Depending on what city you are in, what establishment you are in, and your willingness to lay down a bet, that risk is regulated by someone — whether that regulation is by a business owner protecting his business, a politician serving some constituency, or a guy with a baseball bat. Gambling attracts politicians, organized crime, and entrepreneurs all the same.
The catch with gambling is that the house always wins in the long run.
However, for the groups that “regulate” gaming, the house winning only means profit. So, given the recent ruling by the Supreme Court that sport gambling is legal (or more specifically, that the federal government can’t force states to outlaw it), we are in for the mother of all high-stakes gambles where everyone that understands the game will want to lay down a bet.
And, like many crony-infused political fights that we have witnessed in the last several years, the pot at stake is huge.
It is estimated that as many as 46 percent of consumers have bet on the outcome of a sporting event, and another 11 percent would “like to try.” Only about 20 percent of smartphone users own an iPhone, so we are talking about a potential market that is likely more than twice as large as the iPhone market. And, even under the current laws, two of the biggest sport gambling companies (Ladbrokes and William Hill) brought in more than $4 billion in revenue in 2015.
In fact, the gambling and gamesmanship has already started. The entrepreneurs have already announced expansions, the associations have already provided best practices, and the politicians have already been tripping over themselves to get to a podium to make statements.
Heck, even before the ruling, NBA Commissioner Adam Silver had already proposed a 1 percent tax/fee that would go back to the league to maintain the “integrity of the sport,” and it is just a matter of time before the other leagues join his push. However, the league doesn’t need more money for that, the profit motive of the league is to ensure that it always viewed as a bastion of integrity. If games are considered fixed, both fans and gamblers will lose interest fast.
For instance, when one of the best baseball players of all time, Pete Rose, was caught betting on the sport, he was banned from the Hall of Fame for life. There is no amount of money that would have made that situation better. The league banned Pete Rose in order to maintain their brand, not to ensure that other people viewed their own bets as fair. They banned him to protect their own profits, not gamblers’.
And, when it comes to organized crime, things get a bit murky — criminals actions are murky by default — but as former Gov. Chris Christie said, “I know that we don’t know much about organized crime coming from New Jersey. But we know a little bit. And the fact is that organized crime is involved in profiting from this every day.”
Just like the prohibition of alcohol, gambling exists almost everywhere that it has been banned. That means that legalizing gaming can hurt black market/organized crime operations, and it is likely that they will push back against efforts to legalize sports betting. In this case, there won’t be a mob lobbyist though — they will likely send someone from the church or another respected member of the community to fight for them.
There is even an economic allegory: The bootlegger and the Baptist.
And, the entrepreneurs just want to make money. This is the group I trust because the more competitive the market becomes, the more transparent it becomes, and the lower the odds for the house become. Legal businesses compete against each other in the sunlight, which as Sen. Chuck Grassley routinely says, quoting Justice Louis Brandeis, “the best disinfectant.” In this case, it just means that sunlight will likely lower the house’s take.
Trapped in the middle of this fight will be the politicians. Respected leaders in their community will be making the same argument that organized crime wants them to make. People outside of the industry want to benefit from the risks of others. And, the legitimate business owners will need to fight all of these different groups in order to run their businesses the most effective and efficient way.
That means that whatever policy solution we end up with will likely be some Frankenstein solution that taxes sports bets in way that looks like a fighter trying to take a dive against an opponent that can’t land a punch — awkwardly. What politicians need to look out for are the cronies. They need evaluate the profit motives of the proposals that are sent to them as well as the broader efficiency of the market.
Even if this fight ends up in a dive being taken, the pre-game itself will be worth watching. Maybe that makes it more like a pro wrestling main event with promos, posturing, and bling. But either way, this is going to be a political show.
Charles Sauer (@CharlesSauer) is president of the Market Institute and author of Profit Motive: What Drives the Things We Do. Charles previously worked on Capitol Hill, for a governor, and for an academic think tank.
