Sports Gambling in the United States

Introduction

“I can tell you this. There’s a major problem in sport. If you think there isn’t, you’re kidding yourself … Are they doing it? You better believe they are.” – Michael Franzese, 2009.

As the reformed mafia boss Franzese indicated, the sports industry is now facing a serious problem regarding gambling and game fixing. Since the “Black Sox” scandal of 1919, sports figures have been involved in gambling, point shaving, and game fixing. Gambling on sports may not only diminish the integrity of sports, but also causes severe social problems. This paper provides an overview of sports gambling industry, the reasons for banning sports gambling, and introduces important legislations related to sports gambling with significant court cases. The paper also covers recently heated discussed topic– online sports betting. In the end, I will also offer counter points that disagree banning on sports gambling.

A Big Industry

According to American Gaming Association, Nevada’s legal sports wagering, which was $2.57 billion in 2009, represents less than one percent of all sports betting nationwide. The National Gambling Impact Study Commission (NGISC) estimated that illegal wagers are as much as $380 billion annually. With regard to the subject for sports betting, more bets are placed on the Super Bowl than on any other sports event (March Madness ranks the second). Approximately $82.7 million was wagered on the Super Bowl in the state’s sports books in 2010, according to the Nevada Gaming Control Board. Noting that only about one and half percent of the total amount bet on the Super Bowl is wagered legally. For the population of sports gambler, about 118 million Americans gambled on sports in 2008(ESPN). Pew Research Center’s research in 2006 found that twenty three percent of American adults have bet in sports within the past year. There is a significant concern that sports wagering is widespread among young people. Among those who bet on sport in Pew Research Center’s research, thirty percent of them are under 29 years old. An examination of 16 studies completed in the U.S. show that juvenile gambling throughout the U.S. has increased significantly from forty five to sixty five percent within the time period 1984 to 2002 (Jacobs, 2005).

Sports gambling is also a serious concern on college campuses. According to a survey in five states, nearly thirty percent of college students bet on sports. (Lesieur et al., 1991) Moreover, sport wagering is more prevalent in student athletes than non-athletes (Udovicic, 1998), and in Divisions II and III than in Division I (NCAA, 2008). The 2008 NCAA National Study on Collegiate Wagering shows that almost thirty percent of male student-athletes and six percent of female have bet on sports within the past year. Regarding with ways of gambling, student athletes were most likely to bet with friends; however gambling via the internet makes a greatly increase (nearly doubled from 2004 to 2008) and ranks the second place. It is not a surprising statistic since there has been explosive growth in the availability of online gambling sites, and most of today’s college students are tech-savvy. According to Christiansen Capital Advisors (CCA), online sports betting generated $4.29 billion in revenues in 2005, which is more than double the $1.7 billion generated by online sports betting in 2001.

Why Ban it? – Negative Effects of Sports Gambling

Gambling is legal in one form or another in forty eight states, including state-sponsored lotteries, casinos, bingo, and par-mutuel betting. However, today gambling on sports is allowed only in Neveda through casino sports books. Therefore, there must be some reasons the government hold for prohibiting sports gambling. First of all, sports gambling itself may not be a problem, but historically, when it linked with game-fixing it hurts the integrity of sports. Sport is different from other entertainment because of the unpredictability of its outcomes. Sports betting in some degree undermines public confidence in the honesty of what happens on the field and places athletes and games under suspicion. A poll in 2003 showed that fifty two percent of Americans believe that some sports are fixed (Keating, 2003). This is not out of the public’s imagination since two studies brought astonishing facts to college sports. The Michigan investigations (Cross & Vollano, 1999) found that “over five percent of the male student athletes betted on games, or provided inside information for gambling purposes or fixed a game in which they participated.” Similarly, the Cincinnati (Slavin, 2002) study indicated that four percent of the Division I basketball and football player surveys returned in the Cincinnati study said they had bet on games in which they played and three had received money not to perform well. Secondly, both the American Academy of Pediatrics and the National Gambling Impact Study Commission (NGISC) indicated that sports wagering can act as a gateway to other forms of gambling and may further led to pathological gambling. Thirdly, excessive gambling is associated with a number of poor physiological and psychosocial outcomes (Shaffer, LaPlante, et al., 2004), such as poor mental health, poor social relationships, and poor financial situations. Moreover, the gambling debt turns into societal burden. It has been estimated that ninety percent of addicted gamblers are forced to commit crimes to pay their debts. According to a study performed by the University of Illinois, states end up paying approximately three dollars in social and criminal costs for every one dollar they raise through legalized gambling. Some believe that, unlike casinos, “sports wagering does not contribute to local economies or produce many jobs.” (NGISC, 1999) Goldin (1999) also suggests that gambling reduces charitable contributions and drains dollars from the local economy by taking away a portion of the consumer dollar that might have been spent on various substitutable activities such as a movie or miniature golf, which are generally locally owned businesses.

