A History of Sports Betting in the United States: Gambling Laws and OutlawsBy Brett Smiley | Published: November 13, 2017 at 11:00 am
In order to better grasp where gambling laws and gambling legislation in the U.S. is going, it’s best to understand from where we’ve come. The U.S. has a long history of gambling and sports betting, despite the fact that sports betting has often flouted gambling regulations and anti-gambling laws. In a nutshell, the U.S. has witnessed a long tug-of-war between gambling laws, and people who want to enjoy gambling in various forms, including sports betting.
When organized crime took over the market in the mid-20th century, filling the void created by the absence of legalized and regulated U.S. sportsbooks, Congress acted by passing gambling legislation aimed at stamping out the spread of sports betting.
But now once again the pendulum has swung back in favor of legalized sports betting, because the American appetite for it remains as voracious as ever, and attitudes have shifted in favor of just letting U.S. states establish their own gaming legislation — without the federal government’s intervention. We’ll take a look at other forms of betting in the U.S., such as lotteries and casino games, which form part of the fabric of gambling laws in the U.S. So let’s start at the beginning.
The 18th Century: Freedom from the Crown, Funded in Part by Lotteries
The American Revolutionary War was funded in part through taxes on lotteries in the original U.S. colonies. Really.
Here’s a relevant passage from University of Mississippi professor of law Ronald J. Rychlak’s article titled “Lotteries, Revenues and Social Costs: A Historical Examination of State-Sponsored Gambling,” which appeared in the Boston College Law Review:
“Two hundred years ago, government-sanctioned lotteries were common throughout America. Lacking a strong central government and burdened with a weak tax base, early Americans viewed lotteries as legitimate vehicles for raising revenue. Lottery proceeds were used to build cities, establish universities, and even to help finance the Revolutionary War.”
In a report on gambling for the California Research Bureau, Roger Dunstan writes on the subject: “All 13 original colonies established lotteries … once the war of independence started, the Continental Congress voted a $10 million lottery to finance the war.”
Dunstan also writes that lotteries remained popular in the early 19th century, and goes on to describe gaming in the U.S. as the country expanded:
“Lotteries were not the only form of gambling during this era. Wagering on horse racing was a popular form of gambling. Not surprisingly, it was not quite as organized nor as elaborate as modern horse racing. Rather, the gambling was limited to a few friendly bets between owners of horses and their partisans. The first racetrack in North America was built on Long Island in 1665.
“Casino gaming started slowly. Taverns and roadhouses would allow dice and card games. The relatively sparse population was a barrier to establishing gaming houses. But as the population increased, by the early 1800s lavish casinos were established in the young republic.
The Late 19th and Early 20th Century: Scandal and Backlash
Horse racing is an ancient sport and for the most part, has remained legal across U.S. with regulations established at the state level. Thoroughbreds ran the Belmont Stakes for the first time in 1867, the Preakness Stakes followed in 1873 and the first jewel of the Triple Crown, the Kentucky Derby, debuted at Churchill Downs in 1875.
Other forms of gambling took root and became popular around this time as well. Card rooms opened. Men played dice games. The slot machine debuted just before the turn of the 19th century. Betting on boxing was not legal, but was not illegal, when the sport saw one of its golden ages as fighters like Jack Dempsey and Gene Tunney rose to prominence.
But uneasiness grew in the wake of lottery scandals and frauds and concerns over social ills associated with gambling. And of course, there was the 1919 Black Sox Scandal, in which eight members of the heavily-favored Chicago White Sox were accused of intentionally throwing the World Series against the Cincinnati Reds in exchange for a a bribe of about $10,000 apiece. The hammer eventually came down. States began banning various forms of gambling by targeting the gaming operators or facilitators and bookies — as opposed to bettors themselves.
In response to the Black Sox Scandal, Major League Baseball installed its first commissioner, Judge Kenesaw Mountain Landis, who became the first commissioner of all the major U.S. sports leagues. Landis’ job, above all, was to restore the integrity of the game of baseball and public confidence in it. Landis began that task that by banning all eight of the accused Black Sox, despite their acquittal in a criminal trial. Landis said:
“Regardless of the verdict of juries, no player that throws a ball game, no player that undertakes or promises to throw a ball game, no player that sits in a conference with a bunch of crooked players and gamblers where the ways and means of throwing games are planned and discussed and does not promptly tell his club about it, will ever play professional baseball. Baseball is entirely competent to protect itself against crooks, both inside and outside the game.”
