The U.S. Supreme Court this week struck down a federal law that prohibits most states from allowing gambling on competitive sporting events. The Court's May 14 ruling in Murphy v. NCAA has significant potential implications for gaming companies as well as sports teams and leagues, depending on how Congress responds.
The Court held that the Constitution’s anticommandeering principle prohibits Congress from giving direct orders to state legislatures or from dictating what a state legislature may do regarding sports betting. Now that the Supreme Court has found the Professional and Amateur Sports Protection Act (PASPA) (28 U.S.C. § 3701, et seq.) to be unconstitutional, states are free to pass laws regulating—and potentially taxing—sports gambling. Indeed, several states, including New Jersey, New York, Pennsylvania, West Virginia, and Mississippi have already enacted legislation to legalize and regulate sports betting within their jurisdictions. Additional states, such as Oregon, Delaware, and Rhode Island, also appear to be making substantial preparations for sports betting through their lotteries.
It is possible that legislation similar to PASPA will return, however. Immediately after the Supreme Court issued its ruling, Senator Orrin Hatch, one of the original authors of PASPA, stated his intention to introduce legislation to replace PASPA. It remains unclear exactly what form this legislation will take. Congress could criminalize or regulate sports betting on a national level.
Professional sports leagues also have been preparing for this outcome after the justices appeared poised to strike down PASPA following oral argument in December. Although the National Basketball Association (NBA) and Major League Baseball (MLB) appear open to state laws legalizing sports betting, the National Football League immediately called on Congress to return to the drawing board to draft new legislation. The National Collegiate Athletic Association has yet to adopt a firm position, apparently taking a wait-and-see approach.
Typical estimates put the value of illegal sports betting in the United States at around $100 billion. While it is too early to know the exact effects of the Murphy decision, one thing is clear: all interested stakeholders will jockey for a piece of this potential new revenue source. Representatives from MLB and the NBA have previously floated the idea of states imposing a small tax on sports wagers to be paid to the leagues to cover “integrity” services, such as increased compliance and monitoring costs due to more betting. Players’ associations and their members will want a cut of these increased revenues as well. And, while it is unclear what effect more betting will have on day-to-day team operations, it is widely believed that team valuations will see a net positive effect.
New state taxes and regulations on sports betting would have substantial implications for gaming company operations, including immediate costs of complying with a patchwork of new state licensing and taxation regulations. It is also possible that states rushing to develop their own regulations in light of Murphy may find their laws preempted by Congress shortly thereafter. We will continue to keep a close watch on developments and will issue timely updates.
