During the Super Bowl between the New England Patriots and the Philadelphia Eagles, Americans wagered a record $4.76 billion on the game. Surprisingly, 97% of this amount was placed illegally. However, this is expected to change. On May 14, 2018, a groundbreaking decision by the U.S. Supreme Court struck down the 25-year-old Professional and Amateur Sports Protection Act (PASPA), enabling states to legalize sports betting. This ruling promises a seismic shift in the sports and betting industries, with implications for fans, businesses, and regulators alike.
This article explores the rise of legalized sports betting, its massive $150 billion market potential, revenue distribution, and timeline for implementation. It also delves into the economic, ethical, and social implications, along with its impact on fantasy sports, eSports, and other industries.
Sports Betting 101
What Is Sports Betting?
Sports betting allows wagers on outcomes of various professional and amateur sports events. This can range from simple bets on game winners (“money line”) to more intricate options like “point spreads” (betting on the margin of victory) or “over/under” (totals betting on combined points scored). More advanced betting tools include parlays (multiple bets dependent on all events occurring) and futures (bets to be decided in the future).
While betting is legal in many parts of the world, including the U.K. and Australia, the global market remains largely unregulated. Illegal wagers worldwide amount to $1.8 trillion annually, with over 80% of activity occurring in black markets. In the U.S. alone, illegal sports wagers are estimated to reach $50 to $150 billion annually.
The U.S. Sports Betting Industry’s Potential
Nevada has long been the epicenter of legal sports betting in the U.S., handling $4.8 billion in wagers in 2017. In comparison, the U.K., with a smaller population but robust legal gambling infrastructure, reported $20 billion in wagers during the same period. As more states legalize wagering, the U.S. sports betting market is expected to balloon into a lucrative $150 billion industry.
The Path to Legal Sports Betting
Not an Overnight Transition
Each state will decide on its path to legalization. States have strong incentives to legalize, as experts predict legal sports betting could generate $8 billion in local tax revenue, create jobs, and contribute $20 billion to GDP annually if adopted in 40 states.
Key decisions for states include:
- Taxation Rates: States vary in their approaches, with Nevada imposing a 6.5% rate, New Jersey planning 8-12%, and Pennsylvania as high as 34%.
- Licensing and Regulation: States must determine who can be licensed, how, and where betting will occur—whether in-person or online.
- Revenue Sharing: Negotiations to share revenue with sports leagues, individual teams, and operators are ongoing.
Conservative estimates indicate that by the end of 2018, eight or nine states could fully legalize sports betting, potentially growing to 12-14 states by 2019. However, federal oversight and standardized regulation may still emerge, advocated strongly by leagues like the NBA and NFL.
Who Wants a Share of the Sports Betting Pie?
Beneficiaries of a Legal Betting Landscape
Legalized sports betting creates opportunities for established entities, startups, and even tech giants. Casinos, racetracks, and online platforms are expected to reap significant benefits, but new revenue streams may also open for companies like Facebook, Twitter, and YouTube.
Interestingly, sports leagues are seeking their share. Major organizations like the NBA and MLB are pushing for “integrity fees” of up to 1% on all wagers placed on their games, claiming they will need to invest in ethical monitoring of their players and games. However, casino operators argue these fees are unwarranted, as leagues will already benefit from increased fan engagement and viewership.
Implications of Legalized Sports Betting
More Fans, More Engagement, More Ad Revenue
Sports betting has the power to transform how Americans engage with sports. Studies show that sports bettors are significantly more engaged fans than non-bettors. For example, an NFL bettor watches an average of 45-50 games annually compared to 15-16 games for non-bettors.
This heightened engagement is likely to boost viewership, presenting welcome opportunities for a sports entertainment industry under pressure from streaming and cord-cutting trends. Betting firms, like their British counterparts, may reinvest as much as 20-30% of revenue into advertising, further driving sports popularity.
Opportunities for Startups and Media Companies
The ruling promises significant opportunities for both legacy and emerging businesses. Sports broadcasters and media platforms may create betting-related programming, statistical analysis, and real-time updates to guide bettors. Local startups and established sports analysis platforms like Bleacher Report could evolve into essential tools for bettors.
VC-backed companies such as WinView, which combines betting and real-time games, are already seeing increased momentum. Artificial intelligence startups like Stratagem and data-driven prediction platforms like Unanimous A.I. will also benefit.
How Does This Impact Fantasy Sports and eSports?
Fantasy Sports Transitioning to a Betting Era
The ruling will likely have significant implications for fantasy sports giants FanDuel and DraftKings, who hold more than 90% of the fantasy market share. While their users might not overlap heavily with traditional sports bettors, the companies could see stiff competition from sportsbooks or casinos.
FanDuel and DraftKings are exploring various responses, such as launching their own sportsbooks or partnering with larger operators. For instance, Irish bookmaker Paddy Power Betfair is reportedly in merger talks with FanDuel, aiming to establish a foothold in the U.S. market.
eSports: A Parallel Industry?
For eSports, the effect is less clear. While legalized betting may detract viewers from eSports wagering, some believe it will boost engagement, much like traditional sports. Platforms like Unikrn, which allows wagering on professional eSports matches, are well poised to capitalize on this shift.
Ethical Concerns and Social Dynamics
Integrity of the Game at Risk?
Legalized sports betting raises ethical concerns about the integrity of competitions. College athletes, in particular, are seen as vulnerable to corruption, as they often lack financial stability compared to professional players. Despite concerns, organizations like the NCAA have begun relaxing their hardline stances against betting, allowing championships in states that legalize sports wagering.
A “Sin Industry” Renaissance
Legal sports betting ushers in an era reminiscent of the legalization of marijuana or the end of Prohibition—a thriving economy based on vice. While commercial opportunities abound, the long-term societal and ethical ramifications remain to be seen.
Final Thoughts
The legalization of sports betting promises to reshape the sports and entertainment industries, with far-reaching implications for businesses and consumers. While new revenue streams, a vibrant startup ecosystem, and boosted sports engagement are exciting, ethical concerns and regulatory challenges lie ahead.
As states move forward, striking a balance between innovation and responsibility will be key in determining whether legal sports betting becomes a driver of sustained economic growth or a source of societal concern.