Landis held the post of MLB commissioner from 1920 until his death in 1944. He established a template for future sports commissioners. You probably recognize “integrity of the game” as NFL commissioner Roger Goodell’s all-encompassing doctrine — applied in matters concerning football inflation/deflation and beyond.
In the wake of the Black Sox scandal, a sort-of sports betting cycle started: First comes the anti-gambling sentiment founded in morality and a general aversion to gambling. But then illegal sports betting persists in response to steadfast demand, aided by operators eager to fill the void. Then comes anti-gambling legislation, driving sports betting further underground, followed by the belief that outright prohibition is impossible. General acceptance by the public completes the cycle. All that changes is the names of the laws, the books, and technology.
Mid-20th century: Las Vegas Establishes Itself as the U.S. Sports Betting Capital
In 1949, seeking to invigorate its tourism industry, the state of Nevada legalized sports betting. About 15 years earlier the state legalized most forms of gambling, but the post-World War II boom in America gave Nevada an economic opening for a market that elsewhere was illegal. Las Vegas Strip investors around this time included infamous mobster Benjamin “Bugsy” Siegel, who helped finance the Flamingo Hotel & Casino and other early properties.
In 1951, the federal government initially imposed a 10% tax on all sports bets. But the juice was simply too much, making sportsbooks a losing proposition, causing many to shutter. Later in 1974, Congress reduced the tax to 2%, which ushered in a Las Vegas sports betting rebirth, and profitability, and also a stream of tax revenue for the government.
Outside of Nevada, in the ‘60’s, organized crime continued to dominate the gambling and sports wagering markets. Picture this scene:
The 1960’s through 1980’s: Congress Lays Down the Law(s)
Seeking to dismantle organized crime’s grip on sports wagering, then-U.S. Attorney General Robert F. Kennedy worked with Congress to enact various pieces of legislation aimed at giving the federal government a collection of laws with some teeth. Among the bills passed for this purpose in the ‘60s and ‘70s, the best-well known is The Federal Wire Act (1961), which says:
“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined not more than $10,000 or imprisoned not more than two years, or both.”
At the time, RFK stated about the law’s purpose and scope:
[T]he Federal Government is not undertaking the almost impossible task of dealing with all the many forms of casual or social wagering which so often may be effected over communications. It is not intended that the [Wire Act] should prevent a social wager between friends by telephone. This legislation can be a most effective weapon in dealing with one of the major factors of organized crime in this country without invading the privacy of the home or outraging the sensibilities of our people in matters of personal inclination and morals.
Congress passed other laws intended to curb illegal sports betting, including (1) the Travel Act of 1961 (proscribing the use of mail or a facility in interstate commerce to, among other things, distribute proceeds of unlawful activity), (2) the Interstate Transportation of Paraphernalia Act of 1961 (targeting the physical tools and materials associated with gambling), (3) the Sports Bribery Act of 1964 and (3) the Illegal Gambling and Business Act (enacted as part of the 1970 RICO or Organized Crime Control Act, with an eye toward larger gambling operations).
Nevertheless, illegal bookmaking continued and actually proliferated in the ‘70s and ‘80s, when the U.S. Department of Justice decided to de-prioritize the enforcement of anti-gambling laws. Also around this time, Atlantic City, New Jersey made itself a player in the casino and gaming world when the state’s voters passed a referendum in 1976 to allow casinos in the state, but limiting them to Atlantic City. In 1978, the first East-Coast Casino opened in A.C.: the Resorts Casino Hotel.
Meanwhile, the final report of the Commission on the Review of the National Policy Toward Gambling, issued in 1976, was unequivocal on gambling in the U.S.. The introduction states: “Gambling is inevitable. No matter what is said or done by advocates or opponents of gambling in all its various forms, it is an activity that is practiced, or tacitly endorsed, by a substantial majority of Americans.”
