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Oklahoma Bar Journal

Legalized Sports Betting in Oklahoma

By John T. Holden

#190048381 | © Monika Wisniewska | fotolia.com

Widespread sportsbook-style sports betting in the United States has been largely confined to the state of Nevada since at least 1992. In 1992, Congress passed the Professional and Amateur Sports Protection Act (PASPA).1 PASPA served as an ice age of sorts, freezing sports gambling schemes as they were in 1992, until the end of time or until the statute is repealed.2 While the statute was largely unchallenged for more than 15 years, in 2009, Gov. Jack Markell of Delaware was sued by the Office of the Commissioner of Major League Baseball and a quartet of other major sports organizations after the Delaware lottery sought to expand their sports gambling offerings beyond parlay-style bets on National Football League (NFL) games.3

Markell’s efforts to generate revenue for the diamond state would fail after the 3rd Circuit Court of Appeals ruled in favor of the sports leagues and the Supreme Court denied certiorari, leaving in place the interpretation that PASPA not only prohibits states who did not offer sports gambling from introducing new schemes, but prohibiting states from changing the style of offerings from what existed in 1992.4 Less than five years later, the state of New Jersey sought a way to revive the casino industry in Atlantic City and turned to legalized sports betting.5 Shortly thereafter, the same sports league quintet sued the then governor of New Jersey, Chris Christie.6 After various twists and turns and more than five years after early discussions of bringing sports betting to the garden state, the Supreme Court ruled that PASPA’s commandeering of the state legislative process was in violation of the 10th Amendment.7

Justice Alito delivered a striking blow to PASPA taking down the statute in its entirety.8 The court held that the separation of authority between the states and the federal government is one of the most fundamental constitutional principles and that “[w]hen Congress itself regulates, the responsibility for the benefits and burdens of the regulation is apparent… By contrast, if a State imposes regulations only because it has been commanded to do so by Congress, responsibility is blurred.”9 The issue being, that by prohibiting New Jersey from authorizing sports betting, the federal government issued a direct command to the state; which because there was no federal enforcement mechanism, shifted regulatory costs to the state in violation of the anticommandeering principle.10 Justice Thomas, in concurrence with Alito’s majority opinion, potentially foreshadowed a future regulatory battle when he suggested that Congress may not be able to prohibit sports gambling that does not cross state lines, a matter that may play out as states seek to launch online wagering to go with their brick and mortar sports betting offerings.

The Murphy (nee Christie) case has served as a conduit for other states to begin voicing support for legalized sports betting.11 After the Supreme Court granted certiorari, West Virginia and 17 other states, including Oklahoma and the governors of three additional states articulated support for New Jersey’s stance on federal power through the filing of an amicus brief.12 Briefs in support of legalized gambling have been accompanied by a significant growth in public support for legalized sports betting across the country. Even before the Supreme Court’s ruling, various state lawmakers and stakeholders began to make post-PASPA plans, which anticipated a favorable Supreme Court ruling, or for congressional repeal in the alternative.13 States like West Virginia and Pennsylvania passed laws authorizing sports betting in the event that PASPA was struck down or repealed.14

Over the last several years the growing enthusiasm for sports gambling expansion coincides with the launch and growth of daily fantasy sports.15 Daily fantasy sports emerged as an alternative to traditional fantasy sports that typically took place across the span of an entire sports season and condensed the time frame down to a single day or even a few hours.16 The contests also changed a key aspect of many fantasy sports games, in that they were typically played against friends. With daily fantasy games, players no longer needed friends to compete with; they could compete against strangers around the world. Despite some apparent similarities to various forms of illegal gambling, the two daily fantasy sports industry leaders, FanDuel and DraftKings engaged in a prolific advertising campaign that made escaping them nearly impossible during the 2015 NFL season.17

Various lawmakers articulated concern over the games and their similarities to illegal gambling. The New York attorney general brought suit against the two major companies, but eventually reached a settlement that allowed the games to continue to exist in the state.18 Despite the rise of daily fantasy sports as a popular form of gambling and the demise of PASPA, additional obstacles to wide spread legalized sports gambling also remain. Even without PASPA, other federal statutes may be implicated, including the Wire Act,19 the Illegal Gambling Businesses Act,20 the Unlawful Internet Gambling Enforcement Act,21 the Indian Gaming Regulatory Act,22 coupled with various state laws, challenges remain for states seeking legalized sports wagering.

