportunities, with nobody losing, unlike a casino,” Ward said.

“The states don’t know that there is an alternative.”

Related Links:

NBA Intends To Take A 1% Cut, Or 'Integrity Fee,' If Sports Betting Is Legalized

Stock Exchange For Sports Aims To Teach Financial Literacy, Empower New Investors

Posted In: Darren HeitnerHeight SecuritiesMLBNBAPAPSAStefanie MillerZack WardNewsLegalSportsExclusivesInterviewGeneral

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