Sports Gambling within the US has been illegal in all places except Nevada since 1992. That was until yesterday, when the US Supreme Court ruled that Professional and Amateur Sports Protection Act (PASPA) was unconstitutional. This ruling is bound to have big effects on the gambling industry within the US. My home state of New Jersey was the state who pressed the subject, and now that they have won, every other US state will likely follow suit and legalize sports gambling as well. Connecticut, Delaware, Mississippi, Pennsylvania and West Virginia have already taken steps to legalize and have been anxiously awaiting this decision.
Interestingly enough 2 months ago I wrote about the current state of Gambling within the US, and what would happen if PASPA was repealed. My thoughts haven’t changed much, but here is a further breakdown of what I think will happen and how it will affect blockchain based sports gambling platforms in the future.
Nevada's Gaming Control board reported $4.8 billion in sports bets last year. $150 billion is estimated to be gambled illegally last year through off-shore, black market bookies. So that is only 3.2% gambled legally. Although it is deemed, “illegal” no one has ever been arrested for sports gambling in the US. However, running a sports gambling book in the US has been prosecuted against and is why most of the ‘illegal’ sports gambling is currently done through offshore websites. Now, would your typical gambler who has been using an offshore bookie for years make the switch over to a legal bookie where he has to pay more in fees as well as be taxed? My guess is no, if their current offshore bookie has a proven track record of being reliable, they will not move to a new legalized platform.
How much higher fees are we talking about?
Over the past 10 years, Nevada sportsbooks have averaged 5.3% annual profit margin, according to a study by UNLV's Center for Gaming Research. 5.3% is already pretty slim. Now, Sports leagues like the NBA are making a case that they would like 1% of profits of gambles placed on their games, claiming a new cost of theirs will be to ensure the integrity of the game by setting up regulations and governing authorities to watch for any thrown games or insider information leaks. For example, the information of whether Lebron will or will not play tonight could be leaked to gambler to make huge bets. I believe the Sports leagues will eventually get their way and cause sportsbooks to either raise fees to be even higher or it will cut back on margins. This puts legalized sports betting platforms at a huge disadvantage. Overall there will be four different operators of gambling sites.
- Licensed by the state sports gambling sites (FanDuel, Draftkings, ect)-These will have the highest fees because they will have to also pay the state. They keep records of all your bets and will provide documentation on how to report your winnings or losses to the IRS. Will also have to pay the sports leagues
- State run sports gambling sites- same as above except these won’t have the state fees
- Offshore operated platforms (97% used right now)- Have lower fees than both above and no one pays taxes on these
- Blockchain sports gambling platforms- these will be run globally and will be able to offer the lowest fees. All bets may or may not be recorded in your name, depending on the platform you choose. Most will not report taxes using these
The legalization of sports gambling situation shares many parallels with the legalization of marijuana in Colorado. After it was legalized, did many users drop their dealers and buy legally with a 30% tax added on? A Cannabis Consumer Coalition study in which 84 percent of the respondents identified as daily users asked where they bought their pot. Fewer than 12 percent said they bought cannabis from a recreational dispensary, while nearly 46 percent said they still buy off the black market and 15 percent said they grow their own. I wonder how many of those 84% were daily users before legalization, and how many of them made the switch from black market weed to weed from a dispensary. Either way, 46 % is still huge. I would imagine that nationwide legalization of sports gambling will discourage the black market even less, since it is 10 times easier to click a few buttons on your phone to place a bet at an offshore bookie than to obtain illegal marijuana.
Does anyone remember a few years ago when Draftkings and Fanduel started? You couldn’t watch a game on tv or read a sports magazine without seeing 10 advertisements. They then abruptly stopped when the US made them, saying that fantasy sports was considered sports gambling. Well now that it’s legal you can bet that the crazy amount of advertisements will be back everywhere you look. These advertisements will create an influx of new bettors:
- New bettors who never thought about betting before until they saw the commercials
- Those who stayed away from sports wagering because it was illegal or did not trust offshore bookies
- People who have wanted to bet, but never knew, or bothered to look around for a bookie to make bets with
Growing the sports gambling market can have two different outcomes for blockchain sports gambling platforms. On one hand, these newcomers may eventually realize the lower fees and therefore better odds many blockchain gambling platforms can offer and switch over. On the other hand, they may decide to stick to what they are used to, and trust in their current legalized platform. I think that there will always be a market for platforms who can offer the lowest fees, and that they eventually may have the highest market share despite being deemed “illegal”.
But won’t the government come after blockchain based sports gambling companies and shut them down?
It’s pretty doubtful right now. Currently there are so many offshore bookies which have been operating for years without any US government intervention. It’s hasn’t been cost effective for the US government to track them all down, especially since before this ruling the government wasn’t really losing much money. If all US states decide to legalize gambling and they are still losing a lot of money to the black market will they try to shut them down? It could be possible for them to come after some of these offshore sites that allow US citizens to bet. However, any of these blockchain sports gambling platforms that are truly decentralized, the US government will not be able to shut down, just like they cannot shutdown or stop Bitcoin. The blockchain platform will be supported by thousands of computers simultaneously spread out throughout the world so to shut it down would be nearly impossible.
One aspect where blockchain gambling platforms may be at a disadvantage is ease of use. Many people may be deterred from converting dollars into cryptocurrency to place their bets, but it seems like younger people are becoming more and more familiar using crypto. Another issue is how volatile some of the cryptocurrencies can be. Your cryptocurrency when you made your bet back in August before the football season started was worth $400 USD, but by the time the season is over it could be worth $50 or $1000 in your cryptocurrency.
Overall I think that the benefits of Blockchain based sports gambling that I have listed here and in my previous blogs are still very strong. This ruling increases the overall market of sports gambling and some of that market is bound to spill into crytpocurreny platforms with lower fees and better odds especially as cryptocurrency becomes more widely used and accepted. What do you think? I welcome your comments and thoughts below.
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