The topic of federal legalization of sports betting has been brought up before, but it has gained steam since Adam Silver's November New York Times op-ed and after Silver's cover story in ESPN The Magazine's Gambling Issue. Sen. John McCain (R-Ariz.) also recently said that Congress needs to hold hearings to discuss legalizing sports betting.
While it seems that the question of legalizing sports betting presently is more of an if than a when, there remains a great deal of uncertainty regarding what it would look like. How will it be regulated? How involved will the government be? Will it be federal enforcement or on a state level?
Until many of these questions are answered, it will be difficult to draw any hard conclusions about the ramifications of legalized sports gambling in the U.S. However, there are certainly some myths that I believe can be dispelled.
Here are the top five myths about legalizing sports betting and why they're wrong:
Myth No. 5: It will create greater risk for game fixing
This is the easiest myth to dispel. Those who believe that legalized sports betting will lead to more risk of game fixing simply don't understand why games are fixed. It's a pretty reasonable assumption that it's easier to fix a game in an environment where most of the money wagered is impossible to discover or track by the government.
Silver echoed this sentiment when discussing his personal revelation in an exclusive interview with ESPN. "The Donaghy controversy also made me aware how important it is that we have a way of monitoring irregular activity on our games," Silver said. "But for the FBI knocking on our door and notifying us about Donaghy's betting, none of the systems that we then had in place had captured any betting by Tim Donaghy."
In addition, game fixing would be easier in a world where fewer people track or are even aware of things like point spreads and over/under bets. Legalized sports betting would elevate these now somewhat esoteric notions into the mainstream conversation about sports. If something shady were to occur in a game around a betting proposition, raised awareness by the public about gambling in general would help highlight any improprieties before, during and after the match.
Myth No. 4: It will damage the sports betting business in Las Vegas
The thought process here is that with legalized sports betting available locally, there will be less interest in making the trek to Sin City to wager on sports. This mirrors a similar concern that some had 25 years ago when Indian and commercial casinos began sprouting up all over the U.S.
In that time span, we all know that Vegas has flourished. This year, it is on pace to welcome a record 40 million visitors. In the past two decades, although total revenue has risen, percentage of revenue from gambling has decreased from close to 60 percent to last year's 38 percent. Are fewer people gambling because they can do it in their home state?
My answer is a solid maybe. Vegas has had to reinvent itself as a place that is about more than just gambling. Concerts, shows, high-end nightclubs and restaurants draw people to Vegas as much as the gambling does. Maybe more so.
I see the same trend happening if sports betting gets legalized in the U.S. The experience of going to Vegas is becoming less and less about putting down a sports bet and more and more about the experience of everything else. In fact, there's an argument that exposing more people to sports gambling in their native states will make the general concept of sports gambling more approachable, ultimately leading to a larger overall percentage of sports fans-turned-gamblers.
Las Vegas sports book operators are already looking to expand to other states. The U.S. operation for the U.K. bookmaking powerhouse William Hill has already set up an operation in New Jersey, and MGM CEO Jim Murren has said his company is interested in expansion.
At any rate, I really don't see legalized sports betting in other states having a big impact on the sports betting business in Vegas.
Myth No. 3: It will put local illegal bookies out of business
Those who believe this simply don't understand how sports betting with a bookie works. The two biggest reasons people bet with bookies (beyond the lack of alternatives) are the convenience and the line of credit. These days, most bookies provide both a phone number and website where bets can be made. In addition, customers are far more inclined to place a wager when they don't have to put any money down.
Those betting with bookies have predetermined settlement terms. Some are based on a time frame, while others are based on going over agreed-upon limits. This credit relationship will be hard for many gamblers to give up.
Since bookies will not have to pay taxes or licensing fees, they will be able to offer better margins or incentives to their customers. (It's common for bookies to offer rebates to their big customers.) This will be difficult for legal bookmakers to compete with.
Myth No. 2: It will create more "problem gamblers"
I understand the argument that legalized sports betting could expose more people to gambling and the increased ease and access will create more problem gamblers, but I simply don't buy it. Illegal sports betting has some characteristics that can lead to problem gambling more than legal betting would.
Here's an example. Say I set up an account with Legal Sportsbook A. I will likely have to put money on deposit to do so. When I lose this money, it's gone, and I can't bet until I put more money on deposit. This is not how most bookies work. In the latter case, I set up a credit arrangement with Illegal Book B and we agree that I will pay every time I go over $1,000. But let's say I have a bad losing streak and end up down more than $1,000. Many bookies will allow me to get more credit and continue to gamble. There are no credit checks or margin calls until it is time for me to pay. This is the type of financial recklessness associated with problem gambling.
Furthermore, once sports betting becomes legal the negative stigma behind it will eventually disappear, which will make it a bit easier for problem gamblers to ask for help. Since sports gambling is currently something that happens in the shadows, problem gamblers are likely to hide in that shadow until it is too late.
The National Council on Problem Gamblers has found that problem gamblers are most often involved in illegal gambling, so moving toward a model where more gamblers are doing it legally can only help.
"One of the things that makes sports betting so interesting is that it is probably by far the most widely participated in form of illegal gambling. Illegal gambling is one of the factors that's associated with gambling addiction," Keith S. Whyte, executive director of the NCPG, told my ESPN colleague David Purdum.
Myth No. 1: It will result in large revenue for the leagues
When I think about the best way to legalize sports gambling from a logistical standpoint, I get a headache. There are going to be a lot of hands in the cookie jar. First off, the government will only legalize if it is going to get significant revenue. Second, operators will need to run a cost-effective business, which may prove difficult if there are a lot of other hands to feed besides the government.
There is simply no way the leagues could ask for a percentage piece of gambling revenue, as this would result in a huge conflict of interest. In addition, asking for a percentage based on the overall handle (total amount wagered) will cut into the margin of the sports books too significantly.
And I have heard some mention licensing fees for data, but haven't we already covered that in lawsuits against both the NBA and Major League Baseball Advanced Media (MLBAM)? In both cases, statistics and data were ruled to be public, not a private asset for which the leagues could charge a license fee.
In the most relevant case, CBC, the parent company of CDM Sports, a fantasy provider, sued MLBAM after being denied a new fantasy sports license. U.S. District Court Judge Mary Ann Medler ruled in favor of CBC, stating that "statistics are part of the public domain and can be used at no cost by fantasy companies." One would infer that the same would apply to legal bookmaking operations.
Once games happen, the stats are public domain. Yes, trademark images and logos would be a different story, so I could see the leagues getting marketing deals, but I don't see that as a huge windfall for the leagues.
Mr. Purdum, an expert on the subject, has been vocal in his belief that online sports gambling will need to be a big part of the new legalization plan, and I share his belief, as betting on a phone and computer is simply much more convenient than driving to a brick-and-mortar sports book and making a wager. In order to grow the pie large enough, these conveniences must be provided to gamblers. I am concerned that the overall pie, even with online gambling, may not be large enough for the leagues to make the money they are hoping for.
The real value for them will be potential marketing dollars and increased fan engagement, not licensing fees for data or direct revenue from wagering.
There are a lot of unanswered questions regarding legalization of sports gambling in the U.S., and it will be fascinating to watch how it unfolds in the next few years. If it's legalized, there will be huge changes, but some assumptions are simply off.