Besides the sports involved in pari-mutuel gambling, legal sports gambling is extremely limited in the United States. Only one state, Nevada, allows high-stakes gambling on sporting events like football, basketball, and baseball games.
In 1992 Congress passed the Professional and Amateur Sports Protection Act. This act banned sports betting in all states except those that already allowed it in some form (Nevada, Oregon, Delaware, Montana, Washington, and New Mexico).
Limited Options Outside Nevada
There are a handful of states in which limited forms of sports betting are legal.
OREGON. As of August 2004 Oregon operates two sports betting games as part of its lottery. The Sports Action game began in 1989. Proceeds from the game go to the state's Intercollegiate Athletic and Academic Scholarship Fund. The game has earned more than $25 million for the fund since it was started, averaging about $2 million per year. The betting is conducted only during the football season on selected professional football games. Lottery officials avoid legal restrictions that professional football leagues have on the use of trademark names by referring to teams by location only (for example, Denver vs. Miami). A second lottery game is called Scorecard. In this game bettors win money if they correctly pick a number that matches the last digit of the scores from selected professional football games.
DELAWARE. Delaware tried a sports lottery in 1976 based on games of the National Football League (NFL). The NFL sued for trademark violations but eventually lost the case. The sports lottery, which was called Scorecard, proved to be unpopular with bettors and unprofitable for the state. It was abandoned after only one football season. A task force was formed during the summer of 2002 to investigate the feasibility of reinstating a sports lottery game in Delaware. The group's final report was issued to the Delaware General Assembly in 2003. It estimated that a legal sports lottery could raise approximately $13 million in state revenue. However, Governor Ruth Ann Minner is opposed to expanding gambling in Delaware, making it unlikely that a sports lottery will be initiated while she remains in office. The expansion of sports betting is also opposed by the National Football League, National Basketball Association, National Hockey League, Major League Baseball, and National Collegiate Athletic Association (NCAA).
MONTANA. The State of Montana allows five types of sports gambling: sports pools, Calcutta pools, fantasy sports leagues, sports tab games, and fishing derbies.
Calcutta pools are operated similarly to pari-mutuel wagering in that all money wagered on a sporting event is pooled together. In a Calcutta pool, an auction is held before a sporting event, and bettors bid for the opportunity to bet on a particular player. For example, before a golf tournament, the pool participants bid against each other for the right to bet on a particular golfer. The highest bidder for each player wins that right. Calcutta pools are sometimes called auction pools for this reason. The money collected during the auction becomes the wagering pool. It is divided among the "owners" of the best finishing players and the pool sponsor. Calcutta pools are most often associated with rodeos and golf tournaments.
Fantasy sports leagues are games in which the participants create fictitious teams assumed to be composed of actual professional athletes. Each team wins points based on its performance against other teams in the league over a designated time period. Team performance is measured based on the actual performance of the selected athletes during real sporting events. The points collected by each participant in the league can be exchanged for cash or merchandise paid for by membership fees collected from each participant.
A sports tab game is one in which players purchase a numbered tab (ticket) from a game card containing one hundred tabs with different number combinations. Bettors win money or prizes if their numbers match those associated with a sporting event—for example, digits in the winning team's final score. The cost of sports tabs is limited by law to less than $5 each. Operators of sports tab games (except charities) are allowed to take no more than 10% of the total amount wagered to cover their expenses (charities are allowed to take 50%). Sports tab sellers must obtain a license from the state and pay licensing fees and gaming taxes.
OTHER STATES. Other states offering limited sports gambling are Washington, which permits $1 bets on race cars, and New Mexico, where small bets on bicycle races are legal. Office pools on sporting events are legal in a few states as long as the operator does not take a commission. Despite these examples of sports betting in other parts of the United States, though, the big money in legal sports gambling in America is in Nevada.
Nevada Sports and Race Books
Sports books are establishments that accept and pay off bets on sporting events. They are legal only in Nevada and are mostly located in casinos, where they are often combined with the casino race books. Sports betting in Nevada is permitted only for people over age twenty-one who are physically present in the state.
According to the Nevada Gaming Control Board there were 172 locations in the state as of August 2004 licensed to operate sports books and/or race books. More than half of them are in Las Vegas. Most books are operated in casinos. The typical casino book is a large room with many television monitors showing races and games from around the world. Most casinos have a combined race/sports book, although the betting formats are usually different. Race book betting is mostly of the pari-mutuel type. Sports book betting is by bookmaking.
