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States hoping for long-term benefits from sports betting might not get the windfall they're looking for

  • A landmark Supreme Court decision Monday could bring a temporary revenue windfall for states that choose to legalize sports gambling.
  • But those betting on a long-term, reliable source of new funds face some long odds.
Justify #7 with Mike Smith up wins the 144th Kentucky Derby at Churchill Downs on May 5, 2018 in Louisville, Kentucky.
Alex Evers | Eclipse Sportswire | Getty Images
Justify #7 with Mike Smith up wins the 144th Kentucky Derby at Churchill Downs on May 5, 2018 in Louisville, Kentucky.

A landmark Supreme Court decision Monday could bring a temporary revenue windfall for states that choose to legalize sports gambling. But those betting on a long-term, reliable source of new funds face some long odds.

On Monday, the Supreme Court struck down a federal ban as unconstitutional, saying Congress didn't have the authority to tell states how to regulate gambling.

"Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own," Justice Samuel Alito wrote for the court.

Some states, including Connecticut, Mississippi, New Jersey, New York, West Virginia and Pennsylvania, have already cleared the way for sports betting in expectation of a favorable ruling. Rhode Island's governor has already included nearly $24 million in expected sports betting revenue in his proposed fiscal 2019 budget, according to Standard & Poor's.

Nearly 15 other states have proposed legislation to expand sports gambling. Some may require a voter referendum.

When Nevada became the first to legalize casino gambling in 1931, most states continued to ban gambling in any form. But in recent decades, those bans have gradually been lifted as states have sought to regulate gambling and generate revenues for a variety of public purposes, from education to mass transit.

As a result, every state but Hawaii now permits some form of legalized gambling. Most states offer multiple outlets, including lotteries, horse and dog racing, card games, and other games of chance.

Some 44 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands hold lotteries, at least 43 states have casino-style gambling, more than 20 allow card games like poker and blackjack, and most allow betting on horse and dog races, according to the Competitive Enterprise Institute.

But even as states eased restrictions on gambling, the federal ban on sports betting remained in place, thanks to the Professional and Amateur Sports Protection Act, a federal law enacted by Congress in 1992 and signed by President George H. W. Bush.

The bill, championed by Democratic three-term New Jersey Sen. Bill Bradley, who is also a basketball Hall of Famer, and backed by professional sports team owners, allowed sports gambling in Nevada and a handful of other states, but banned it elsewhere. Monday's high court ruling overturned that restriction.

It's difficult to estimate just how big an industry legalized sports gambling could become in the U.S. One study, commissioned by the American Sports Betting Association, found that it could add as much as $26 billion to U.S. gross domestic profit, create as many as 152,000 new jobs, and bring in between $4.8 billion and $5.3 billion in new revenue for the states.

But those numbers depend on a number of assumptions and predictions that are difficult — if not impossible — to make.

For one thing, it's not clear whether legal betting on popular sports would divert money from other forms of legal gambling like lotteries, or increase an overall pot of legal bets by siphoning money from illegal betting.

A lot, of course, depends on how many states decide to permit sports betting. The more widespread and convenient legal sports betting becomes, the bigger the overall pot. But the more states that enter the legal sports betting game, the less money each state will take in.

Some researchers argue that, over the long run, legalizing gambling has been a bad bet for states hoping to generate revenues to help balance their budgets without raising taxes.

While legalized gambling has often brought an initial revenue boost, those benefits have faded over time as more states have competed for a finite pool of gambling dollars, according to a 2016 report from the Rockefeller Institute.

"In the long run, growth in state revenues from gambling activities slows or even reverses and declines, so it's important to take into consideration market competition within the state and among neighboring states," wrote Thomas Gais, the institute's director.