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November 28, 2018

The Financial Impacts of Legalized Sports Gambling

Until recently, placing wagers on single sporting events in the United States was only legal in Nevada. With the Supreme Court’s ruling in the court case Murphy v. National Collegiate Athletic Association (NCAA), states earned the right to legalize and govern sports gambling within their borders. Las Vegas, the Mecca of U.S. sports gambling, will now see other cities and states looking to cash-in on its once unique business venture recently estimated at a $5 billion handle.

State Implications

Since the decision in May 2018, numerous states have worked on legislation to provide the framework for regulated and taxable sports gambling. New Jersey, Delaware, Mississippi, West Virginia, New Mexico and Pennsylvania all joined Nevada in fully authorizing and are now operating as states with legal sports betting. Arkansas, New York and Rhode Island have also boarded the gambling train and are ready to embark on the implementation phase. As of November 2018, an additional 17 states have presented bills and are awaiting further action to lift their respective bans.

States’ interest in establishing legal sports betting should not come as a shock because of the ability to employ a new tax revenue stream. Yes, the tax revenue generated from this new activity will increase each state’s spending repertoire, but probably not enough to solve current funding shortages. Gambling addiction services will also be seeking increased state funding and grants. Unfortunately, inflated societal costs and the continued existence of the black market may hinder the true revenue surplus states desired when rushing to pass regulated sports betting.

Professional Sports Franchise Implications

Professional sports franchises and their leagues have long opposed widespread legalized sports gambling because of its potential harm to the integrity of the on-field product. However, these organizations started softening their stances even before the Supreme Court leveled its most recent verdict. The NHL granted Las Vegas an expansion franchise in June 2016, and the NFL followed suit in early 2017 by approving the eventual relocation of the Oakland Raiders to “Sin City”. Each move broke the mold in professional sports of avoiding Las Vegas and the taboo industry calling it home.

With betting on sports now recognized as an upcoming and widespread business throughout the nation, leagues, as well as their individual franchises, will look to capitalize on the new sponsorship opportunities. The NBA’s and NHL’s recent partnerships with MGM Resorts showcase the immediate financial windfalls of legalized gambling. According to a study prompted by the American Gaming Association (AGA), recreational gambling could increase sponsorship, advertising, television, and ticket revenue streams for the four major sports by the following amounts:

  • NFL: $2.3 billion annually
  • MLB: $1.1 billion annually
  • NBA: $585 million annually
  • NHL: $216 million annually

The hike in league revenues will also be coupled with new administrative and education programs for its on-field professionals.  While athletes, coaches, and officials will all be subjected to more training on what this new reality of legalized sports gambling means for their careers, leagues will be saddled with the task of committing resources to update the code of conduct, monitor betting trends, and establish policies to punish offenders of their game’s integrity.

Future Developments

In order to make its greatest impact, sports leagues and the entertainment hubs will need to integrate technology into the industry’s infrastructure. Daily fantasy sports apps, such as FanDuel and Draft Kings, have already begun the development of new, in-app platforms that would allow users a space to register in a state and place wagers from the comfort of their own couch. Each state’s betting options could be expanded when coupled with technology’s advancement. So, whether you’re placing a wager on tomorrow’s game, or in the 2nd half of the game currently on TV, technology will be at the helm empowering consumers to grow the legal industry. Despite Las Vegas’ longstanding track record, and underground operations that Congress estimated at upwards of $150 billion annually, sports gambling is in its infancy as a business.

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