Image Credits: @piero_hg on Unsplash (Unsplash License)
On January 17, 1920, the 18th Amendment was passed and the manufacturing of alcohol was made illegal in every single state.
Drinking declined in the U.S. at first but was soon revived through bootleggers and crime mobs. The unregulated black market thrived and the lack of consumer protections hurt more people than it helped.
Congress saw this shift and acted swiftly to end the failed experiment, passing the 21st Amendment on December 5, 1933, which ended the ban on alcohol.
Not understanding the implications of forbidding a popular activity, Congress again attempted to regulate a major industry, this time the gambling industry. The Professional and Amateur Sports Protection Act of 1992 (PAPSA) was passed, officially restricting sports gambling nationwide, with a few exceptions like Nevada.
Again, similar to the alcohol prohibition era, this gambling interdiction created a major black market for sports gambling. These illegal operators evaded the taxes in place and offered attractive betting lines and odds, allowing said operators to maintain their high-volume customers.
This prohibition spanned for 26 years until the Supreme Court took on Murphy v. National Collegiate Athletic Association in 2018. Before this landmark case, New Jersey governors had challenged the law for almost a decade and had been defeated in the courts twice before finally getting to the Supreme Court.
The main issue in the case was whether the federal government had the right to regulate state laws, a 10th Amendment issue. Advocates for the legalization of sports betting claimed that the federal government’s position was unconstiutional because it created federal laws that states would be responsible for enforcing. The anti-betting stance argued that the supremacy clause, from Article 6 of the Constitution, allowed the federal government to keep the PASPA in place.
After several months of argument, the Supreme Court reversed the lower court’s ruling and decided in a 7-2 majority that the PASPA violated the anti-commandeering principle. In addition, the court also ruled that the law itself was unconstitutional in a 6-3 vote.
Since that historic ruling, the gambling industry has evolved into a multi-billion dollar enterprise and continues to grow at an unprecedented rate.
Total economic output, representing sales of businesses in the U.S., is expected to be $41.2 billion. Legal sports betting operations including wages, salaries, benefits, and tips are expected to support $11.0 billion of total labor income. Total jobs supported–direct, indirect, and induced–are expected to be 216,671. Legal sports betting is predicted to contribute $22.4 billion to U.S. gross domestic product. Fiscal impacts, consisting of state, local, and federal tax impacts are expected to total $8.4 billion.
While the nation itself has been impacted positively by the legalization of sports betting, the benefits vary substantially from state to state.
New Jersey
As the state to lead the fight to legalize sports betting, New Jersey has reaped the benefits of its decision. Thus, it has led the nation for months in the amount of money bet on sports within its borders. Since the decision to legalize sports betting, citizens of the Garden state have legally wagered over $9 billion. In December 2020 alone, the state saw nearly $1 billion in bets placed, despite Covid-19 restrictions and closures hurting the gambling industry by 17%. The state government has also seen the legalization pay off as it has garnered $25 million from taxing sports bets as of June 2019.
The legalization of online sports betting has been the main reason New Jersey has seen such an increase in revenue. Mobile business accounts for about 80% of the bets in New Jersey. Online bets are far more simple than the traditional method of sports betting and are made widely available through mobile betting apps such as FanDuel or DraftKings.
Sports betting has also saved Atlantic City, a major gambling hub on the east coast. Since May 2018, the city has seen a 22.5% increase in gambling revenue since May 2018. State Senate President Stephen Sweeney said sports betting has helped casinos’ bottom line by drawing more people into the buildings, especially for major events such as the Superbowl.
Arizona
Arizona is one of the more recent states to legalize sports betting with the mobile and retail betting markets opening as of September 9, 2021. In just one month, the state was already ranked fourth in the nation in money wagered on the National Football League in September with $36.9 million bet.
Looking to the future, the state expects upwards of $30 to $35 million in taxable revenue from the legalization of sports betting by fiscal year 2024, and more than $200 million in economic impact.
Despite all the legalizations happening across the country, states still must be wary of illegal local bookies and offshore operators. The high tax rates that some states employ to raise revenues occasionally backfire, as citizens choose to use illegal means to gamble in order to evade taxes. In 2019, 52% of bettors participated in the illegal market.
As states slowly move to allow their citizens to bet, they increase their revenues from taxes, but enable the risk of enhancing the already inordinate rates of gambling addiction. However, the legalization of gambling is a novel experiment and its real, long-term results remain to be seen.