Want to place a bet on your favorite March Madness Cinderella story?
The only aboveboard option available to U.S. residents is to head to Nevada, which holds a coveted exemption from a federal sports gambling ban.
This geographic restriction could change as early as June, however, with the U.S. Supreme Court expected to decide whether the 1992 Professional and Amateur Sports Protection Act (PASPA) – the law making sports gambling illegal outside of Nevada – is constitutional.
If the court finds the law is not, states would have the power to regulate sports gambling as they see fit.
Collegiate basketball fans aren’t the only ones watching the ruling closely.
Smarkets, an online sports betting company operating in the U.K., is eagerly awaiting the decision from their U.S. headquarters in downtown’s Financial District. The company has 10 employees in L.A. and 85 employees in the U.K. It serves some 232,000 users in the U.K., Malta and Ireland.
Peter Hammon, the company’s director of government relations, said a decision by the Supreme Court to overturn the longstanding prohibition would open up a huge revenue source for the company – Forbes estimates a legal U.S. sports betting market could be worth as much as $6 billion.
“Repealing PASPA would significantly impact our ability to explore the U.S. market, but it’s the state by state regulations that would most impact our revenue,” he said. “If it’s not repealed, it would significantly limit our opportunities in the U.S. to the state of Nevada and other ancillary projects like political betting and horseracing.”
While by no means a sure bet, Smarkets and other gambling outfits are already looking to the state level as the next battleground, as most states have laws outlawing or strictly regulating gambling.
That includes California, which has so far stood pat while states such as Pennsylvania, West Virginia and New Jersey have already passed bills that would take effect immediately if the Supreme Court strikes down the federal law.
State Assemblyman Adam Gray of Merced said a California rollout would take more time.
“We will undergo that process if and when the Supreme Court rules,” he said.
Procedural hurdles
There are two major hurdles for Smarkets and other companies hoping to cash in on a California sports betting market: First, Californians would have to amend the state constitution to allow sports betting; and second, a licensing system would have to be enacted.
Gray, who supports legalized sports betting in the state, said with a statewide election looming in the fall, the timeline to get an initiative on the November ballot was prohibitive.
“Going onto the ballot is a time consuming and expensive proposition and involves educating the public,” he said. “We’d have to be done by mid-June to get something on the ballot by November.”
The state assembly committee responsible for gambling oversight could first figure out licensing details before bringing a constitutional amendment before the electorate, but even that will likely take time, according to Gray.
“We have to fill in all the details of what it would look like,” he said. “The legislature is in session until August or early September. With the Supreme Court ruling in June, I don’t know if there would be time to address all the moving pieces. It might be a more extended process to put that together.”
Gray said legal sports gambling could bring in as much as $100 to $200 million in revenue for California, given the diverse landscape of gaming facilities that could serve as a built-in infrastructure –tribal casinos, card clubs and horse-tracks – as well as the possibility of adding online companies to the mix.
Turf war
There’s no guarantee online bookmakers such as Smarkets will be cut into the California sports gambling scene even with a favorable ruling from the Supreme Court, a constitutional amendment at the state level, and the establishment of a licensing system.
The state currently does not allow online poker or most other forms of online gambling, so web-based companies might not get a seat at the table at all, Hammon admitted.
“The Indians will try to get exclusivity over sports betting, but I’m skeptical they’ll be able to,” he said. “If California came out and said we’ll do sports betting but not online, we’re screwed.”
Hammon said he hoped that wouldn’t be the case, and surmised there would be a licensing system that balanced different interest. He said that cutting online bookies into the picture – possibly through a partnership with tribal casinos –– might be one way to create balance.
“If you legalize it for everyone, the card rooms will have a leg up because of geography,” Hammon said. “The best solution for everyone involved is you allow the Indian casinos to offer online sports gambling, but you limit the card rooms and tracks to in-person betting.”
Jacob Coin, executive director in the office of public affairs for the San Manuel tribal casino in San Bernardino County did not respond to specific questions about the legalization of sports betting, but said in a statement that the tribal government was monitoring the situation.
“San Manuel is mindful that the U.S. Supreme Court will render its decision in the New Jersey sports betting case in the next few months,” Coin said. “Meanwhile, we continue to monitor developments regarding the case and study the potential impacts of legalized sports betting on tribal government gaming in California and across the Country.”
Online jackpot?
Smarkets believes that it can be a competitive option for sports gamblers in California and other markets. The company’s lack of the physical overhead of a casino or card club mean it can charge lower fees on bets and still make money, Hammon said. Smarkets reported roughly $36 million in revenue and $19 million in profit in 2016. It acted as bookrunner on in nearly $3.5 billion of bets the same year.
The structure of Smarkets is a factor in the lower cost to bettors.
A typical sports book has about a 5 percent margin on bets.
Smarkets allows users to bet against each other rather than the Vegas line and takes its cut from each winners’ haul.
“In Las Vegas you have to bet $110 to win $100,” Hammon said. “If you make the same bet on Smarkets, we’d just take $2.”
There are other wrinkles that will have to be worked out as well.
Professional sports leagues like the National Basketball Association and Major League Baseball are pushing for a law that would require sportsbooks to pay them one percent of all wagered bets.
Hammon said one percent of all wagered bets equates to roughly 20 percent of revenue for sportsbooks and half of Smarkets’s take.
“If you want to bring people from the black market and maximize tax revenue, then giving one percent hamstrings both policy goals,” said Hammon.