BOOKMAKING. Bookmaking is the common term for the act of determining odds and receiving and paying off bets. The person performing the service is called the bookmaker or bookie, for short. Bookmaking has its own lingo, which can be confusing to those who are not familiar with it. For example, a "dollar" bet is actually a $100 bet, a "nickel" bet is a $500 bet, and a "dime" bet is a $1,000 bet. In order to place a bet with a bookmaker, the bettor lays down (pays) a particular amount of money to win a particular payoff.
Bookmakers make money by charging a commission called "juice" or "vigorish." Although the exact origins of the word "vigorish" are not known, Webster's Dictionary suggests that it may be derived from the Ukrainian word vygrash or the Russian word vyigrysh, both of which mean "winnings" or "profit." In any event, vigorish is a very important and very misunderstood concept for most bettors.
Most gambling literature describes vigorish as a 4.55% commission that a bookie earns from losers' bets. A differing interpretation of vigorish comes from J. R. Martin, a sports handicapper (or person who studies and analyzes betting odds and gives advice to bettors) and writer who publishes a Web site on professional sports gambling. According to Martin, statistically, only bettors who win exactly half of their bets pay exactly 4.55% in vigorish. Other bettors pay different percentages. Therefore, a bettor must win 53% of all equally sized bets to break even. However, this bettor would wind up paying a vigorish of at least 4.82%.
Some sports bets are simple wagers based on yes/no logic. Examples include under and over bets, where a bettor wagers that a particular game's final score will be under or over a specific number of points.
Most sports bets are based on the "line" set by the bookmaker. For example, the line for an NFL football game between the Miami Dolphins and the Tennessee Titans might say that the Dolphins are picked by seven and one-half points. A bettor picking the Dolphins to win the game wins money only if the Dolphins win the game by more than seven and one-half points.
The line is a concept designed to even up betting. It does not reflect by how much a sports expert actually believes a team will win. It is designed so that the bookmaker will get bets on both sides. This reduces the bookie's financial risk. Bookmakers will change lines if one side receives more betting action than the other. The skill aspect of sports gambling comes in recognizing the accuracy of the line. Experienced bettors choose games in which they believe the posted lines do not accurately reflect the expected outcomes. This gives them an edge.
The odds for most licensed sports books in Nevada are set by the company Las Vegas Sports Consultants, Inc. Formerly owned by SportsLine.com, Inc., the company was purchased in November 2003 by a group of private investors in Las Vegas.
HOW SPORTS GAMBLING CAME TO BE LEGAL IN NEVADA. Nevada legalized gambling during the Great Depression of the 1930s as a means to raise revenue. The 1930s also saw the development of the handicapping system, in which bookmakers establish the betting line. Charles McNeil, a Chicago securities analyst, is credited with this development. Prior to that time, there was little incentive for gamblers to bet on the underdog in a contest.
During the 1940s the Nevada legislature legalized OTB on horses. The sports and race books were popular in the state's casinos until the early 1950s. A series of Senate hearings, led by Senator Estes Kefauver of Tennessee, was held in 1950 and 1951 to investigate the role of organized crime in the gambling industry. The hearings were televised and focused the nation's attention on gangsters, corrupt politicians, and legal and illegal gambling. One of the results was the passage of a 10% federal excise tax (FET) on "any wager with respect to a sports event or a contest." The tax was devastating to the casino sports books, which were making only a small profit anyway. They were forced to shut down.
In 1974 the FET was reduced to 2%, and the sports books slowly made a comeback. Frank "Lefty" Rosenthal, a renowned handicapper, is credited with popularizing the sports book in Las Vegas during the 1970s.
The 1980s were boom years for the sports and race books. In 1983 the FET was reduced to only 0.25%. Jimmy "the Greek" Snyder brought some legitimacy to sports gambling through his numerous television appearances on network sports shows. The amount of money
wagered in the Nevada sports books increased by 230% between 1982 and 1987 alone. Betting volume continued to increase until the mid-1990s, when it began to level off.
MONEY AND GAMES. As shown in Figure 8.10 Nevada's sports books had a betting volume (or handle) of $1.86 billion during fiscal year 2002–03. This is down 4% from the previous fiscal year and down 25% from the $2.5 billion wagered in 1996.
Despite the decrease in betting volume the sports books actually took in more revenue over this time period, from $77 million in 1996 to $122.6 million in 2003. In 2003 this revenue represented 6.6% of the total amount wagered. This means that $1.74 billion was paid out to gamblers.
According to the Nevada Gaming Commission and Gaming Control Board, football wagers accounted for 44% of the state's sports book wagering during 2002, the latest year available. (See Figure 8.11.) Basketball and baseball accounted for 27% and 20%, respectively. Other sports and parlay bets were far less popular. A parlay bet is a combination bet in which the bettor selects the winners of two or more events. Every selection must be correct for the bettor to win the wager.