Federal Laws and Cases Related to Sports Gambling

The Interstate Wire Act of 1961 (18 U.S.C. § 1084)

In the 1950’s and 1960’s, the government began to investigate the gambling industry, particularly in relation to organized crime, especially when these involved activities across state lines. The first introduced is the Interstate Wire Act of 1961, often called the Federal Wire Act, which prohibits gambling business from using wire communications to transmit bets or wagers or information that assist in placing bets or wagers interstate or international, taking care to specifically mention “sporting events or contest”. Currently, nonsports betting and other types of online gambling are interpreted as legal under the Wire Act. Note that gambling businesses that conduct 100 percent of their activities inside a single state do not violate the Wire Act. Also, this legislation does not penalize individual better.

In the United States v. Cohen (260 F.3d 68, 2001) case, the federal Department of Justice (D.O.J.) filed a criminal complaint against defendant Jay Cohen, charging conspiracy to, and substantive violations of the federal Wire Act. Cohen was the President and owner of World Sports Exchange (WSE), an organization offers “bookmaking” services on United States sporting events. Although WSE was based in Antigua where gambling is legal, the Second Circuit held that defendant violated the Wire Act by taking sports bets by phone and online from bettors in New York. Cohen claimed that his conduct was under protection of the safe harbor provision (18 U.S.C. 1084(b)), which states that Section 1084 does not prohibit the transmission of information assisting in the betting that is legal in both the origin and destination of the transmission and the transmission has to be limited to information that merely assists in the placing of bets. The Court concluded that safe-harbor provision did not apply because neither of the two conditions existed in this case. Cohen then tried to argue that the actual placing of bets was taking place in Antigua, not New York. The court supported its finding by providing a communication between an FBI agent, where the agent was told that he can “place a bet right now” by a WSE operator, and then proceeded to place a bet which was confirmed by the operator. He became the first person to be convicted by a jury and sent to prison (a term of 21 months) in the U. S. for taking bets online. This significant case suggests that the Wire Act can be used to prosecute Internet gambling sites, even when they are operated offshore.

The Interstate and Foreign Travel or Transportation in Aid of Racketeering Enterprising Act of 1961 (18 U.S.C. § 1952)

Similar to the Wire Act, the Travel Act prohibits intentionally conducting an unlawful activity using a facility of interstate or international commerce. Unlike the Wire Act, there is no limitation on the type of gaming within the scope of the law. However, like the Wire Act, only operators—not bettors—can violate the Travel Act.

The Racketeer Influence and Corrupt Organizations Act of 1970 (18 U.S.C. § 1961)

The RICO Act or RICO, which was originally enacted to prosecute the Mafia as well as others who were actively engaged in organized crime, prohibits conspiring to engage in criminal enterprise. Under the Act a person who is a member of an enterprise that has committed any two of 35 crimes, including sports gambling, within a 10-year period can be charged with racketeering.

