What We Learned About Sports Betting In Congress: Good Luck Banning Online Gambling

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good luck banning online sports betting

We’ll take a look back at the recent Congressional sports betting hearing in this short series.

In part four we take a look at the filings by various interest groups which were filed with the house committee.

Calling for a ban on online betting

John Kindt, a professor at the University of Illinois, was originally slated to testify, but was unable to appear for reasons not known to me.

Still, Kindt filed a written statement which totaled 17 pages and was accompanied by a 20-page appendix. Kindt began his statement by suggesting that the Constitution’s commerce clause empowers Congress to prohibit businesses and individuals from engaging in sports betting; on an interstate basis – he is accurate.

The issue in Murphy / Christie vs. NCAA was the prohibition of states from offering sports betting. The third paragraph on page one is where our opinions begin to diverge. Kindt begins by suggesting that sports gambling will “destabilize Wall Street,” like the 2008 recession.

While there are some similarities between sports betting and fantasy products and financial products, at the moment no sports betting product is traded on traditional financial markets like the NYSE or the NASDAQ (whether that would be advisable is a story for a different day). As such the sports betting markets would need to reach a sufficient size that the financial impact bleeds over into the traditional financial markets.

Impossible to regulate?

Kindt then suggested that internet gambling is “impossible to regulate,” citing the 1999 National Gambling Impact Study (the same one that legitimized the $380 billion figure). What may have been true in 1999 is no longer true. We routinely regulate the internet, in fact, cases over internet regulation have gone all the way to the Supreme Court.

We have been effectively regulating the internet for more than a decade. Kindt suggests that the fall of PASPA has meant a new opportunity for young people (he cites his 11 grandchildren) to lose all their savings to online gambling, neglecting to mention that there has been an opportunity to wager online for more than 20 years and there is also an opportunity for people to spend their money investing in beanie babies or making some other unwise investment.

Kindt then moved on to proposing that the UIGEA “perceived loophole” for daily fantasy sports should be closed, a point which Kindt has repeatedly raised to Congress.

Kindt then suggests that the media is suggesting that sports bets are “bizarre sports gambling financial instruments.” This statement may be true, but there are a lot of very smart academics who discuss the similarities between sports betting and financial products, and sports products may represent an opportunity to further diversify portfolios. Kindt then moves his discussion into “loot boxes” and “skin games,” and calling the Entertainment Software Ratings Board a “sham.” Kindt concludes his initial written statement by calling for a total ban on sports wagering emerging from the federal level.

More fearmongering

Following his initial statement, Kindt filed a supplemental statement as part of the same document. The supplemental statement includes a number of salacious headlines including: “Internet Sports Gambling Destabilizes U.S. National Security and the Strategic Economic Base.”

There may be a tenuous connection between internet gambling, money laundering, and threats to national defense, but I think there is little support for the proposition that internet sports gambling is more destabilizing to national security than a variety of other subjects, including overly caloric foods and the ability to stream TV shows on demand.

The supplemental filing again references financial risk, though in the later statement Kindt alludes to the risk coming from gambling company stocks and their risk of collapse, citing: “In 2006 the London Stock Exchange lost billions of dollars in a crash of Internet gambling stocks as investors recognized these stocks were predicated on illusory gambling activities.”

In section B of his filing, Kindt appears to appeal to the small government Republicans (are they still there?) by titling the section Internet Gambling, Particularly Internet Sports Gambling, is Big Government Interstate Gambling Promoted and Abused by Big Government. Kindt supports this assertion by referencing 11 articles or statements, all of which he has personally authored (some with co-authors). Kindt may well be on to something, but the filing would more likely help to build his case if he were able to cite the work of others in addition to himself, there are a large number of academics studying this area.

The Untouchables?

In Section C of his filing, Kindt argues that America needs a “New Untouchables,” Hill goes after the corruption in his state, Illinois, referencing the corruption scandals that have plagued the state. Kindt makes the suggestion that New Jersey is the only other state that has been found to be in the same realm of “corrupt” as Illinois.

Kindt highlights that some of the Illinois corruption centered on political insiders obtaining gaming licenses and notes that New Jersey was the originator of the Murphy case. Kindt does not actually discuss what this new special task force would look like or if Elliot Ness has a child who is available to fight gambling-related crime, but he does cite the Illinois question to the Depart of Justice about the scope of the Wire Act, relating to online lottery sales without explaining why that is problematic.