Football's share of sports betting was around 40% during every year from 1996 to 2002. The Super Bowl alone generated $81 million in wagers in 2004 as shown in Table 8.6. Sports book revenue (or win) was $12.4 million. However, the largest single wagering event for the Nevada sports books is believed to be the men's Division I college basketball tournament known as "March Madness." Betting volume for the 2004 tournament exceeded $85 million in Nevada.
Industry experts estimate that one-third of the bets placed in the Nevada sports books are on college sporting events. Wagering is not allowed on high school sporting events and Olympic events. Bets were prohibited on amateur sporting events either held in Nevada or involving Nevada teams prior to 2001. Nevada law restricts the sports books to wagering on events that are athletic contests. Betting is not allowed on related events, such as who will win most valuable player awards.
THE CONTROVERSY OVER COLLEGE SPORTS. In 2000 Senator John McCain of Arizona introduced the Amateur Sports Integrity Act to ban betting on college sports at the Nevada sports books. Although it was brought up again in 2001, 2002, and 2003, the act had not been passed by Congress as of mid-2004. The act is supported by the American Council on Education (ACE), the NCAA, and numerous other organizations representing colleges and universities.
During testimony before the U.S. Senate in April 2001, an ACE spokesperson gave the following reasons in support of the act:
Gambling on college sports threatens the integrity of intercollegiate athletic competition.
The state of Nevada has been arbitrary and selective in choosing which amateur sporting events are permissible for betting.
Colleges cannot combat illegal campus gambling as long as legal gambling on intercollegiate sports is condoned by society.
Nevada politicians and the American Gaming Association (AGA) are opposed to a federal ban on legal wagering
on college sporting events. The AGA advocates better enforcement of the existing laws against illegal sports gambling and stiffer penalties for those who engage in it. According to the AGA, the Nevada sports books have a direct computer link with the NCAA and share betting information with the NCAA. Further, the FBI credits this practice with bringing to light a gambling scandal at Arizona State University during the mid-1990s. The basketball team's coach was notified about a possible problem after Nevada sports books alerted the Pac-10 conference and the FBI about betting irregularities. The NCAA hopes that a ban on all college sports wagering will pressure newspapers to stop publishing the line on college games. The NCAA has repeatedly asked major media outlets not to post lines on college sports because it encourages gambling. However, the NCAA has been accused in the media of hypocrisy for its stance on legal gambling on college sports. The NCAA has a multiyear deal worth billions of dollars with television broadcaster CBS, even though CBS is part-owner of SportsLine.com, an Internet Web site that posts the line on college games.
THE INTERNET CHALLENGE. Following the advent of Internet gambling in the late 1990s, the Nevada sports books began to feel some serious competition. Internet gambling is technically illegal in the United States because it violates the federal Wire Act of 1961. However, online gambling is increasingly popular among Americans, particularly sports gamblers, who can place their bets from home or the office. The Internet provides gamblers with an easier way to monitor the many games of the tournament and to keep up with changing betting lines.
Nevada sports book wagering on Super Bowls, 1995–2004
SOURCE: "Summary of Nevada Sports Book Performance for the Last Ten Super Bowls," in Nevada Gambling Control Board Press Release: Super Bowl 2004, State of Nevada Gaming Control Board, February 3, 2004, http://gaming.nv.gov/documents/pdf/pr_04superbowl.pdf (accessed September 28, 2004)
New England 32, Carolina 29
Tampa Bay 48, Oakland 21
New England 20, St. Louis 17
Baltimore 34, N.Y. Giants 7
St. Louis 23, Tennessee 16
Denver 34, Atlanta 19
Denver 31, Green Bay 24
Green Bay 35, New England 21
Dallas 27, Pittsburgh 17
San Francisco 49, San Diego 26
In response to this potential new gambling market, Nevada politicians began a drive to make Internet gambling legal in the state. In August 2002 the U.S. Department of Justice (DOJ) sent a letter to the Nevada Gaming Commission warning that any state legislation seeking to make Internet gambling legal would be in violation of federal law. The commission, on the other hand, has indicated that the state will continue to pursue legalization of online gambling for its residents, despite significant technical and legal obstacles.
A major problem in regulating any Internet gambling, including sports gambling, is the determination of jurisdiction. The Internet knows no state boundaries. Nevada officials hope that technology can be developed that will allow gambling Web sites to determine in what state a potential gambler lives. In this way, Internet gambling could potentially be allowed for the residents of Nevada only. Although several major casinos were working to take their games and sports books online, the political climate for legalized Internet gambling in the United States as of mid-2004 was not promising.
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