The case In Re: Mastercard International Inc. Internet Gambling Litigation (313 F.3d 257, 2002) illustrates elements of RICO and the Wire Act. In 2002 there were 33 similar cases transferred to the Eastern District of Louisiana through multidistrict litigation. Two cases were selected as test cases and joined into one for pretrial purposes. All other cases that are part of this multidistrict litigation were deferred until after the Court has ruled on the two motions. The cases arose when plaintiff debtors sued defendant credit card companies to avoid debts they incurred while using credit cards to gamble on the Internet. Plaintiff alleged that the Defendants, through their association with online casinos, participated in the conduct of an enterprise through a pattern of racketeering in violation of RICO. Plaintiff also argued that the Defendants’ conduct violated state statutes. The court concluded that plaintiff failed to show a pattern of racketeering activity. One debtor failed to identify a predicate act because the companies completed their transaction before any gambling occurred. Thus, the transaction did not involve taking custody of something bet or collecting the proceeds of a gambling device under the Kansas statute. Another debtor failed to point out a RICO predicate act under the New Hampshire statute as he failed to explain how the statute applied. Moreover, the court ruled that the Wire Act, which does not prohibit non-sports internet gambling, is not applied in this case since the Plaintiffs failed to provide evidence of involving in internet sports gambling. Finally, the court concluded that the companies did not engaged in the collection of an unlawful debt since neither plaintiff raised the specter of usury and, as mentioned above, the companies did not violate any of a state or federal gambling law.

The Bribery in Sporting Contests Act of 1979 (18 U.S.C. § 224)

This Act states that whoever bribes or tries to bribe individual in order to influence the outcome of sport contests shall be fined under this title, or imprisoned not more than 5 years, or both. In addition, most states made it a crime to influence sporting contests by bribes to officials or participants. For example, in Florida, bribery in athletic contests would be guilty of a felony of the third degree.

The Boston College Basketball Point Shaving Scandal

The Boston College basketball point shaving scandal in 1983 is one of the few court decisions related to sports bribery, point shaving, and game fixing available for review. The point shaving scheme was conceived by the Perla brothers, Anthony and Roco, in Pittsburgh. They recruited Rick Kuhn, a Boston College basketball player, to rig a number of B.C. games during the 1978-1979 season. Kuhn would be paid usually $2,500, if B.C. fell short of or won more than the point spread according to their designation. The brothers then tired to maximize their potential gain by contacting their friends, Paul Mazzei, who had influence within New York gambling circles. Mazzei in turn contacted the reputed mobster – Henry Hill, whom had contacted while in prison. Hill then turned to his “Boss” – James Burke to ensure protection for their scheme. The first test game did not work, so they decided to recruit additional B.C. players, including Ernie Cobb and Joseph Beaulieu, while the latter rejected this offer. More fixing games were played later in the season until the criminal conspiracy unraveled when Henry Hill was indicted on drug charges. While being questioned, Hill revealed the point shaving scheme in exchange for avoiding prison time.

According to the testimony of Henry Hill and three other witnesses, confessions made by Kugn and Tony Perla, and telephone records, the court ruled that each defendant was convicted on charges of RICO (18 U.S.C. § 1962(d)), conspiracy to commit sports bribery (18 U.S.C. § 224), and interstate travel with the intent to commit bribery (the Travel Act, 18 U.S.C. § 1952). Burke was sentenced to twenty years prison. Kuhn, Mazzei and Tony Perla were sentenced to ten year prison terms on the RICO count, and concurrent five year terms on the two remaining counts. Rocco Perla was imposed a four year jail term.