As for what to do, Chairman of the Commission, Charles H. Morin, writes in the foreword:
“Most Americans gamble because they like to, and they see nothing ‘wrong’ with it. This being so, they see no real distinction between going to the track to place a bet and backing their favorite horse with the local bookmaker. And this truly free-wheeling logic so consistent with the free enterprise philosophy of most Americans permeates the country’s judicial system: police, prosecutors, and courts.
“The Report of the Commission contains a hard statement: ‘Contradictory gambling policies and lack of resources combine to make effective gambling law enforcement an impossible task under present conditions.’ Not ‘difficult’ not ‘frustrating’ not even ‘almost impossible’ but impossible. And why not? How can any law which prohibits what 80 percent of the people approve of be enforced?
“What should we do about this?” the Congress has asked this Commission. With a small, able, and very dedicated professional staff under the direction of a truly outstanding talent, seven citizens and eight experienced legislators have concluded that a joint venture is necessary between each of the 50 States and the national government, with some significant changes in the pattern of Federal laws. Each of the Commission’s recommendations has been warmly debated and carefully thought out, and it would not be considerate to discard any of them lightly.
Speaking specifically about sports betting (not gambling as a whole), the Commission concluded in part, “[e]xisting Federal tax policies constitute the largest single obstacle to a competitive sports bookmaking operation. Before implementing legalized betting, the Commission urges extensive debate to allow the voting public to form an educated opinion about legalized sports betting.”
With respect to the major sports leagues’ positions on sports wagering, the commission noted: “The fears expressed by the various commissioners of professional sports regarding the increased potential for fixes, player betting, and change in the integrity of the sporting events in the event of legalized sports betting are exaggerated in view of the extensive amount of illegal wagering already taking place today on professional team sports.”
Despite the Commission’s findings, the existing laws remained on the books, and in the next decade-plus, a few incidents of point shaving (Boston College in 1978-79), other suspicious game-fixing, plus Pete Rose’s 1989 ban from baseball for betting on MLB games, created momentum for additional federal legislation aimed at eliminating or at least stopping the spread of sports wagering.
Near the turn of the 21st Century: PASPA Clobbers Sports Betting and Empowers Leagues to Whack-a-State
In 1992, Congress came down hard on sports wagering with a law called PASPA — the Professional and Amateur Sports Protection Act. It effectively bans states or governmental entities from legalizing sports wagering. The law itself pretty succinct, stating:
It shall be unlawful for—
- a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or
- a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental entity,
a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.
Testifying before Congress about the National Football League’s interest in curbing sports betting, then-commissioner Paul Tagliabue said:
“Sports gambling threatens the character of team sports. Our games embody our very finest traditions and values. They stand for clean, healthy competition. They stand for teamwork. And they stand for success through preparation and honest effort. With legalized sports gambling, our games instead will come to represent the fast buck, the quick fix, the desire to get something for nothing. The spread of legalized sports gambling would change forever—and for the worse—what our games stand for and the way they are perceived.”
PASPA also gave the leagues a mechanism to enforce PASPA’s ban. One provision reads:
“A civil action to enjoin a violation of Section 3702 may be commenced in an appropriate district court of the United States by the Attorney General of the United States, or by a professional sports organization or amateur sports organization whose competitive game is alleged to be the basis of such violation.”
Ironically, one of the major driving forces pushing for PASPA’s passage was a senator from New Jersey — Bill Bradley, a former basketball star for Princeton University and the New York Knicks. Ironic because New Jersey ostensibly has suffered the greatest economic loss of opportunity as a result of PASPA, and since 2009 has led the charge for its repeal in the courts and at the ballot box.
That said, under PASPA, New Jersey actually had a window to legalize sports betting within its borders. Through a “grandfather” clause, PASPA carved out an exception for states that had already legalized sports betting (in some form) to continue. Those states were/are Nevada, Delaware, Oregon and Montana. Oregon offered a “Sport Action Lottery,” later discontinued in 2007, and in 1976 in Delaware, residents could make parlay wagers on NFL games.
