For the first time since 1992, Americans outside of Nevada can legally wager on the outcome of the Super Bowl. This comes thanks to a recent Supreme Court ruling that the federal law preventing states from legalizing sports betting violated the Constitution. Since then, seven states have joined with Nevada in offering legal sports gambling with another dozen predicted to follow in 2019. Not only will the millions of fans who bet on the game have an opportunity to do so legally, but states will have a chance to chip away at the enormous sports betting black market. That is unless the Department of Justice gets in the way.
In previous years, industry experts estimated that 97 percent of bets placed on the Super Bowl were made illegally with just three percent, or $139 million, made with licensed bookies in Nevada. This year, experts project that $320 million of Super Bowl bets will occur in the legal regulated markets of Nevada, New Jersey, Delaware, Pennsylvania, Mississippi, New Mexico, Rhode Island, and West Virginia. While this still only represents five percent of the total expected to be wagered on the game, it is double the amount legally bet in previous years. That number will grow as more states legalize sports betting and as legal sports betting becomes more competitive with the enormous black market. That is, it will so long as the DoJ doesn’t get in the way.
A key challenge for newly legal sports bookies is their ability to compete with the off-shore bookies that have profited off the U.S. prohibition for 25 years. This means licensed operators must be able to compete with their illegal counterparts when it comes to game variety, odds, and convenience.
Perhaps the most important thing legal operators must have in order to compete with illegal operators is the ability to take bets online. In November 2018, less than half a year after launching its legal betting market, legal bookies in New Jersey took in nearly a billion dollars in bets. Almost three-quarters of those bets—72 percent—occurred online. In Nevada, where players must register in-person before playing online, mobile sports betting typically accounts for 62 to 65 percent of the total handle.
Without legal online sports betting, many if not most of these bets will migrate back to the illegal off-shore market. This would be a terrible development for law enforcement and consumers, but the Justice Department may have set up that scenario earlier this month.
On January 14th the DoJ declared in a memo that the 1961 Wire Act prohibited all Internet gambling. This memo departed from the explicit intent of Congress when it enacted the law and from the agency’s previous opinion. Just 7 years earlier DoJ issued a different memo stating the Wire Act applied exclusively to interstate sports gambling. But, thanks to the Supreme Court decision last year that allowed states to legalize sports betting and a clause in the Wire Act that excludes from prohibition all bets made “from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal,” a number of states have legalized both online and online sports betting.
What this means in the long term isn’t clear yet, unfortunately. If DoJ chooses to enforce its wacky reinterpretation of the law, protracted lawsuits will almost certainly follow. More likely, however, DoJ will simply let the confusion it created cast a chill over the state legislatures now considering legalizing sports and/or online gambling. It will also hamper the markets in states that have already legalized online gambling as the notoriously cautious credit companies back away from processing potentially illegal transactions. If states back away from expanding legal online gambling, it will also be a boon to the existing illegal betting market with illicit operators all too happy to take bets from Americans unable to conveniently place wagers through licensed, U.S.-based operators.