How to build a US gambling system that protects the integrity of sports (key takeaways from Great Britain)

Published 21 August 2018 | Authored by: Steven Flynn, Rick Parry

This article considers how the integrity of US sports can be protected from the risks associated with gambling following the decision of the Supreme Court of the United States in Murphy v. National Collegiate Athletic Association (NCAA)1. In doing so, it reviews how betting is regulated in Great Britain and offers advice on aspects of that system that the US may wish to adopt. Specifically, it looks at:

  • Background

    • Betting on sporting events in the US

    • Professional and Amateur Sports Protection Act of 1992 (PASPA) & Murphy v. NCAA

  • Why have legalised sports betting markets?

  • An overviewing of betting in Great Britain

  • How sports betting is regulated in Great Britain

    • The Gambling Commission

    • Cheating at gambling

    • The Sports Betting Integrity Panel

  • Challenges for the US betting market in the Post-PASPA world and lessons that can be learned from Great Britain

    • The Wire Act: an impediment to variety and value for money

    • Regulating sports betting: State or Federal level?

  • Conclusion

Background

Betting on Sporting Events in the USA

Until recently, betting on sports events was illegal in most states of the USA. However, this illegality did not mean that fans were not betting on sporting events. Numerous studies were conducted into the size of the illegal betting market, with a variety of results. In 2001 the National Gambling Impact Study Commission cited a range of between $80 and $380 billion in annual wagering.2 More recently the American Gaming Association has quoted an estimate of $150 billion.3 As observed by Federal Judge Fuentes, ‘wagering on sporting events is an activity almost as inscribed in [US] society as participating in or watching the sports themselves.’4

Due to its very nature, it is of course impossible to accurately quantify the size of an illegal market. However, on any view, it is clear that the demand for sports betting in the US is substantial.

PASPA & Murphy v. NCAA

The Professional and Amateur Sports Protection Act of 1992 (PASPA) forbade state governments from sponsoring, operating, advertising, promoting, licensing or authorising betting on competitive sports games, except in those states where it was already legal before PASPA came into effect.5

The legality of PASPA was recently considered by the Supreme Court of the United States in the case of Murphy v. National Collegiate Athletic Association. The Court’s decision was that PASPA was unconstitutional. The author of the majority opinion, Justice Alito, wrote that, "Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own."6 For more information on the background to the case and the decision, please see this article7.

The Supreme Court’s decision in Murphy v. NCAA is highly significant. It was widely reported as having "legalised gambling". Whilst this is not entirely accurate, it does mean that states can now authorise and licence gambling on sport. Many states have rushed to do so.8

In light of the Supreme Court’s decision, the question that remains is whether Congress will step in to regulate the sports betting market (as referred to by Justice Alito) or, will each state authorise and licence sports betting independently. It is the view of these authors, based on their experience of how sports betting is regulated in Great Britain, that Congressional regulation would best preserve the integrity of sport by ensuring consistency of licensing conditions; the appropriate sharing of intelligence; and the essential collaboration between sports, bookmakers and law enforcement agencies.

Why have Legalised Sports Betting Markets?

There are several reasons why it makes sense to have a legalised and regulated sports betting market.

Firstly, it provides an opportunity to protect the vulnerable. Conditions can be imposed upon licensed bookmakers. These can include a minimum age for bettors; an obligation to educate customers; and a duty to provide support for people with betting problems.

Secondly, consumer protection will be enhanced. Regulations can ensure that there is someone for consumers to complain to and a mechanism for resolving disputes.

Thirdly, there are also tax benefits for governments and/or states. These would increase significantly through additional business taxes being received from betting operators who operate in the open. There would also be specific betting levies. This appears to have been the main driving force behind New Jersey’s decision to challenge the legality of PASPA.9

Fourthly, and most significantly for the purposes of this article, protecting the integrity of sport and preventing match fixing is more readily achievable in a regulated market where bookmakers have licenses to lose and where access to information is greatly improved.

Accountability and transparency are the enemies of the fixer.

Given the potential benefits of a legalised and regulated sports betting market, the post-PASPA landscape represents a great opportunity for sports betting in the USA to design a system where the integrity of sport is central. In seeking to design such a system, it is essential that the architects deal with certain key issues. In identifying these key issues, it is useful to look at the example of Great Britain.

Betting in Great Britain

Sports betting was legalised in Great Britain in 1961 (“Great Britain” consists of England, Scotland and Wales). Legislators and regulators have over 50 years of experience of operating such a market. Most of this experience is positive, with a great deal of it being highly relevant to the United States.

