Regular readers will know that Hatch was one of the authors of the Professional and Amateur Sports Protection Act (PASPA). He was not happy when the U.S. Supreme Court overturned his law in May this year.
Speaking after the decision, Hatch said:
“The problems posed by sports betting are much the same as they were 25 years ago. But the rapid rise of the Internet means that sports betting across state lines is now just a click away. We cannot allow this practice to proliferate amid uneven enforcement and a patchwork race to the regulatory bottom.”
He immediately went on to announce that he would prepare legislation to address the issue. The draft we now have is the result of that work.
States will need federal approval of their sports betting laws and regulations
PASPA was ruled unconstitutional because it trampled on states’ rights under the 10th Amendment.
Hatch appears to think his changed text will not suffer the same fate, but straight from the draft bill, it says:
“To request approval to administer a State sports wagering program, a State shall submit an application to the Attorney General at such time, in such manner, and accompanied by such information as the Attorney General may require.”
In other words, states will have to ask permission and approval to pass their own sports betting laws.
They will also have to submit to two new federal organizations: a National Sports Wagering Commission and a National Sports Wagering Clearinghouse.
The National Sports Wagering Clearinghouse will receive data from sports betting operators, teams, leagues and referees. It will maintain a national self-exclusion list and collate and identify any suspicious activity.
The Clearinghouse will collect vast mountains of data. The bill states:
“A sports wagering operator shall provide to the national sports wagering clearinghouse anonymized sports wagering data in real-time or as soon as practicable, but not later than 24 hours after the time at which a sports wager is accepted by the sports wagering operator.”
Setting standards and regulating interstate commerce?
The National Sports Wagering Commission’s duties are not spelled out. The preamble to the law suggests what that role might be.
“All forms of gaming have historically been regulated at the State level, and legal sports wagering markets are and should be established and regulated principally by the States, but sports wagering affects interstate commerce more than most other forms of gaming.”
A sports bettor in the Hard Rock Casino Atlantic City wanting to wager on the Dallas Cowboys is engaging in interstate commerce. Information is crossing state boundaries and this gives Hatch the chance to argue that federal involvement is constitutional.
The federal government has long used the regulating state commerce argument to set national standards for areas like environmental protection.
Hatch is simply doing the same for sports betting. The bill preamble continues with:
“While each State may decide whether to permit sports wagering and how to regulate sports wagering, there is an important role for Congress in setting minimum standards for sports wagering that affects interstate commerce and providing law enforcement with additional authority to target the illegal sports wagering market and bad actors in the growing legal sports wagering market.”
It is a reasonable assumption that the National Sports Wagering Commission will take the lead in setting these standards.
Federal regulation of sports betting data
The bill explicitly deals with the data used to settle sports bets.
“With respect to any sports wager accepted on or before December 31, 2022, provide that a sports wagering operator shall determine the result of a sports wager only with data that is licensed and provided by
(I) the applicable sports organization; or
(II) an entity expressly authorized by the applicable sports organization to provide such information.”
There’s a lot in this seemingly innocuous point. For example, US sports bettors aren’t only betting on US sports. World Cup soccer championship, Wimbledon tennis championships and European golf tournaments are common betting options.
It sounds like there will have to be an official list of what is and isn’t an “applicable sports organization” or “entity.” The entities in mind are probably sports data companies such as Genius Sports and SportRadar.
Wire Act amended to allow interstate compacts
The other major element of the bill which justifies it regarding regulating interstate commerce is a proposed amendment to the Wire Act.
The Wire Act expressly forbids interstate sports betting.
Hatch is proposing to modify the Wire Act to allow interstate compacts:
“Each sports wagering opt-in State and each Indian Tribe located in each such State may enter into such interstate sports wagering compact as may be necessary to provide for sports wagering on an interactive sports wagering platform between and among individuals located in any State or within the jurisdiction of any Indian Tribe that is party to such compact.”
This makes a lot of sense, especially for betting exchanges.
Paddy Power Betfair is the principal operator of US betting exchanges on horse racing. It also owns FanDuel, which offers sports betting in New Jersey.
In a betting exchange, bets are matched between punters rather than made against the house. The larger the population of bettors, the easier it is to find someone to take the other side of a bet.
But will the bill make it into law?
There are plenty of federal politicians who disliked the Supreme Court’s decision on PASPA. Their manifesto is written in the first paragraph of the bill:
“Sports gambling conducted pursuant to State law threatens the integrity and character of, and public confidence in, professional and amateur sports, instills inappropriate values in the Nation’s youth, misappropriates the goodwill and popularity of professional and amateur sports organizations, and dilutes and tarnishes the service marks of such organizations.”
Sports betting opponents may still be in the majority in House and Senate, but that doesn’t necessarily mean they will back the Hatch bill. If the bill does pass, it will only be after much amendment. The process will not be quick.
In the meantime, states have an incentive to pass their own sports betting laws.
Any bill that does pass will probably have to grandfather in permission for those states with pre-existing sports betting. Something similar to the carve out that allowed sports betting to continue in Nevada after PASPA passed.
Federal taxes on top of state sports betting taxes
The bill reiterates the importance of the federal sports betting tax; this was introduced in the Revenue Act of 1951.
The tax was initially set at 10 percent but reduced to 0.25 percent in 1984.
The tax is collected on the total sports betting handle — that is the total of all wagers placed.
A year ago, Nevada Rep. Dina Titus proposed that the tax should be canceled:
Congress included the handle tax as a provision in the Revenue Act of 1951 as a way to generate revenue for enforcing state criminal laws against gambling. In theory, the law is a noble one. In practice, the tax has sucked money out of Nevada without ensuring the state receives the benefits outlined by Congress.
Doesn’t sound like much, but in practice, it’s a significant amount.
Small percentages of total handle mean big money
The New Jersey Division of Gaming Enforcement (DGE) announced that total sports betting handle for the state in October was $174,369,684. 0.25 percent of that is $435,924.
But of that $174 million in handle, the sports betting operators made only $8,839,162 in revenue. States take their gambling taxes directly from the revenue figure, not handle.
In Pennsylvania, sports betting taxes are 36 percent of revenue. If the New Jersey revenue figures were taxed at that rate, operators would pay almost $3.2 million in state gambling taxes, leaving them with $5.65 million in revenues.
Take off the federal tax and revenue is reduced to $5.2 million. That means operators would be making a margin of less than 3 percent on sales.
Out of this, they have to pay all their costs: salaries, business taxes, IT costs, real estate investment and so on.
Taxes are lower in New Jersey and one reason why is that sports betting has got off to such a flying start. Even so, the addition of an extra federal tax would be hard to absorb without raising prices.
Raising prices means worse odds for punters and fewer of them as they return to black market sites with better odds.
The text in Hatch’s bill is trying to head off any repeal of this tax.
Legal sports betting is rapidly expanding as states introduce their laws. The federal sports betting tax is producing more and more revenue every day.
Which means a nice windfall for the federal government.