THE DESIRABILITY OF SPORTS BETTING FOR OKLAHOMA
Sports betting has been viewed by a number of lawmakers, including some in New Jersey, as a potential panacea to budget woes, however, this is unlikely to be the case, although legalization would likely supplement state coffers.23 In 2018, the Oklahoma Legislature made several attempts to be ready for a Supreme Court ruling rendering PASPA unconstitutional. On Feb. 5, 2018, bills were introduced in both the state House and the Senate that would have legalized sports betting pools. The Senate bill would have operated through a supplement to existing gaming compacts provided the tribe agrees “it shall not offer such additional covered game unless and until doing so would be legal under federal law.”24House Bill 3375 contained language that would have legalized sports betting pools, also through an addendum to the existing tribal compacts.25 Kevin Wallace, author of the House bill, noted that the introduction of the bill was not based on morality, but on the hope of generating an additional source of revenue for the Legislature.26 Despite hopes for quick passage to position the state for the collapse of the federal prohibition, both the Senate and House bill had the language legalizing sports betting pools removed via amendments before the bills reached their final votes.27

The 2018 bills marked the second year in a row that Oklahoma had introduced bills designed to be prepared for the end of restricted sports betting and the second year that lawmakers failed to keep the provision in bills that reached Gov. Fallin’s desk.28 The House bill would have taxed sports betting revenue at a rate of 10 percent,29 the federal government also imposes an excise tax of .25 percent on the gross amount wagered (the handle).30 Absent from the 2018 Oklahoma House bill, that progressed much further than the 2017 effort, was reference to how sports betting would be conducted at casinos and racinos throughout the state, as well as whether growing industry segments like mobile betting would be allowed.31 More than 19 states have introduced sports wagering bills in 2018, many containing language drafted by professional sports leagues awarding a royalty to the leagues based on the handle of league-specific games; this language was not included in Oklahoma’s bills.32 Who gets a share of sports betting revenues is but one of a series of questions Oklahoma and every other state seeking to legalize sports gambling will need to answer.

WHO GETS TO RUN SPORTS GAMBLING?
In Oklahoma, the majority of talk seems focused on supplementing existing tribal compacts. Among the unanswered questions is what share of revenue will be passed to the state; 10 percent was the number proposed in 2018. Future negotiations will likely center on the novelty of sports betting, which makes determining of apportionments somewhat of an uncertainty. The National Indian Gaming Association (NIGA) has articulated support for legalized sports betting in furtherance of existing agreements and compacts.33 Amongst the challenges possibly facing tribal gaming is that of sports betting being outside the current compacts and some have speculated that states may seek to enter the sphere outside of their existing gaming commitments.34 Obviously, each state will face unique circumstances in a choice to adopt sports betting, but the NIGA has articulated that they support a sports betting expansion, only if it satisfies a nine-point framework.35

  • Tribes must be acknowledged as governments with authority to regulate gaming
  • Tribal government sports betting revenues will not be subject to taxation
  • Customers may access tribal government sports betting sites as long as sports betting is legal where the customer is located
  • Tribal rights under the IGRA and existing tribal-state gaming compacts must be protected
  • IGRA should not be opened up for amendments
  • Tribal governments must receive a positive economic benefit in any federal sports betting legalization proposals
  • Indian tribes possess the inherent right to opt in to a federal regulatory scheme to ensure broad-based access to markets
  • Tribal governments acknowledge the integrity and protection of the game and patron protections for responsible gaming are of the utmost importance
  • Any consideration of the use of mobile, online or internet gaming must adhere to these principles

The fifth point, “the IGRA should not be opened up for amendments,” remains an open question, somewhat outside of the scope of state-level politics, though efforts to re-open the IGRA would likely meet opposition from various groups inside and outside of Washington. The last point of the NIGA framework, regarding the extent to which mobile gaming becomes a reality, will possibly be a battle that begins the day after PASPA comes down.