The approach in Great Britain has not only been to legalise and regulate, but also to liberalise. The key has been to ensure that as much betting as possible takes place in the regulated market, with little escaping into the unregulated market. Starving the illegal markets of liquidity is a crucial step towards preventing match-fixing.

In order to do this, the product must be attractive to consumers. There are two elements to this.10

The first element is that the product must provide value for money. Bettors will pay a premium to bet in a well-regulated and safe environment, but not a large one.11

Governments and states should not be too ambitious in terms of the tax take. In Great Britain the betting tax rate is 15% of gross gaming yield.12 Any higher than this would impact on the operator’s profit margins; thereby reducing the odds that they can offer the customer. If the odds being offered in the unregulated market are substantially more favorable than in the regulated market, then this may incentivise gamblers to look to unlicensed bookmakers.

Governments and states should also not impose artificial restrictions on the amounts bookmakers are able to return in prize money. In the lightly regulated territory of Cagayan in the Philippines, operators return in excess of 95%.13 In contrast that payout in France is restricted to 85%.14 This disparity again may be enough to encourage customers to look to the unregulated market.

The second element is ensuring that there is sufficient consumer choice. Some countries restrict the types of bet or the events that customers can bet on. For example, Australia has prohibited in-play betting.15 Indeed some countries allow sports to have a veto over the types of bet that can be made.

Great Britain has not taken this approach. In-play betting has proved to be very popular, particularly amongst live TV audiences. Evidence suggests that up to a third of all online betting is in-play.16 The attraction for sports is that an enhanced viewing experience is likely to boost audience retention, a challenge for every sport.

Indeed, online betting itself has proved to be extremely popular. This is partly because it offers a wide variety of bets with odds changing in real time but also because of the convenience: people shop online; they consume music and entertainment online; and they communicate online. It is entirely logical that they would want to bet online.

Figures published by The Gambling Commission in its report Industry Statistics (April 2014 to September 2017) suggest that the gross gaming yield for remote betting for the year to September 2017 was £2 billion.17 This compares with the equivalent figure of £3.3 billion for non-remote betting.18

In the authors’ view, there is no doubt that the British approach has maximised the size of its legal betting market. In its report, “Protecting the Integrity of Sport Competition” (2012-2014), the Sorbonne University estimated that the volume of illegal betting in Great Britain was negligible whereas the proportion for Europe as a whole was 25%.19

How is Sports Betting Regulated in Great Britain?

Having legalised sports betting in 1961, new legislation was passed to consolidate and modernise the legal framework in 2005. The Gambling Act 2005 (GA 2005) sought to address known weaknesses as well as technological changes, such as online betting. It provided a common regulatory framework for all gambling activities, although this article is only concerned with sports betting.

The Gambling Commission

In essence, gambling in Great Britain is regulated via a licensing system operated by the Gambling Commission (the Commission). The Commission is an independent non-departmental public body but “sponsored” by the UK government’s Department for Culture, Media and Sport (DCMS). It is funded by fees set by DCMS and paid by the organisations and individuals they license. Although it is accountable to government, the Commission operates with considerable autonomy and is able to react to the rapidly changing nature of the industry. It is able to change licence conditions, and its practices, in response to challenges or opportunities without the need to refer back to Parliament.

Except in very limited circumstances, a betting operator will commit a criminal offence if it offers facilities for gambling without first having obtained a licence.20 The issuing of licences is strictly controlled and is subject to the Commission’s duty to promote the licensing objectives.21 The licensing objectives are:

  • to prevent gambling from being a source of crime;

  • to ensure gambling is carried out in a fair and honest way; and

  • to protect children and other vulnerable people.22

When issuing a licence, the Commission is able to attach conditions. These can be either general ones, applying to every licence, or specific ones applying to a particular operator. The Commission has broad powers to regulate the activities of bookmakers, from the types of bet offered, to advertising and sponsorship activity.

The condition that is most relevant to sports betting and which is specified in the GA 2005 is Licence Condition 15.1.1, which provides that

"Licensees must as soon as reasonably practicable provide the Commission or ensure that the Commission is provided with any information that they know relates to or suspect may relate to the commission of an offence under the Act, including an offence resulting from a breach of a licence condition or a code provision having the effect of a licence condition."23

This requires operators to provide the Commission with information which they know or suspect may relate to the committing of an offence under the GA 2005. They must also supply a sport’s governing body with information which they suspect may relate to a breach of a sport’s rules. This would include match-fixing.24

Licence Condition 15.1 is a very powerful provision. Much of the information is supplied in real time and this enables sports to take action to disrupt a fix as well as retroactive action to catch perpetrators. Prevention is effective, quick and inexpensive. It is a vital part of the armory in the battle to maintain the integrity of a sport. However, it is only effective if it is robustly enforced. The obligation is on the Commission to take positive steps to ensure that operators comply with their obligations; otherwise the strength of Licence Condition 15.1 is undermined.

