Where Sports Betting Intersects the Economy
Sports betting in the United States has a very colorful history - a history that has been filled with ups and downs for the last 100 years. The first record of illicit behavior in sports gambling came on August 3rd, 1921, when “Baseball commissioner Kenesaw Mountain Landis permanently ban[ed] eight Chicago White Sox players accused of throwing the 1919 World Series in collusion with sports gamblers,”(Bonesteel 2022). Within the next decade, Nevada legalized all gambling in 1931 including sports gambling. Another bribery incident occurred in 1951 in the world of collegiate basketball. 32 collegiate basketball players admitted to taking bribes to fix a total of 86 games between the years of 1947 and 1950 (Bonesteel 2022). In response to this, the federal government taxed all sports gambling winnings by 10% in an effort to reduce the amount of gambling on sports. In addition to the gambling tax, President John F. Kennedy signed the Federal Wire Act into regulation on September 13th, 1961. This law prohibited wire transfers between states and is still in effect today. The Federal Wire Act is the reason why sports gambling varies greatly by state. Over the next few decades, the federal government lowered its taxes on winnings from sports gambling, in turn causing the rate of sports gambling to increase. Simultaneously Pete Rose, the MLB leader in hits all time, was found guilty of betting on baseball games while he was the manager of the Cincinnati Reds. Rose broke the MLB bylaws that are still in effect today (Bonesteel 2022). Finally, on October 28th, 1992, President George H.W. Bush signed the Professional and Amateur Sports Protection Act (PASPA), which outlawed sports gambling in all states except for Nevada (Bonesteel 2022). In the years succeeding this act, illegal sports gambling has grown at an alarming rate and even today, shows no signs of slowing down. For example, the 2018 Super Bowl between Tom Brady’s New England Patriots and Nick Foles’ Philadelphia Eagles had an estimated $4.76 billion bet on the game; 97% of those bets were placed illegally (Bonesteel 2022). Expectedly, states did not enjoy the lack of sports gambling due to its economic effect, and the layperson did not enjoy the illegality of sports gambling due to its popularity. Hence, in March of 2009, “the state of New Jersey filed its first federal lawsuit seeking to strike down PASPA, arguing that it violated the 10th Amendment’s protection against federal anti-commandeering laws,”(Bonesteel 2022). The court case eventually made its way to the Supreme Court, which was planned to be heard in 2017. On May 14th, 2018, Murphy v. The National Collegiate Athletic Association ended in the Supreme Court striking down PASPA and leaving the sports gambling laws up to the individual states. While not all 50 states have legalized sports betting after this Supreme Court ruling, currently, 31 out of 50 states have legalized sports betting, and 5 more states are legal but not yet operational. In the coming months, 36 out of the 50 states will have live, legal sports betting. This overwhelming majority of legalized sports betting is an indicator that sports betting has a lot more positives than negatives in the eyes of the state legislatures. The economic benefits alone are reasons to legalize sports betting, yet there are a multitude of other factors that contributed to the legalization of sports betting across 36 states and Washington DC, since 2018.
The legalization of sports betting has taken the United States by storm. The major benefit of legalizing sports betting is the economic gain. The ceiling of the potential economic gain in this industry is very high. Casinos nationwide have the potential to add close to $3 billion in annual profit from a regulated sports betting market (Hauf 2018). Setting casinos aside, a 2017 Oxford University study found many benefits for the everyday person in the sports betting marketplace. For instance, a legal sports betting system could potentially add 150,000 jobs to the market. The average salary of a worker in the industry would be $48,000 (Hauf 2018). According to Statista, in 2021, 36.1% of households in the United States brought in less than $50,000 annually and 25.2% brought in less than $35,000. It’s important to note here that this is a household statistic rather than the Hauf statistic which provides an average salary for a single worker. This industry and the associated job creation has immensely positive economic implications in this regard as it provides great opportunities for these low income households
The world of sports betting does not only take place in casinos. In fact, many people wager on their favorite sports teams from the comfort of their own couch on their mobile device. Smartphone betting applications are estimated to bring in an additional $9 billion in revenue per year. This total would be a 50% increase to the entire sports gambling system (Hauf 2018). On the national stage, US GDP would increase by an estimated $14 billion (Hauf 2018). This number has potential to be increased even more with the partnerships and sponsorships of different legal gambling sportsbooks partnering with the major sports leagues. However, many of these partnerships are not going to reach full potential due to the fact that American sports leagues have teams across the entire nation. There are still 14 state legislatures that do not allow any sports betting in their state. Also, many American sports leagues include one or two Canadian teams, such as the NBA, MLB, NHL, and MLS. Lastly, legal sports gambling winnings are taxed. Tax revenue will increase tremendously over time. Take the Super Bowl for example. Out of the $4.76 billion bet on the Super Bowl, only 3% of it was legal betting in Las Vegas at the time. The amount of money the government can make from close to $4 billion dollars worth of winnings can be used toward projects to improve transportation, social security, defense, or health care. Whether or not you are a sports gambler, sports gambling can help you in an indirect way.
