Thursday marked the tip off of the greatest three weeks in college sports: the NCAA Men’s Division I College Basketball Tournament. All over the country, office pools and online leagues will fill out more than 149 million brackets for the tournament, with everyone hoping theirs will not be busted. While the odds of completing a perfect bracket are 1 in 9.2 quintillion, states that have legalized sports betting will benefit from March Madness, regardless of those odds.
After the Supreme Court invalidated the Professional and Amateur Sports Protection Act in Murphy v. NCAA on May 14, 2018, seven new states have legalized sports gambling. The handle, or total wagers, for those states and Nevada currently stands at more than $5.9 billion. While the eight states are all experiencing the positive impacts of their newfound revenue stream, no state has generated more sports betting buzz than New Jersey.
Since June 2018, when legalized sports betting opened in New Jersey, more than $1.9 billion has been wagered, with the state generating about $14 million in tax revenue. On March 13, New Jersey’s Department of Law and Public Safety’s Division of Gaming Enforcement announced that New Jersey casinos collected $241 million in total revenue in February 2019, a 25.6 percent increase from February, 2018. As fans gear up for the madness, New Jersey and the seven other sports betting states project even more gains in March and April. The NCAA Tournament is estimated to to draw about 47 million people, or one in five adults, to bet $8.5 billion.
That means billions of dollars continue to be left on the table in illegal markets. For example, of an estimated $10 billion bet on the 2018 NCAA Tournament, only 3 percent was bet legally. Fortunately, there are 23 states that have active legalized sports betting legislation and three others, Arkansas, New York, and Oregon, have legislation or ballot initiatives pending for partial legalization. In New York, bettors are so anxious to get their picks in that they download mobile sports betting apps, like DraftKings, drive to New Jersey, and place their wagers. The pressure on New York to follow suit with its neighboring state and take advantage of this untapped potential tax revenue makes it the most likely next candidate for full-scale legalization.
As legal sports betting continues to grow, the power to legalize it must remain with state legislatures. The federal government does not regulate the gaming market now and should continue to stay out of the business of sports betting entirely. In December 2018, Sen. Chuck Schumer, D-N.Y., and former Sen. Orrin Hatch, R-Utah, introduced the Sports Wagering Integrity Act, which would allow Washington to control sports betting decisions, impose new consumer excise taxes, and expand the size and scope of the federal government with two new bureaucracies to oversee sports gaming. So far, that legislation has not been reintroduced in the 116th Congress and matters should remain that way.
Nonetheless, states with sports betting need to be held accountable while allowing the new legal market to flourish. This includes keeping taxes low and refraining from unnecessary fees and exorbitant regulations. For example, Pennsylvania taxes 36 percent of sports betting revenue, while Delaware and Rhode Island have tax rates that exceed 50 percent. Mississippi, Nevada, New Jersey, and West Virginia all have tax rates below 13 percent.
New York’s bill to legalize online sports betting includes an 8.5 percent tax rate, but also imposes a 0.2 percent “integrity fee,” or royalty, for sports leagues. If enacted, New York, the headquarters of all four major U.S. sports leagues, would be the first state to have an integrity fee. Higher taxes and royalty carve-outs for billion-dollar leagues stifle the expansion of the sports gaming industry and dissuade bettors from leaving illegal markets that do not enforce such restrictions.
The sports betting industry should be allowed to grow free from a one-size-fits-all federal approach, while states should safeguard free-market principles by avoiding tax hikes and superfluous mandates. As enticing as it is for bettors to pick the top-seeded Duke Blue Devils to win the tournament, it should be equally as alluring for states to retain the sole authority to legalize sports gambling.
Peter Klensch is government affairs manager for Citizens Against Government Waste.
