We’ll take a look back at the recent Congressional sports betting hearing in this short series.
In Part two we take a look at the testimony of the four witnesses who did not represent the NFL, and the follow up questions from members of the House of Representatives.
Stop Predatory Gambling
Les Bernal was a last-minute replacement for University of Illinois Professor John Kindt. Ideologically, both could likely be classified as opposed to gambling, though I believe there are nuances in their opposition.
Bernal, a fiery speaker representing the group Stop Predatory Gambling, began his testimony by informing the members of the House subcommittee that 50 percent of the US population has a net worth of zero dollars.
I am not certain as to Mr. Bernal’s methodology, but as with most of the statistics I heard during the hearing, I am highly skeptical that one half of the country has a net worth of zero. This position appears to be contradicted by numerous sites when looking at:
- The 50th percentile of household income here
- The median value of assets for household by age here
- Wealth distribution here.
Bernal continued by noting that the odds in sports betting are stacked against the bettor. This should not be in dispute, but sports wagering can have odds stacked against the bettor and still be fair and not exploitative.
Bernal then said that the legal betting market is the real threat (to personal financial security) because only in the legal market can sportsbook operators obtain liens on homes and seize assets. While this is perhaps true, the legal market affords bettors due process via the legal system, something which is not present in the illegal market, which I have read can occasionally use their own life-altering collection methods.
States and sports betting
In the written statement that Bernal filed on behalf of his organization, he articulated that his organization does not believe that state governments should rely on commercial gaming to fill their coffers. Bernal correctly noted that his brief filed with the US Supreme Court in the Murphy vs. NCAA case was endorsed by both conservative and liberal groups, indeed, Congressional gambling opposition has historically been bipartisan.
Bernal also sent a shout-out to ESPN’s David Purdum, highlighting his recent ESPN story that legal books are banning smart money, as evidence that the books are only out to make a profit off of the public money. Bernal’s statement differentiates social gambling from state-sanctioned gambling, which he terms “predatory gambling.”
Bernal claims that state-sanctioned gambling enterprises are exempt from truth in advertising laws, and this may well be true. There are First Amendment limits on corporations’ abilities to make false or misleading statements in regards to their products (corporate speech has less leeway than private individual speech under the First Amendment).
So it would seem that requiring truth-in-advertising regarding odds of winning could be a consumer protection measure to be implemented by the state, though I would add that much of this information is widely available for those capable of a Google search.
The illegal gambling industry
Bernal notes that the primary source for the size and scope of the illegal gambling industry has been the American Gaming Association. This may be true in contemporary times, but in my review of the legislative history of various gambling statutes, dating back to the 1950s, estimates of the illegal market routinely came from government officials and documents.
Indeed, the magic $380 billion estimate for the size of the illegal market was made widely known by a government document, the 1999 National Gambling Impact Commission Report, which chose to cite a Las Vegas Review-Journal article for the figure.
According to stories on the magical estimate, the AGA has only recently begun trying to estimate the size of the illegal market. Relatedly, the International Centre for Sport Security estimated the size of the international betting market to be between 200-500 billion Euros. The AGA is hardly alone in producing estimates of the size of the illegal market.
Bernal then raised two important points: The first is the potential impact on children. There is an absolute need to ensure proper protections are in place ensuring age verification checks both in physical spaces and online, but there is also a need to promote responsible advertising, which does not target people who are otherwise not legal age to wager.
Bernal further raised the social costs of legalized gambling, which is a very real issue, and one that has not received sufficient attention, but remains important.
Les Bernal was one of the most impassioned speakers, though at times his passion came across as shouting and in my opinion detracted from some of the points he was making.
The American Gaming Association
AGA Senior Vice President of Public Affairs Sara Slane opened her Congressional testimony by discussing the benefits of a legal and regulated market. She did a very good job of highlighting the emphasis of the industry on transparency and integrity, features which may not be present in the illegal market.
Slane then noted that the gaming industry is one of the most strictly regulated industries in America. Much like some of the other facts, this is difficult to fact check.