The information provided may also be very specific, such as the names of sports people placing bets in contravention of their sport’s rules. Licence Condition 15.1 mandates communication directly from bookmaker to sport. There is no need for third parties to interpret the information.

The Commission has wide ranging powers. It has regulatory powers in relation to licenses that allow it to issue warnings to operators; attach additional licence conditions; impose financial penalties; or suspend licences.

The GA 2005 also grants powers of investigation and prosecution to the Commission. Its enforcement officers may enter premises or apply for search warrants and operators must respond to requests for information. These powers may not be as extensive as those afforded to the police but they are certainly greater than those granted to the majority of public bodies, and certainly to sports governing bodies.

The Commission also has the power to void bets which it considers to be substantially unfair. This is another very powerful form of disruption which can be applied quickly. A decision to void a bet restricts the flow of unlawful gains into criminal hands at source. By cutting off their source of income, the Commission can limit the resources available to criminal networks to engage in activities that adversely effect sport.

The Commission publishes Codes of Practice (which operators have to adhere to) and position papers which may help to inform future government policy. For example, in 2009 it published papers on (sports) betting integrity and in-play betting. At the time it concluded that in-play betting had not generated an increase in match-fixing or the misuse of inside information so that special measures were not needed to safeguard sport.25

Cheating at Gambling

GA 2005 also created the criminal offence of Cheating at Gambling.26 There is no definition of "Cheating" in the Act; it is for the courts to decide. As observed by the UK Supreme Court, "what is cheating in one form of game may be legitimate competition in another."27 On any view, it is clear that match-fixing will be caught. The maximum penalty is two years’ imprisonment.

In Great Britain there has been no appetite to make match-fixing itself a criminal offence. This is because it is believed that the illicit actions would be covered by other offences already on the statute books e.g. Cheating at gambling (Section 42 Gambling Act 2005); Bribery (Sections 1 and 2, Bribery Act 2010); Conspiracy (Section 1 Criminal Law Act 1977); Fraud (Fraud Act 2006); or, potentially, Theft. Some other jurisdictions have taken a different view. Whilst the authors can see the potential dissuasive benefits of having an offence that specifically relates to match-fixing, we do not consider that a change in the law is necessary. Any deterrent factor would only be achieved through educating participants and the public of its existence. The same deterrence can be achieved by educating them that it is the illicit conduct that is unlawful, regardless of the name given to the offence. It is also the authors’ experience that prosecutions of match-fixing do not fail because of a lacuna in the law, but rather because the evidence adduced has been inadequate. The introduction of a specific match-fixing offence will not impact on fact that direct evidence of wrongdoing in this context is very hard to secure.

The Sports Betting Integrity Panel

In 2009 the then Minister for Sport, Gerry Sutcliffe, decided to appoint a panel to ensure that all practical steps were being taken to safeguard the integrity of sport. There was no evidence of problems (indeed Great Britain has experienced very few significant match-fixing issues) but with a “golden decade” of British sport ahead (starting with the Olympic Games in London in 2012) he wanted to be sure that everything that could be done, was being done.28

The panel comprised representatives of the Commission, of sports, of bookmakers and of the police. The brief was to produce recommendations which were practical and proportionate. The aim was to improve collaboration.

It is fair to say that match-fixing differs from other forms of cheating in two respects. First of all, it involves deliberately losing a match (or forfeiting part of a match) rather than cheating to win. Secondly it often involves third parties: the criminals who instigate the fix. This means that, by definition, a multi-agency approach is required. It also means that sports may be faced with complex, time-consuming and expensive enquiries which many of them will have neither the experience nor the expertise to carry out.

In producing its report, the Sports Betting Integrity Panel’s overriding opinion was that sport should deal with sports people (whether players, referees or team officials) whereas the police should focus on the criminals.29 Sports need to be able to move quickly in order to maintain public confidence and generally they operate to a lower standard of proof (either balance of probabilities or comfortable satisfaction). They are also able to impose penalties, such as lengthy bans, which might be just as great a deterrent as a custodial sentence. However, because the same evidence and the same witnesses are likely to be involved, it is vital that sports and the police work together.