Another PASPA clause tied to the existence of New Jersey’s casino business gave the state one year to legalize sports betting, but in November 1993, a ballot measure failed that would have amended the state constitution to allow it. Lawsuits and roundabout measures to slip within the PASPA exemption also failed.
The 21st Century: Congress Clamps Down Harder
In 2006, Congress went after gambling and sports betting on the internet, and did so by targeting the flow of money. The name of the law is the Unlawful Internet Gambling Enforcement Act (UIGEA) and it does a lot of things. Mainly, UIGEA declared it unlawful for a “person engaged in the business of betting or wagering” to accept funds via credit, EFT transfer, a money transmitting business, or other methods.
The law also put the burden on banks and financial institutions to block restricted transactions and take measures to identify them and tasked the Federal Reserve and the U.S. Attorney General to establish certain procedures. UIGEA put the FTC in charge of enforcement and gave U.S. district courts jurisdiction to prevent or restraint any illegal Internet gambling transactions.
UIGEA forced many offshore sportsbooks to ditch U.S.-based customers and explore a variety of different payment processing options, some more unreliable than others. UIGEA was also the law that triggered poker’s infamous “Black Friday” in 2011, which rocked the online poker industry. The controversial UIGEA was also passed under bizarre circumstances. At the last minute it was “hastily tacked onto the end of unrelated legislation,” known as the SAFE Port Act, a law concerning maritime and cargo security.
One year after UIGEA, in 2007, longtime NBA referee Tim Donaghy pled guilty to two felony charges for a mob-connected scheme in which he bet on games that he officiated and called fouls, among other things, to impact the game totals.
“I was in a unique position to pick the outcome of NBA games,” Donaghy told a judge. “I received cash payments for successful picks.”
The 21st Century: A Roar From the Northeast Corridor
In 2009, states in the northeast corridor began to up the ante. By this time, the number of land-based casinos had significantly grown in Pennsylvania and Maryland, creating competition for the New Jersey casinos, which began experiencing a decline. And of course the onset of the recession a couple years earlier began to put pressure on the states to create more ways to increase their coffers and close budget deficits.
Enter then-Delaware governor Jack Markell. In 2009, the state voted in favor of allowing sports betting and successfully rebooted its NFL parlay wagering game that it first introduced in 1976. So in Delaware as of 2009, you can once again make 3- to 12-team parlay bets on NFL games. But you cannot make a single-game wager (a much better bet than a parlay, odds-wise) in Delaware, not for lacking of the First State’s efforts, but because the NFL and other leagues swiftly attacked the state’s measure that legalized single-game wagering.
Under PASPA, the NFL, NCAA and other leagues quickly took to the courts and prevailed in the Third Circuit Court of Appeals, which held that Markell and Delaware’s legalization of single-game wagering violating federal law (PASPA). The state intended to have its new sports betting model ready in time to field wagers on NFL and college football games that season, but the Third Circuit ruled prior to the season and blocked any such wager from occurring.
But Delaware officials did not walk away without having a word, and highlighted some of the NFL and other leagues’ hypocrisy. Markell wrote in 2009 letter to NFL commissioner Roger Goodell:
[T]he NFL negotiates contracts with all of the principal broadcast networks and those contracts generate billions of dollars in revenues for the NFL and the team owners. Importantly, each of these companies owns and operates websites that provide the betting lines which are viewed by bettors in every state in the nation, regardless of whether the viewers in that State can legally wager on the games . . . . In short, the notion that the NFL has aggressively and actively fought against betting on its games is belied by the very programming the NFL indirectly endorses and from which it handsomely profits.”
And with respect to wagers that would still occur in the United States — legally and illegally– attorney Andre Bouchard, who represented Delaware in the cases, said that despite the court’s ruling, “there will still be legal betting in Nevada, there will be illegal betting across the country including Delaware, and there will be betting on the Internet.”
The 21st Century: New Jersey’s Fury
At the same time that Delaware began hammering at PASPA, New Jersey began its now 8-year-long quest to eradicate the law and begin to allow sports betting in the state.
