Tak­ing a gam­ble on sports bet­ting Tax-hun­gry law­mak­ers will dis­cover there are more le­gal pit­falls than pots of gold

The Washington Times Weekly - - Commentary - By Jon Brun­ing

The U.S. Supreme Court has thrown out a fed­eral law that had banned sports bet­ting in ev­ery state but Ne­vada. In an­tic­i­pa­tion of the de­ci­sion, the gam­bling and sports worlds were clam­or­ing for states to pass laws le­gal­iz­ing sports bet­ting. But state leg­is­la­tures hop­ing to cash in on new tax rev­enue from le­gal­ized sports bet­ting should pro­ceed with cau­tion. Here is why:

• There is no pot of gold at the end of this rain­bow.

Sports­books are low-mar­gin ven­tures. They will not pro­duce mean­ing­ful tax rev­enue for states. Last year, Ne­vada sports­books re­turned just .02 per­cent of the total casino wins from slot machines and ta­ble games. Of the nearly $800 mil­lion in gam­bling taxes col­lected by Ne­vada, sports bet­ting tax rev­enues gen­er­ated a mere $18.5 mil­lion in taxes.

• The big win­ners will be il­le­gal off- shore sports­books and lo­cal book­ies.

Be­fore the Supreme Court even rules, more than 90 per­cent of U.S. sports bet­ting takes place out­side of Ne­vada. Most is wa­gered through off­shore sports­books lo­cated in the Caribbean and Cen­tral Amer­ica. Off­shore sites do not re­quire gam­bler ver­i­fi­ca­tion, pay taxes or re­port large win­nings to the In­ter­nal Rev­enue Ser­vice.

Like­wise, lo­cal book­ies do not re­port win­nings to the IRS, pay taxes, have the com­pli­ance costs of li­censed casinos, nor will they have to re­mit the “in­tegrity fee” be­ing pro­posed by the pro­fes­sional sports leagues. Plus, they of­fer credit, are con­ve­niently lo­cated, and keep no bank­ing records. Both of these il­le­gal gam­bling op­tions will flour­ish with the ex­pan­sion of sports bet­ting. Be­cause nei­ther pays taxes or have the com­pli­ance costs sad­dled on le­gal casinos, they will be able to of­fer more com­pet­i­tive odds and big­ger bonuses. • On­line sports bet­ting is still il­le­gal. Even though the Supreme Court tossed the sports bet­ting ban, on­line sports bet­ting is still il­le­gal. In 1961, all gam­bling in­volv­ing in­ter­state telecom­mu­ni­ca­tions was pro­hib­ited by the Wire Act. When the In­ter­net emerged, the Depart­ment of Jus­tice made clear that all on­line gam­bling was banned by the Wire Act and other fed­eral crim­i­nal laws. Congress then passed a law to give law en­force­ment new tools to shut down all on­line casinos and sports­books.

But in De­cem­ber 2011, the Depart­ment of Jus­tice is­sued an opin­ion re­vers­ing 50 years of precedent, con­clud­ing the Wire Act only pro­hibits on­line sports bet­ting. That opin­ion ham­strung law en­force­ment which, in turn, has al­lowed il­le­gal sites to flour­ish. At the same time, by af­firm­ing the Wire Act ap­plies to sports bet­ting, the Depart­ment of Jus­tice opin­ion ham­strings sports­books that will want to hedge their risk by es­tab­lish­ing a na­tional pool, cre­at­ing in­ter­state com­pacts, or lay­ing off bets across state lines — all of which would vi­o­late the act.

It’s hard to imag­ine how states le­gal­iz­ing sports bet­ting will pre­vent their res­i­dents from mi­grat­ing to il­le­gal off­shore sports­books where the odds are bet­ter, bonuses larger, and there’s no worry the sports­book will re­port win­nings to the IRS. Only through vig­or­ous en­force­ment of the Wire Act will states be able to pro­tect

Lo­cal book­ies do not re­port win­nings to the IRS, pay taxes, have the com­pli­ance costs of li­censed casinos, nor will they have to re­mit the “in­tegrity fee” be­ing pro­posed by the pro­fes­sional sports leagues. Plus, they of­fer credit, are con­ve­niently lo­cated, and keep no bank­ing records. Both of these il­le­gal gam­bling op­tions will flour­ish with the ex­pan­sion of sports bet­ting.

and earn rev­enue from le­gal sports­books. But that can only oc­cur if the Wire Act is fully re­stored and the law is ag­gres­sively en­forced by Depart­ment of Jus­tice. Un­til then, states look­ing for riches from sports bet­ting may want to hedge their bets. Jon Brun­ing is a for­mer Ne­braska at­tor­ney gen­eral and pres­i­dent of the Na­tional As­so­ci­a­tion of At­tor­neys Gen­eral. He is man­ag­ing part­ner of Brun­ing Law Group and is coun­sel to the Coali­tion to Stop In­ter­net Gam­bling.

IL­LUS­TRA­TION BY

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