The sports gambling industry does more than just improve many aspects of the national economy. Another major benefit of sports betting is the contribution it has to helping sports popularity. There is no doubt that fans are a lot more invested in the games that they bet on relative to the games that they do not bet on. Sports in the United States are already extremely popular. There is a potential increase in popularity that can take place with the legalization of sports betting. Viewership numbers will undoubtedly increase across the nation. This creates another economic snowball effect of broadcasting companies earning more money and it working down the chain of the employees of those companies earning more money. A final benefit of sports betting that is very controversial is the solution to game fixing. Game fixing is one of the largest arguments in opposition to sports betting. However, many of the game fixing situations I layed out earlier in the article took place in a time where athletes were not making as much money as they are currently. Even 30 years ago, athletes were making less than half the amount of money that athletes are making today. In the major American sports leagues, most athletes are millionaires and it would be unwise of them to throw a game to make some more money. In fact, the four major sports leagues will earn a collective $4.2 billion from legalized sports betting (American Gaming). This reduces the incentive for players to game fix because their salaries will be higher due to the increased revenue accumulated from sports betting. The extra money earned from legalized sports betting is distributed amongst teams, and from the teams to the players in their contract negotiations. Collegiate athletes are also less incentivized to game fix for multiple reasons. Firstly, it is forbidden by the NCAA and will result in the player not being able to play in the NCAA any longer. Secondly and more prominently, the NCAA recently enacted players to be able to earn money from their name, image, and likeness (NIL). These NIL deals can be worth up to $8 million. NCAA athletes have the opportunity to make money in a less risky, legal, and much more lucrative way than ever before. The legalization of NIL clearly slows down the appeal of game fixing and betting on collegiate athletics for the players.
The future of the sports betting industry is one that is interesting and full of potential. The main competition is unfolding in two ways. Firstly, there is the ever-lasting difference between betting online on a mobile device through an application versus in a casino. The graph for this over time will look like a logarithmic function with mobile betting taking a certain percentage of the industry and leaving the rest of the industry for casinos. Mobile betting will always be on the rise, but casinos will not go out of business for the foreseeable future, especially in places like Las Vegas and Atlantic City. In October of 2021, 84% of sports bets were placed on mobile apps (O’Brien and He 2021). Mobile betting has taken over every single state that betting was legalized in. Lastly, there is immense competition amongst which mobile app/sportsbook to use when placing bets online. For some people, they do not have a large amount of options since their state may have only legalized a certain amount of online betting websites. However, FanDuel and DraftKings have emerged as the top two competitors so far in the short tenure of online sports betting. The best applications each have their own attractions and attributes. FanDuel is known for quick payouts, while DraftKings is known for odds boosts. On the other hand, WynnBET is the best for beginners and Caesars Sportsbook is famous for their sign up bonus.
The business of sports betting will only continue to grow over the coming years and decades. There are still many states and regions that have yet to legalize betting, and once those regions do legalize betting the market will expand. The regions will be legalized in the near future as the government has a lot of financial incentives to allow for the legalization of sports betting. The days of game fixing are behind in that players do not have the same incentives as in previous years. Mobile betting only increases use as anyone of age can legally place bets on sporting events at any point in time from anywhere in the world. I am excited to see how it affects the world and business of sports, and more importantly the economy on the national level!
References
Bonesteel, Matt. “Sports Betting Timeline: From Las Vegas to the Supreme Court.” The Washington Post. WP Company, September 12, 2022. https://www.washingtonpost.com/sports/2022/08/29/history-of-sports-gambling/.
Hauf, Patrick. “The Economic Benefits of Legalized Sports Betting in the U.S. Would Be Huge: Patrick Hauf.” FEE Freeman Article. Foundation for Economic Education, August 31, 2018. https://fee.org/articles/the-economic-benefits-of-legalized-sports-betting-in-the-us-would-be-huge/.
“Interactive U.S. Map: Sports Betting.” American Gaming Association, September 1, 2022. https://www.americangaming.org/research/state-gaming-map/.
NewsWatch. “5 Reasons Why Sports Betting Should Be Legalized.” NewsWatchTV, July 20, 2022. https://newswatchtv.com/2021/01/25/5-reasons-sports-betting-legalized/.
O’Brien, Timothy L., and Elaine He. “Online Sports Betting Is Changing Sports and the Gambling Business: Graphic.” Bloomberg.com. Bloomberg, December 16, 2021. https://www.bloomberg.com/graphics/2021-opinion-online-sports-betting-future-of-american-gambling/.
Published by Statista Research Department, and Sep 30. “Distribution of Household Income U.S. 2021.” Statista, September 30, 2022. https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/.