Five Ways Legal Sports Betting Could Run Off The Rails

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Legal Sports betting

Forgive the Debbie Downer tone of this article: As September 1 will mark the date that another state (West Virginia) launches full-scale sports betting, it is probably a good time to pause a minute to take stock of what has happened since the Supreme Court’s decision to allow states to offer legal sports betting.

It is not fun to be a wet blanket, but nonetheless it is important to discuss ongoing threats that could trigger a negative legislative or prosecutorial response. Below is a short list of items that could result in a chilling effect on sports betting expansion.

This follows the nuclear scenario, which Ryan Rodenberg outlined at ESPN, regarding a match-fixing situation. All bets are literally off if there were to be a high-profile match-fixing incident in the coming months that, in part, utilized U.S. sportsbooks. This could trigger not only federal intervention, but drastically pivot the conversation on the state level, likely resulting in numerous lukewarm states turning quite cold.

Sports betting expansion in areas it is not legalized

Sports betting is NOT legal nationwide. You must be in a state that has made sports betting legal in order to wager; even if that state authorized mobile sports betting, that only applies within that state’s borders.

Yes, most federal and many state laws do not target individual bettors, but anyone suggesting that sports betting is “legal” because of the Supreme Court’s decision is likely giving bad advice. While several state statutes may exempt certain forms of wagers, prosecutors have a wide variety of options for charging individuals that they believe may have offended the law.

Similarly, while a certain action may be viewed as likely outside the scope of the statute, all cases are unique and prosecutors have broad discretion in charging individuals. A widespread expansion in the openness of gaming activities and arrests for illegal betting operations is not likely to be well-received by lawmakers. It could result in some who have been open to the potential benefits of sports betting taking a different view.

Daily fantasy becoming sports betting in states where sports betting is not legal

For those who have emerged from a coma recently, daily fantasy sports are a lot like sports betting. In fact, one of the things that separates fantasy sports from sports betting is a statute called the Unlawful Internet Gambling Enforcement Act (UIGEA).

UIGEA says that fantasy contests that meet a multi-pronged exemption are exempt from the term “bet” or “wager” within the statute. UIGEA does not legalize all fantasy sports, nor does it declare that fantasy sports are a game of skill. UIGEA has served as a shield for daily fantasy companies since lawmakers began to take an interest in the companies several years ago.

However, one daily fantasy CEO allegedly acknowledged on a conference call with the Fantasy Sports Trade Association that daily fantasy events based on a NASCAR race or a golf tournament do not comply with the statutory language of UIGEA.

DraftKingslatest product, Flash Draft, appears to come as close to any remaining line between daily fantasy sports and gambling, if such a line exists. Flash Draft appears to be a bit like daily fantasy sports on methamphetamine. The short of it is:

“Competitors will draft athletes based upon their expected fantasy performances in the second, third and fourth quarters. The drafts will begin 30 seconds after the end of the previous quarter. All players will begin making selections at the same time.

Each draft will consist of five rounds. A round will be 15 seconds long, and competitors must choose from three given options. There will be no salary considerations involved in Flash Draft.”

While it remains to be seen if any state or federal lawmaker will view Flash Draft or any other daily fantasy game as a prohibited gambling product, such a determination could be devastating. That’s not just for the operator who is an early leader in the mobile sports betting space, but for the momentum that has been built by the industry.

An incident involving a new daily fantasy product, or the resurfacing of rumored federal investigations would almost certainly be a negative for both the daily fantasy industry and the legal sports betting industry’s growth.

A leak of inside information

To date there has been some attention paid to the recent emergence of questions about how college sports programs will handle the reporting of injuries. Transparency in this area is critical.

At the professional level, most leagues have some level of injury reporting — the NFL’s system dates back decades, though some would argue that the vagueness with which certain coaches report injuries defeats its intent.

At the collegiate level, there is not a uniform policy. This creates a market for information on college campuses, which has arguably existed for decades, but is now much more open. Some of the deterrence of trafficking in this information may deteriorate with an increase in legalization and the absence of sensible reporting standards.

Overexuberance to create betting opportunities

The launch of virtual sports betting (betting on computer simulations of fake teams with imaginary players) through the Pennsylvania lottery appears to have ruffled the feathers of some in the casino industry. Apparently they did not want to see the momentum for sports betting be defeated by betting on imaginary sports games.

There is a danger that the launch of games that have no basis in reality, and thus do not track statistical patterns and are essentially random chance, will result in confusion and potential pushback against legal sports betting. As many lawmakers do not do extensive research before passing laws, the launch of virtual sports betting (not esports betting – do not confuse the two) around the launch of sports betting is a threat to the expansion of sports betting nationally.

Any activity that makes sports betting, or something that may look like sports betting, which is essentially random chance, poses a threat to continued expansion.

Pushing boundaries of what sports betting looks like

The fifth threat to continued expansion is a company taking what is viewed as acceptable and then crossing a line. Regulators might be more intent on shutting down offending activity if they view sports betting crossing a line.

In addition to the various federal regulations that still govern interstate activity, certain sports betting products could trigger the jurisdiction of financial regulators from the Commodities and Futures Trading Commission or the Securities and Exchange Commission. There are numerous questions regarding the status of peer-to-peer products and exchange-based wagering products.

Conclusion: what to make of this

Sports betting is growing and is poised to continue growing, but perhaps the greatest threat to nationwide expansion is careless growth. The industry will benefit from both a monetary and public relations standpoint if care is taken, in collaboration with regulators, to develop a scheme that provides consumer protections, and ensures both integrity of the market and the underlying games themselves.