While I agree that Nevada, and many states, heavily regulate gaming, I do not know how that compares to the regulations in place for something like the transportation of nuclear waste. In fact, a 2014 study of the most regulated industries in America does not list either nuclear waste transportation or gaming amongst the top ten.
Slane’s verbal testimony served largely as a rebuttal of many of the NFL’s key arguments, noting that there is no need for official data, and that the gaming industry cooperates with various agencies associated with financial crimes. Slane deviated slightly from her written statement where she emphasized the AGA’s interest in an integrity monitoring association.
This is something that I have railed against because I have yet to see any description that would provide this organization with the teeth to do anything. I am also skeptical of apparent conflicts of interest between private integrity monitoring companies who are also in the business of contracting to provide data to sportsbooks across the globe.
The AGA’s written statement also erroneously contends that match-fixing is illegal at the federal and the state level. This is simply incorrect. Some states have statutes prohibiting match-fixing, some do not. The federal government has the Sports Bribery Act, which prohibits, you guessed it, bribery.
But match-fixing comes in all sorts of forms beyond bribery, and some of those forms are not clearly prohibited at either the federal or state-level.
Legal sports betting?
Finally, I took exception to a figure in the AGA’s written statement, the importance of which I have been skeptical of since it first started making rounds across gambling Twitter a few weeks ago. On page five the AGA states:
“A recent study by Nielsen Sports, commissioned by the AGA, indicates more than 70 percent of those who place bets with illegal bookies would move to a legal platform.”
But, this is not what the AGA’s own website says in regards to the study “Among this crucial demographic for sports leagues and broadcasters, 71 percent of those research participants who currently bet with a bookie say they would shift some or all of their betting activity to a regulated market if they had access to a legal platform.”
The operative word in the website statement is, some. The implication in the Congressional statement is that bettors would simply leave their bookies and move to the legal market, but that is not what the Nielsen study found.
Bruning Law Group
Slane’s testimony was followed by Jon Bruning of the Bruning Law Group. Though he is listed on the House Judiciary website as a counselor at the Coalition to Stop Online Gambling, this organization is not mentioned in his written statement.
Bruning’s verbal testimony went a number of different places. He was a former attorney general for Nebraska, though as mentioned, he noted he was appearing on behalf of the Bruning Law Group.
Bruning argued that legal gambling was going to push more bettors to the illegal market. This is related to an argument that was raised in the Murphy case by the sports leagues, that access to gambling creates more gamblers, and thus problem gamblers.
The leagues’ argument was at least feasible given a favorable reading and analysis of some of the academic literature, but I am unaware of any studies finding what Bruning suggested. The idea that legal bettors will leave the legal market to seek an edge of some sort in the black market seems tenuous.
This position was articulated by Congressman Jim Sensenbrenner in a question as well, but it seems to be built on the premise that everyone who engages with sports betting will do so in the least healthy way possible, and almost immediately lose all semblance of right and wrong. As far as I am aware, the likelihood of this scenario is quite remote.
Enforcing the law
Shortly, after introducing this point Bruning’s testimony took a very confusing turn.
Bruning began to discuss how states such as Nebraska had suffered as a result of other states legalizing marijuana because individuals were now buying marijuana and transporting it into Nebraska, and this would also happen with online sports betting.
Bruning, like other members of the committee, did not appear to grasp the concept of geolocation, and that unlike the interstate highway system and the transportation of marijuana into Nebraska, sports betting apps can be stopped within yards of the Nebraska border thanks to modern technology.
Bruning then attempted to argue about the need to restore the Wire Act to its “original” intent, and have it apply to all gambling. This was an odd argument that I never quite grasped, as interstate sports betting is clearly banned under the Wire Act and this is not a subject of debate.
Bruning did raise a point also made by the NFL, noting that one of the key problems is that existing statutes are not being enforced. This is a valid concern and something that Congress should reasonably contemplate before passing new legislation. If the answer is ‘no’ to the question, can this law be enforced, then it may be best to defer to state police powers.