WHERE IS SPORTS BETTING GOING TO HAPPEN?
While the talk in Oklahoma during the 2018 legislative session focused on expanding betting to the state’s nearly 60 casinos and racinos, many states are expressing an interest in going mobile.36 Mobile betting has been growing in popularity in Nevada for several years37 and has been a popular means by which daily fantasy players engage with the various platforms. One obstacle that remains at the federal level is the Wire Act,38 but at the state level, Oklahoma also bans the “dissemination of gambling information… by means of any communications facilities, information to be used in making or settling bets.”39 While the federal Wire Act may not be implicated, if like Nevada, wagering information stays within legal jurisdictions only, the Oklahoma statute is likely a formidable obstacle to the licensure of mobile gaming in the state.40

WHO GETS A PIECE OF THE ACTION?
The question of where sports betting revenue goes is potentially more complex than a simple addendum to tribal compacts. As noted, the federal government will likely receive .25 percent of every wager, the federal tax rate was reduced from an initial rate of 10 percent in 1984, but this tax is in addition to state taxes on gross gaming revenue, leaving bookmakers with a limited pot to generate a profit while offering competitive odds.41 In addition to the tribal, state, and federal tax obligations, the professional sports leagues have made efforts to position themselves as owners of the games and entities entitled to a share of sportsbook profits.42 What the sports leagues are attempting to do is legislatively overrule decisions in the Federal 2nd,43 and 8th44 Circuits that have found that sports scores and information that exists in the public domain is not subject to copyright (unlike the broadcast of the game, which is subject to copyright protection) and protected by the First Amendment.45 The sports leagues have lobbied heavily to be included in the distribution of sports betting revenues, with limited success in early draft legislation.46 While hopes of sports betting generating tens of billions of dollars annually, for state legislatures to redistribute, is highly unlikely; legal sports betting offers the potential opportunity to supplement existing gaming revenues for various stakeholders and to tax and monitor a practice that is already occurring widely in the shadows.47

CONCLUSION
In 1992, few states articulated a desire to offer sports betting and many were in favor of legal sports betting being frozen. Since 1992, vast accessibility to the internet has fueled an illegal online sports betting industry that has grown to levels likely unimaginable by lawmakers at the time of PASPA’s passage. This knowledge, as well as the never-ending quest for new sources of revenue, has left lawmakers looking at legalizing sports betting in the post-PASPA world. The Oxford Economics Group has estimated that a limited availability with a high tax rate model of sports wagering in Oklahoma would generate more than $240 million in annual gaming revenue and create more than 3,100 direct and indirect jobs.48 The promise of new tax revenue and jobs is attractive, but there is a danger that the exuberance for quantitative factors, may lead some to overlook the qualitative factors that are needed to ensure a safe, healthy and profitable gaming experience in the rush of state legislatures to get sports betting bills on the table.

ABOUT THE AUTHOR
John T. Holden is an assistant professor in the Spears School of Business at OSU. He earned his Ph.D. from Florida State University and his J.D. from Michigan State University. Mr. Holden’s research is focused on gaming policy and sport corruption. He can be contacted at john.holden@okstate.edu.

