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<i>The Week in Public Finance</i>: Betting on Sports Gambling Becoming Legal, States Up the Ante

In case the Supreme Court legalizes it this summer, states are racing to take advantage of the new revenue. But it likely won't be the jackpot they're hoping for.

Sports Betting Internet Gambling
A man watching basketball games while making bets at a sports book in Las Vegas.
(AP/John Locher)
The U.S. Supreme Court has yet to rule on a landmark case that could lift the federal ban on sports gambling in 46 states. But that hasn’t stopped some places from betting on the outcome.

Bills that would legalize sports betting are making their way through legislatures in 15 states, most recently in West Virginia. And Connecticut, Mississippi, New Jersey and Pennsylvania have already enacted laws legalizing some form of sports betting, contingent upon the outcome of the Supreme Court case.

Rhode Island has gone even further.

Gov. Gina Raimondo’s $9.38 billion budget relies on $23.5 million of new revenue from sports gambling -- a line item that has brought criticism for its uncertainty.

All the fuss is over the case Christie v. NCAA, which the Supreme Court is expected to rule on by the end of June. If the court rules in favor of former New Jersey Gov. Chris Christie, who brought the case, it would invalidate the 1992 Professional and Amateur Sports Protection Act banning states from authorizing or licensing sports betting. (Four states -- Delaware, Montana, Nevada and Oregon -- met a 1991 deadline to approve sports betting before the federal ban went into effect.)

The NCAA, the governing body for college sports, has said legalizing sports wagering “has the potential to undermine the integrity of sports contests and jeopardizes the welfare of student-athletes and the intercollegiate athletics community.”

New Jersey argues the federal ban violates the 10th Amendment, which says that any powers not granted to the federal government fall to the states.

The case was argued in December, and most justices seemed inclined to agree with Christie.

In a time of constrained revenue growth for states, the additional money sports gambling could bring is a big draw. Other legal forms of betting are already a $28 billion industry in the United States. Adding sports betting could boost that by as much as $41.2 billion -- including about $3.4 billion in taxes to state and local governments --  according to a study funded by the American Gaming Association, which supports lifting the ban.

That revenue potential is a big reason states are rushing to be ready if the ban is lifted.

West Virginia’s legislation, which advanced to the House floor this week, would put the state’s Lottery Commission in charge of sports betting and set a 2 percent tax on the revenue.

“If we are prepared, it will boost our state’s economy. And if we’re not prepared, and the border states are, we’ll take a hit,” state Sen. Mike Maroney, the legislation’s author, told Stateline.

Still, there’s plenty of doubt that any additional revenue would significantly help state budgets --especially ones like Connecticut and Illinois that have struggled with chronic deficits.

In a recent report, Moody’s Investors Service noted that sports betting in Nevada accounted for just 2 percent of statewide gambling revenue. Over the past 12 months, casinos won $215.3 million on sports bets, for a win percentage of 4.8 percent.

“The operators must pay taxes and expenses of operating the business, resulting in a very low profit margin and a small percent of overall earnings,” the report said. (Although individuals are supposed to declare their gambling winnings for tax purposes, many don't.)

Another factor complicating the revenue picture is the continued expansion of casinos -- particularly in the Northeast. By most counts, the market is oversaturated, which has led to stifled gaming revenues for states.

Case in point: In 2016, Connecticut received approximately $266 million in tribal casino gaming payments, a nearly 40 percent decline from 2007. In a report on the topic, the Rockefeller Institute found that growth in state revenues from gambling activities slows or even reverses and declines over time -- despite efforts to expand facilities and types of gambling.

So, while adding sports betting into the revenue stream could help slow the revenue drop-off, it’s also likely to fall victim to the same oversaturation seen in other types of gambling.


Other news in public finance this week:


In Climate Change Lawsuit, California Cities Dealt Setback

A federal judge denied requests by San Francisco and Oakland to move their climate change lawsuits to state court where legal experts say precedent is more in their favor.

U.S. District Judge William Alsup ruled on Tuesday that the wide-ranging scope of the suits is a federal matter.

The ruling is a blow to California communities suing oil and gas companies seeking to recoup billions of dollars to compensate for past and future damage incurred because of rising sea levels. 

States reliant on the oil and gas industry appear to be stemming the tide of declining revenues.

Since 2014, states like Alaska and North Dakota have raided their rainy day funds and resorted to budget cuts to balance their budgets. But in a report issued this week, S&P Global Ratings said those struggling states now continue to show fiscal improvement.

The report cited rising oil prices and declining production costs as a big reason for the new stability.

"Outsized budget reserves in most of the oil-producing states,” S&P’s Gabriel Petek added, “appears to have provided an effective fiscal cushion as [the states] transitioned to lower oil prices.” 

This appears in "The Week in Public Finance" newsletter. Subscribe for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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