The Professional and Amateur Sports Protection Act of 1992 (28 U.S.C. § 3701)

The scandals in college athletics and the emerging threat to the integrity of sport prompted the government to control the impact of sports gambling. The committee on the Judiciary’s Senate Report justified promoting the PASPA for its important public purpose of maintaining “the integrity of our national pastime.” Also known as the Bradley Act, the PASPA prohibits a person or government entity from operating a wagering scheme based on amateur and professional sports. Highlight that the Act was the first serious restriction on state-sponsored sports betting. Section 3704 provides a grandfather provision for states that either had (1) operated a legalized sports wagering scheme prior to August 31, 1990, or (2) legalized sports wagering and such operations were conducted during the period of September 1, 1989, through October 2, 1991. Therefore, the sports lotteries conducted in Oregon, Delaware, and Montana as well as the licensed sports pools in Neveda were exempt.

The state of Delaware proposed legislation authoring three types of sports gambling in Delaware in March, 2009. Although Delaware is one of four states legally exempt from the PASPA, the state hasn’t had sports betting since a failed attempt at allowing parlay betting in the mid-1970s. Now, the state is facing a huge budget deficit, and is turning to sports betting for a hopefully between fifty to a hundred million revenue. In its advisory opinion, the Delaware Supreme Court, relying on the case of NFL v. Governor of the State of Delaware (1977), held that multi-game betting would not violate state law, but did not decide the legality of single-game betting. The State then published its proposed regulations in June, in which it proposed single-game and multi-game (parlay) betting on any professional and collegiate game except games that involve a Delaware team.

The Leagues (NFL, MLB, NCAA, NBA, and NHL) filed a complaint against the State in July, asserting that the sports betting scheme violates the Professional and Amateur Sports Protection Act (PASPA). The Leagues also filed a motion for preliminary injunction and requested to enjoin the State from commencing, institution, operating, and maintain the proposed sports lottery. The District Court denied the injunction and set a trial on December 7 because the Leagues were unable to show a likelihood of success on the merits, the irreparable harm, and the balance of hardship. Only three days later the Court of Appeals for the Third Circuit granted the Leagues’ motion to expedite their appeal.

The major controversy in this case arises from the grand-fathering exemption. When the two parties looked at the statutory language “to the extent that the scheme was conducted by that State” they focused on different aspect. The State claimed that this phase only describes a condition (that a State have conducted a sports lottery in the past), but the Leagues insisted that it contains the specific means by which the lottery was actually conducted. The appellate court agreed with the interpretations by the Leagues, which means only the betting schemes that actually conducted are legal and under the exception of PASPA (note that there was a difference between those schemes that were only authorized and those were conducted). That is, only the multi-game parlays on the NFL teams is legal to operate.

The Unlawful Internet Gambling Enforcement Act of 2006 (31 U.S.C. § 5361–5367)

In the new Internet era, the government faces a huge challenge to the existing sports gambling laws. As the gambling industry integrate more and more new technologies, the government also must react and pass more relevant legislations to the Internet and the new global marketplace. By creating an independent law under Title 31, Congress avoids many challenges the Wire Act faced in prohibiting online gaming. Title VIII of the Security and Accountability For Every Port Act of 2006 (or SAFE Port Act) is also known as the Unlawful Internet Gambling Enforcement Act of 2006 (or UIGEA), which prohibits the transfer of funds from a financial institution to Internet gambling sites, specifically excluding fantasy sports, online lotteries, and horse/harness racing. The Act came into full effect on June 1, 2010, the date which American banks have to block “unlawful Internet gambling transactions.” This year, 36-year-old Todd Lyons has become the first person to be charged under the UIGEA. A 36-count indictment (including racketeering and money laundering to operating an illegal gambling business, filing false tax returns, and interstate travel in aid of racketeering) alleges that he collected more than $22 million illegally as for the gambling website – Sports Offshore, which was licensed in Antigua but accepted U.S. customers. Although some still arguing that it is ambiguous that this statute relies upon existing federal and state statutes (which vary from state to state and can be contradictory) to determine what activity is “unlawful Internet gambling”, the Lyons case shows that U.S. government started and is willing to use the UIGEA to indict people associated with illegal online gambling practices.