Claims without background
Bruning’s written statement was sparsely referenced, which made it exceedingly difficult to check the veracity of a number of his claims. This entire paragraph in Bruning’s statement does not contain a reference:
“Sportsbooks are low-margin ventures. One casino company determined that of every $100 bet in a sports book, the casino keeps only $1.40 – and that is before the casino pays any state taxes or potential integrity fee. Last year, Nevada sportsbooks returned just .02% of the total casino wins from slot machines and table games. Of the nearly $800 million in gambling taxes collected by Nevada, sports betting tax revenues generated a mere $18.5 million in taxes.”
Nor does this one:
“The problem is that licensed sports books face more efficient competitors – illegal black market competitors. Even though broad sports betting was effectively legal only in Nevada before the Supreme Court tossed PASPA, over 90% of U.S. sports betting takes place outside of Nevada. Most is wagered through offshore sportsbooks located in the Caribbean and Central America. These offshore sites do not require gambler verification, pay taxes, or report large winnings to the IRS.”
This is the fault of Congress for allowing the filing of statements that do not have references supporting statements, which are presented as fact.
State vs. federal
On page three, Bruning makes reference to the FBI not having the resources to “police a legalized online gambling industry.”
It is unclear to me why the FBI would need to do so, as these are geo-fenced to be accessible only within a state’s boundaries, meaning for the FBI to be involved there would need to be a federal crime implicated. Geo-blocked online legal casinos are not going to suck up FBI resources unless other federal crimes are implicated. This is a fundamental concept of the separation of federal and state powers.
Bruning further made a statement about the Tenth Amendment, which I believe is a constitutional impossibility, and I am quite surprised a larger deal has not been made out of this.
Bruning stated: “states legalizing online gambling without preventing the online gambling from being offered in Nebraska are violating our 10th Amendment right to control gambling within our borders.”
The Cornell Legal Information Institute lists the purpose of the Tenth Amendment as, “The Tenth Amendment helps to define the concept of federalism, the relationship between Federal and state governments.” Quite simply the Tenth Amendment applies to disputes between states and the federal government, not disputes between two states.
Mr. Bruning’s written statement then made a lengthy argument about the scope of the Wire Act.
Finally, Bruning characterized the Legendz Sportsbook case as a successful federal enforcement action.
Without spoiling a forthcoming special two-part Legal Sports Report series, it simply was not. In fact, the government was chastised in the judge’s decision for their conduct, notably in attempting to make the operation appear four to five times larger than it actually was.
Additionally, none of the defendants served jail time for their convictions. It is difficult to imagine a less successful outcome than a multiyear, multijurisdictional investigation that yields convictions with no jail time, and the seizure of minimal assets (in comparison to the amounts claimed by the government).
In sentencing the ringleader of Legendz to probation, the judge quoted the jury foreman who stated: “With all the ‘legal’ sports gambling that goes on in the US, coupled with the fact that no one was physically harmed and nobody was forced to place bets, I see no threat to society by allowing both … to avoid prison time.”
Nevada Gaming Control Board
Becky Harris, chair of the Nevada Gaming Control Board focused primarily on the role that Nevada has played in regulating sports betting and clarified some misperceptions about the regulation of sports betting.
Harris noted that more sports betting scandals occur in illegal markets than legal markets. This point is one that does not receive enough attention from sports betting advocates. Harris further noted that Nevada has been one of the most prominent detectors of match-fixing and has been the key party in alerting authorities to irregularities in a number of the most prominent fixes in recent memory.
The summary of Harris’ testimony was that Nevada is very good at regulating sports betting,
In Harris’ written statement, she inadvertently highlighted the benefit of regulators aggregating information by noting the match-fixing incidents that had not been detected by Nevada, more data sources should make anomalies more noticeable thereby allowing fewer (low-sophistication) fixes to slide through.
One aspect of Harris’ written statement that piqued my interest was the fact that the Nevada Gaming Control Board found no evidence of Tim Donaghy related betting in Nevada. This point seems suspicious given the association between one of the key figures in the Donaghy scandal, Jimmy “the sheep” Battista, and Las Vegas, a place he frequented.
The five witnesses’ testimony was followed by questions from legislators and a variety of written statements were filed with the committee, which will be examined in part three.