I do not see it problematic for a state to seek guidance from a federal agency regarding the scope of a statute before authorizing an act that may violate the statute.

The same playbook…

In section D, Kindt continues to rail against online gambling, citing the harm to the public as the ABC’s of Legalized Gambling:

“Like drug addiction, the harms to the public (commonly referred to as “the ABCs” of legalized gambling’s socio-economic impacts) caused by gambling activities via cyberspace and particularly via the Internet include:

(a) new addicted gamblers,

(b) new bankruptcies, and

(c) new crime”

Kindt cites a variety of academic articles to support his position (which is refreshing, given the lack of thoroughly referenced material in the first batch of reviewed statements). Kindt’s references are however all more than 12 years old. I will also note that at least one economist has raised concerns about the analysis in a different paper, by the authors Kindt cites. The criticism is available here and the authors’ reply is here.

Kindt’s statement is supported largely by his own academic work, and the work of other similarly minded academics like Earl Grinols. There was little in the way of surprises in Kindt’s statement or in his supplemental statement.

Kindt is an accomplished scholar, one who I quite staunchly disagree with on many issues, but his position is clear, he believes that internet gambling should be banned. This is unlikely to materialize. Kindt also included a 20-page appendix that included newspaper clippings and cartoons, including one that appears to mock Gov. Chris Christie.

Here is some more testimony beyond Kindt:

New Hampshire Lottery

Charles McIntyre, executive director of the New Hampshire Lottery, filed a statement with the House committee. McIntyre referred to the state motto of “Live Free or Die” as “an ethos that the good people of New Hampshire take very seriously.”

McIntyre is also president of the North American Association of State and Provincial Lotteries, and on their behalf requested that the lotteries be left to regulate sports betting within their own respective jurisdictions.

McIntyre’s brief one-page letter concludes with the reasonable request that the organization receive a seat at the table in future federal sports betting regulatory discussions.

AGA’s Illegal Gambling Advisory Board

Tim Murphy notes that he has chaired this American Gaming Association board, which consists of former law enforcement officers from both the federal, state and local level, since 2015.

Murphy stated: “I applaud the committee for convening this hearing, but I hope you recognize and understand law enforcement and gaming experts have been focused on public safety, practical solutions, and collaboration long before today and even long before the Supreme Court took on this case.”

Murphy observed that the organization put out an “After-Action Report” on their 2016 meeting. Despite the very tactical sounding title, the report is largely a press release of glossy photos and talking points that identify key themes such as: “Illegal Gambling is Widespread,” and “More Education, Research on Sports Betting Are Needed.”

The report further included such unsupported statements as “Mark Locke, CEO of Genius Sports Group, said the U.S. has the opportunity to adopt sensible regulation, which ‘shuts down 85 percent of the illegal market overnight’ in the U.K.”

If this is true that would be great, but setting unrealistic expectations raises the risk of drawing the ire of those who rely on such statements. Murphy notes that there is a need for private partnerships, but notes that integrity fees “will only drive an illegal market,”

Again, integrity fees, royalty fees, a private tax, are all pretty repugnant when you consider that this is taking away from all the activities that legal gaming funds, including education; but the idea that integrity fees will directly prop up the illegal market directly is not an argument that I have seen supported, nor one of the likely reasons that the illegal market will continue to exist.

Murphy concludes by highlighting the importance of sharing intelligence. This is invariably a key to protecting the integrity of sport, though the intelligence sharing must flow in both directions and mandates cannot allow the NFL, NBA, MLB or anyone else to sit on information about integrity threats out of fear of reputational damage.

Mark Brnovich, attorney general for Arizona

Mark Brnovich filed an article he wrote, titled Betting on Federalism: Murphy v. NCAA and the Future of Sports Gambling, and from what I can tell, the article did not even have a cover page.

Brnovich’s article begins by outlining the Murphy Supreme Court decision, before providing an overview of “Sports Gambling[‘s] Past, Present, and Future.”

The article, which is a nice overview and well-written, concludes by arguing that federalism and the limits on federal power are necessary and that states’ rights are needed to protect individual liberties. Despite the unusual form, the filing was quite coherent in its argument that sports betting should be a matter for the states to regulate.

In part five of this series, we take a look at filings from five professional sports league unions, the Sports Fans Coalition, and the NFL’s second filing of the hearing.