Legal Sports Wagering Means States Will Bet on Compliance Tools

Photo by Ethan Miller/Getty Images.

The U.S. Supreme Court ruled May 14 to undo a 26-year-old precedent banning sports betting, allowing states to legalize and tax the activity.

States must now ensure they follow legal regulations, especially online.

The high court ruled in favor of the petitioner in Murphy v. NCAA , repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA), a federal law that formally prohibited states from “authorizing” gambling related to professional and amateur sports leagues.

With this new window of opportunity open, some states will want to take steps to ensure they get a piece of this untapped profit. Anna Sainsbury, CEO of GeoComply, an online-gaming compliance company, told Bloomberg Tax that New Jersey and other states that have legalized sports betting will need to integrate software that ensures online bets are only placed in-state.

“Many states have already reached out to us for training and instructions on how to identify fraud,” Sainsbury said. “States seeking to legalize sports betting must be sure to follow regulations. This is a good bandwagon to jump on.”

Murphy v. NCAA was originally New Jersey’s attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region.

The ruling sets up six states-Connecticut, Mississippi, New Jersey, New York, Pennsylvania, and West Virginia-which have already enacted legislation to legalize sports betting pending the high-court decision, to hit the ground running.

Many other states aren’t far behind. Currently, 32 proposals to legalize sports betting are active in 12 states, according to the American Gaming Association (AGA). Proposed tax rates range from 6.25 percent to 30 percent.

Much More Than Gambling 

Sainsbury’s company integrates software into an online gaming website’s platform and tracks a connected user’s IP address, only allowing access to certain sites if the individual is in a legal territory.

She said many companies beyond the gambling industry seek the services of GeoComply and similar companies.

“The geolocation industry has really grown and is used by companies like Netflix, which offers different streaming products depending on the country,” she said.

Sainsbury said GeoComply pricing is set on a “deal by deal basis.” GeoComply currently serves 100 percent of the U.S. iGaming market.

In a May 1 press release, GeoComply announced it had signed an agreement with Scientific Games Corporation (SGC), a company that provides gambling systems such as electronic gambling machines and iGaming products, to “provide its market-leading geolocation compliance services to the company in anticipation of regulated sports betting becoming legalized in the United States.”

SGC has a market cap of $4.60 billion. The company’s stock price has more than doubled in the past year.

Support Isn’t Free 

Support behind PASPA’s repeal is significant. Even major sport leagues such as the National Basketball Association and Major League Baseball have publicly endorsed sports betting.

“I never thought I’d see this day,” Paul Martino, general partner at Bullpen Capital, a venture fund, told Bloomberg Tax about the leagues’ support. “But there’s a lot in this for the leagues. Allowing sports betting will also greatly increase viewership.”

Martino, who was an early investor in FanDuel Inc., noted that the NBA was also a past-investor in the fantasy sports betting website.

However, the leagues’ support comes with a price.

Dan Spillane, senior vice president and assistant general counsel for league governance and policy with the NBA, announced in Jan. 24 written testimony before the New York Senate that the league supported efforts to end PASPA but asked that operators pay each league 1 percent “of the total amount bet on its games.”

Geoff Freeman, AGA president and CEO, said that while the AGA encourages the NBA’s support, it doesn’t agree with the 1 percent fee, and said such a request would both hurt the integrity of the NBA and dwarf any revenue returned to states.

Some states have attached the “integrity fee” to their proposals, allowing professional sports leagues to grab a piece of each wager.

New York and Kansas have proposed a 0.25 percent integrity fee. Indiana, Kansas, and Missouri have lobbied for a 1 percent integrity fee.

Bets by Friday 

Martino said states are so eager to begin taking sporting wagers that “If the Supreme Court overturns PASPA on a Monday, we’d have New Jersey taking bets by Friday.”

Martino said that legalized sports betting will have even a greater effect on viewership than fantasy sports.

“Fantasy sports changed the way people watched sports because they would tune in to games they normally didn’t care about because they had an active player on their fantasy team. Now just imagine how people will watch if they can put money on every game. This is all day every day action” Martino said.

Martino expects that dozens of states will soon introduce legislation to legalize sports betting if PASPA is overturned.