1. 28 U.S.C. §§3701-3704 (1992).
2. PASPA also contained a one-year exemption that allowed certain jurisdictions to expand their sports betting offerings, but no state capitalized on the opportunity. See 28 U.S.C. §3704 (a)(3)(1992).
3. Compl. Ofc. of Commissioner of Baseball v. Markell, C.A. No. 09-538 (GMS) (Filed July 24, 2009).
4. Office of the Comm’r of Baseball v. Markell, 579 F.3d 293 (3d Cir. 2009), cert. denied, 559 U.S. 1106 (2010).
5. Asbury Park Press, Gaming: N.J. Seeks Winning Formula to Revive Gambling IndustryPress of Atlantic City (Jan. 2, 2012),
www.pressofatlanticcity.com/news/press/new_jersey/gaming-n-j-seeks-winning-formula-to-revive-gambling-industry/article_8c8fa492-353f-11e1-ad64-001871e3ce6c.html?TNNoMobile.
6. Complaint for Declaratory and Injunctive Relief, Nat’l Collegiate Athletic Ass’n v. Christie, 926 F. Supp. 2d 551 (D.N.J. 2013) (No. 12-4947).
7. Murphy v. Nat’l Collegiate Athletic Ass’n, No. 16-476, 584 U.S. ____ (May 14, 2018).
8. Id.
9. Id. at ___ (slip op. 17).
10. Id. at ___ (slip op. 17-18).
11. For instance, in an initial petition to the Supreme Court in 2014, West Virginia, Wyoming and Wisconsin articulated their support for New Jersey’s petition. See Amicus Brief of West Virginia, Wisconsin and Wyoming, Christie v. Nat’l Collegiate Athletic Ass’n, 134 S. Ct. 2866 (2014).
12. See Brief of Amici Curiae States of West Virginia, 17 Other States, and the Governors of Kentucky, Maryland, and North Dakota, Christie v. Nat’l Collegiate Athletic Ass’n, No. 16-476 (filed Sept. 5, 2017). The brief does not articulate support for sports betting, but instead defends states ability to legislate absent federal interference.
13. See e.g.Guy Bentley, “Congress Should Repeal Sports Gambling Ban, Let California Chart Its Own Path,” OC Register (Oct. 3, 2017),
www.ocregister.com/2017/10/03/congress-should-repeal-sports-gambling-ban-let-california-chart-its-own-path/.
14. See Eric Ramsey, “West Virginia Sports Betting Poised To Go Live By End Of Summer As Lottery OK’s Regulations,” Legal Sports Report (June 21, 2018), www.legalsportsreport.com/21453/west-virginia-lottery-publishes-wv-sports-betting-regulations/; see alsoPennsylvania Sports Betting,” Legal Sports Report (N.D.), www.legalsportsreport.com/pa/.
15. For an overview of the rise of daily fantasy sports and some similarities to traditional sports gambling see John T. Holden & Simon A. Brandon-Lai, “Advertised Incentives for Participation in Daily Fantasy Sports Contests in 2015 and 2016: Legal Classifications and Consumer Implications,” 15 Ent. & Sports L. J. 1 (2017).
16. Id.
17. Id.
18. Id.
19. 18 U.S.C. §1084 (1961).
20. 18 U.S.C. §1955 (1970).
21. 31 U.S.C. §§5361-5366 (2006).
22. 25 U.S.C. §§2701-2721 (1988).
23. See Eric Ramsey, “Bad News: NJ Won’t Collect $9 Billion from Legal Sports Betting,” Online Gambling News (April 25, 2018), www.playnj.com/news/nj-wont-collect-9-billion-legal-sports-betting/19030/.
24. Ok. S.B. 1195 (2018).
25. Ok. H.B. 3375 (2018).
26. David Sheldon, Ok’d In Oklahoma: State’s Sports Betting Bill Clears First Hurdle, Casino.org (Feb. 27, 2018), www.casino.org/news/oklahoma-sports-betting-bill-clears-first-hurdle.
27. “Legislative Tracker,” Legal Sports Report (2018).