The state’s first effort, an action against then-U.S. Attorney General Eric Holder, by state senator Ray Lesniak, along with the Interactive Media & Entertainment Gaming Association (iMEGA) and horsemen’s groups, was unsuccessful. The U.S. District Court for New Jersey ruled against the plaintiffs on the basis of lack of standing (ruling that Lesniak & Co. had no grounds to bring the suit for lack of potential injury) and the Third Circuit Court of Appeals affirmed the decision.
Undeterred, Lesniak and the state began laying the groundwork for an attack on PASPA’s constitutionality with an non-binding amendment to the state’s constitution that would “authorize by law wagering at casinos or gambling houses in Atlantic City and at current or former running and harness horse racetracks on the result of professional, certain college, or amateur or athletic events.” Effectively, if PASPA were overturned, New Jersey’s constitution would be modified to permit sports betting.
The issue appeared as a public question on the 2011 New Jersey general election ballot and passed by a wide 64-36 percent margin. Soon after, in 2012, the legislature amended the Casino Control Act and allowed the Casino Control Commission to begin offering licenses to casinos and racetracks to take sports bets. New Jersey governor Chris Christie and the state then expressed an intention to go further and enact regulations to allow sports betting in Atlantic City casinos and racetracks, when the NFL, NCAA and other sports leagues sued to block the state from implementing any such sports betting.
Significantly, the lawsuit dubbed “Christie I” began to address the merits of New Jersey’s case and its various constitutional arguments against PASPA under the Tenth Amendment. It’s a long and somewhat complicated tale in gray area of the law that involves state sovereignty and equal sovereignty (the idea that all states should be treated equally, or on equal footing), and anti-commandeering doctrine (the federal government cannot compel the states to enact laws or dictate how it governs its own citizens).
Ultimately, New Jersey lost in the Third Circuit again, where the court held that “while the guarantee of uniformity in treatment amongst the states cabins some of Congress’ powers, no such guarantee limits the Commerce Clause.” In other words, federal law may impact states differently, resulting in scenarios where, as here, Nevada may license sports betting operations but New Jersey cannot. New Jersey also made an argument under the “anti-commandeering” doctrine. New Jersey’s argument did not convince the court, but the state did get an idea for a novel angle of attack, and also gained some traction with its arguments as one judge dissented from the majority.
In 2014, New Jersey executed a novel plan in “Christie II” by passing a law that partially repealed its state prohibitions against sports wagering, which effectively would allow sports betting, without explicitly saying so. The Third Circuit noted “clever drafting” by New Jersey here, but ultimately did not find in the state’s favor. But once again, the court was split 2-1, followed by a rehearing en banc where New Jersey lost 9-3. The court rejected the state’s anti-commandeering argument but didn’t squarely address the equal sovereignty arguments (explored in great depth here), which is probably where the state has its best shot at defeating PASPA.
Meanwhile, in 2014, NBA commissioner Adam Silver penned an op-ed in the New York Times signaling a turning tide from within the leagues. Silver stated that despite legal restrictions, sports betting remains widespread, but underground, unregulated. He also acknowledged that most Americans approve of sports betting. He writes:
“[T]he laws on sports betting should be changed. Congress should adopt a federal framework that allows states to authorize betting on professional sports, subject to strict regulatory requirements and technological safeguards.
“These requirements would include: mandatory monitoring and reporting of unusual betting-line movements; a licensing protocol to ensure betting operators are legitimate; minimum-age verification measures; geo-blocking technology to ensure betting is available only where it is legal; mechanisms to identify and exclude people with gambling problems; and education about responsible gaming.”
So, What’s Next?
In October 2016, New Jersey filed for a writ of certiorari (for a Supreme Court review) in its “Christie II” case. It was seen as a major long shot given that SCOTUS accepts such a small number of cases each year.
But then the high court asked the acting Solicitor General to file a brief on the case, which he did in May 2017, recommending that the court deny New Jersey’s petition. But then the Supreme Court decided to take up the case anyways!
New Jersey completed a Hail Mary pass and now it’s overtime. Oral arguments will take place on December 4 and a decision is expected to come in early 2018. Stay tuned.
Meanwhile, some states are preparing for the eventuality that New Jersey prevails or Congress eliminates PASPA through some other measure. In any case, the next chapter of this tale will be penned by the Supreme Court of the United States.