Counterview –Legalization with Governmental Regulation

While the sports gambling laws are flourishing, groups of people start considering legalized sports gambling with regulation. The biggest supporters are the state of New Jersey and Delaware, who tried to introduce full-scale, legalized sports betting in states other than Nevada, but have not succeeded yet. In fact, this perspective is closer to public opinion. A 1999 poll found that only twenty six percent of Americans believed that it should be illegal for adults to bet on sports events while sixty four percent would legalize sports gambling (Carey & Bryant, 1999). A more recent poll shows that nearly two-thirds of people in their 20s believe betting on sports is “no different” than buying a lottery ticket, while forty one percent see Internet sports betting as “perfectly harmless”.

Those who support legalizing sports gambling suggest that regulated gambling would provide huge economic benefits and not just gambling revenue. One evidence provided by the Las Vegas Convention and Visitors Authority estimated that the 2007 Super Bowl weekend generated $109.5 million in non-gaming economic impact and attracted 287,000 visitors. American Gaming Association estimated that “legal sports wagering helps bring more than 30 million visitors to Nevada each year and provides employment for thousands of people”. Moreover, they argue that legal sports gambling has not escalated the corruption of sport since nearly all sports bribery, game-fixing, and point-shaving scandals have been associated with illegal betting (Claussen & Miller, 2001).

Additionally, they believe that even if sports wagering were legalized by the government, sports associations and governing bodies could continue to forbid specific types of gambling within their spheres of authority. For example, the NCAA has adopted specific rules prohibiting student-athletes, athletics department staff members, and conference office staff from engaging in sports wagering (NCAA Bylaw 10.3). Strict penalties such as student-athlete ineligibility, disciplinary fines, or suspensions are applied to violations of such rules. Professional leagues, NFL, NBA, MLB, and NHL, all prohibit players from betting on their own sport (NGISC, 1999), and keeps improving their anti-betting policies. For instance, after the Tim Donaghy scandal (a referee in the NBA for 13 years who had placed bets on the games he officiated), the NBA further implemented amendments to the NBA Constitution, and a number of policy and regulation changes to promote its anti-gambling efforts. These changes strengthen and clarify the ban on gambling on NBA games and the prohibition on sharing confidential League information to gamblers. The league now also has a full-time Compliance Officer who is responsible for enforcing the League’s compliance policies and overseeing the League’s anti-gambling efforts. Moreover, a “hotline” is offered to team employees (including referees, coaches, trainers, players and other NBA employees) to anonymously raise questions and report problems concerning gambling and game integrity issues. The League continues to enhance gambling education programs for team employees, and implements monitoring program for suspicious activity. Finally, the supporters of legal sports gambling suggest that if it is not legal for states to sponsor sports betting within their boundaries, sports bettors will look elsewhere – their underground bookies and online betting sites, and, in the end, flourish the illegal sports gambling.

Conclusion

College students gather together betting on the result of college football games at the incoming weekend, colleagues put ten dollars for office pools for the NCAA Final Four, or anyone simply paying ten dollars for online box pools for the Super Bowl. Betting sports is now a common leisure activity in the world. A little gambling adds excitement to the games, and most people do not see sports gambling as a serious problem, yet the consequences can be extremely bad. Not only the impact on sports, but the socio-economic costs of sports gambling should not be ignored. Traditionally, the federal government focuses more on sports gambling that related to organized crime, so almost all relevant legislations are enacted to beat organized gambling business. With the invention and introduction of new technology into the sports gambling world, the government start bringing new laws to control online sports gambling. At the same time, others seek for alternative by legalizing sports gambling in the whole country with relevant regulation. Whether to legalize or not, the most important thing is enhance education for public, especially for youth, college students, and insiders such as players and referees. Moreover, once legalize sports gambling, the government must adopt stricter punishment for illegal betting, and strengthen the law enforcement.