28. Brett Smiley, “Sports-betting Legalization Effort is Dead in Oklahoma, For Now,” Sports Handle (April 11, 2018), https://sportshandle.com/oklahoma-sports-betting-legalization-effort-is-dead-for-now/.
29. Id.
30. Eric Ramsey, “Nevada Congressman Calls for End To Federal Sports Betting Handle Tax,” Legal Sports Report (Dec. 13, 2017), www.legalsportsreport.com/16955/federal-sports-betting-handle-tax/.
31. See Smiley supra note 29.
32. See generally Chris Grove, “Here’s How The Leagues Can Get Their ‘Integrity Fee’ From Regulated Sports Betting,” Legal Sports Report (Feb. 12, 2018), www.legalsportsreport.com/18352/how-leagues-get-sports-betting-integrity-fee/.
33. Adam Candee, “National Tribal Group Passes Resolution to Support Sports Betting Repeal, with Caveats,” Legal Sports Report (April 24, 2018), www.legalsportsreport.com/19967/tribes-resolution-sports-betting-repeal/.
34. Id.
35. National Indian Gaming Association Resolution 01-LAS-BOD-4-16-18, 1-3 (April 16, 2018), available at: www.legalsportsreport.com/wp-content/uploads/2018/04/SB-Resolution-Clean-Final.pdf.
36. See H.B. 3375 (2018); see also S.B. 1195 (2018).
37. Eric Ramsey, “Caesars Getting Ready To Offer Mobile in Nevada Sports Betting App Via Miomni,” Legal Sports Report (Sept. 1, 2017), www.legalsportsreport.com/15302/caesars-nevada-sports-betting-app/.
38. 18 U.S.C. §1084 (1961).
39. Okla. Stat. §21-987 (2016).
40. The statute includes a punishment of up to five years in prison and a fine of up to $25,000. It should be noted that the statute exempts the transmission of wagering information by radio, television or newspapers from reporting odds
or results from sporting events. Okla. Stat. §21-987(b) (2016)
.
41. See 26 U.S.C. §4401; see also Kevin P. Braig, “Client Alert: Reform the Federal Sports Betting Excise Tax ‘Dilemma’,” Shumaker (Nov. 3, 2017), available at: www.slk-law.com/NewsEvents/Publications/178406/Client-Alert-Reform-the-Federal-Sports-Betting-Excise-Tax-Dilemma.
42. Maury Brown, “From ‘Integrity Fees’ To Controlling What To Bet On, MLB’s Framework For Legalized Sports Betting,” Forbes (Feb. 26, 2018), www.forbes.com/sites/maurybrown/2018/02/26/from-integrity-fees-to-controlling-what-to-bet-on-mlbs-framework-for-legalized-sports-betting/#17fefea846de.
43. Nat’l Basketball Ass’n v. Motorola, Inc.105 F.3d 841 (2d Cir. 1997).
44. C.B.C. Distribution & Marketing, Inc. v. Major League Baseball Advanced Media, 505 F.3d 818 (8th Cir. 2007).
45. Ryan M. Rodenberg, John T. Holden, & Asa D. Brown, “Real-Time Sports Data and the First Amendment,” 11 Wash. J. L. Tech. & Arts 63 (2015).
46. SeeSports Betting Integrity Fee,” Legal Sports Report (N.D.), www.legalsportsreport.com/integrity-fee/.
47. There are wide variations in the estimated size of the illegal sports gambling market ranging from about $80 billion to more than $650 billion. See Anastasios Kaburakis, Ryan M. Rodenberg, & John T. Holden, “Inevitable: Sports Gambling, State Regulation, and the Pursuit of Revenue,” 5 Harv. Bus. L. Rev. Online 27, 28 (2015).
48. Oxford Economics, Economic Impact of Legalized Sports Betting, 1-70, 58 (May 2017), available at: www.americangaming.org/sites/default/files/AGA-Oxford%20-%20Sports%20Betting%20Economic%20Impact%20Report1.pdf.

Originally published in the Oklahoma Bar Journal -- OBJ 89 pg. 10 (October 2018)