The Panel’s recommendations fell under three main headings:

  1. Rules and Disciplinary Procedures for Sports

The Panel produced a Code of Conduct for sports to adhere to. This set a framework for a minimum level of rules for every sport to adopt, a commitment to enforce the rules through disciplinary processes that are robust and an agreement to impose penalties that are appropriate and proportionate.

The reason for setting a framework rather than a prescription was that the Panel recognised that sports are not identical. For example, every sport will have rules on the misuse of inside information but whilst it may be commonplace in soccer to announce that a particular player is carrying an injury, in tennis, such information may have a major impact on the betting markets. Similarly, a six month ban in one sport may have as great an impact on a player as a three year ban in another.

Very importantly the Panel recognised that sports should retain their sovereignty and prosecute and discipline their own participants. Indeed privity of contract would generally require this. In recent times other bodies have suggested the creation of integrity units to discipline offenders from all sports. This was never the Panel’s view. It did not believe it to be either desirable or practical.

The Panel also recommended the establishment of a Sports Betting Group to bring together representatives of sports on a regular basis.30 The purpose of this Group was to review progress, compare best practice and to respond to the inevitable changes in a fast moving world.

  1. Education of Competitors

The Panel recommended that comprehensive education programmes be introduced for all competitors from a young age. The aim was to ensure that they are fully aware of the rules and their obligations (such as the necessity to report approaches by fixers) but also the dangers associated with gambling. Crucially it was emphasised that player associations should be involved in the delivery of such programmes with former players being involved whenever possible.

  1. The Pan Sports Integrity Unit

The Panel also recognised that that some sports, such as horse racing and cricket, had experienced serious match fixing issues that had led them to establish integrity units with sophisticated intelligence gathering and investigative capability, whilst others, even some of the most popular, had no resource at all. Given that it is hoped that instances of fixing will be relatively rare and that the necessary expertise is scarce, the Panel came to the view that it made sense to recommend the creation of a pan sports integrity unit that would service all sports. The creation of the Sports Betting Intelligence Unit (SBIU) was seen to be a cost effective use of resources as well as method of securing greater cooperation and information sharing between sports. All sports would have access to the same resource without duplicating the investment. The SBIU would gather and disseminate intelligence, for example, that provided by the betting operators under Licence Condition 15.1, but it would also sit as a hub between the sports and the police. It would secure a memorandum of understanding governing information and evidence sharing as well as protocols defining who does what and when. It would also have the technology and the analytical expertise to monitor betting patterns in real time for itself. The SBIU would be available to assist individual sports with complex investigations but, as already noted, this would not interfere with the sports right to prosecute cases.

Considerable thought was given to where such a Unit should be located. Should it be an extension of one that already existed? Should it be created as a new independent entity and if so who would own it and what form would it take? The Panel concluded that it should be located within the Commission. The whole purpose was to shorten and streamline lines of communication rather than to add layers. The Commission had existing lines to sports, to bookmakers and to the police. Further and as already noted above, it had powers of investigation and inquiry that would not be replicable in a private body. 

Challenges for the US Betting Market in the Post-PASPA World & Lessons that can be Learned from Great Britain

In the opinion of these authors, there are two key lessons that the US should heed from Great Britain’s extensive experience of regulating sports betting when it comes to developing its own legalised betting market.

  • The first is that variety of product and value for money are essential to ensure customers choose to bet on licensed and regulated markets. Experience in Great Britain has shown that there is substantial demand for consumers to bet online.

  • The second is that preventing match fixing requires collaboration between sports, bookmakers, law enforcement agencies and gambling regulators. They have to share intelligence and work together on investigations.

Should the US heed these lessons, then there is little doubt that a successful betting market can develop without risking the integrity of sport. However, we foresee that there may be difficulties in developing such a system.

The Wire Act: An impediment to variety and value for money

Whilst neither of the authors of this this article are US qualified lawyers, our reading of the Interstate Wire Act of 1961 (‘the Wire Act’) is that it acts an impediment to betting operators organising themselves on a national level. It appears to be a complete bar to a nationwide, online sports betting market similar to that which exists in Great Britain and other European states. This is likely to impact on the markets ability to offer value for money as well as satisfying the demand to bet online.

The relevant section of the Wire Act provides that:

"Whoever being engaged in the business of betting… knowingly uses a wire communication facility for the transmission in interstate… of bets or wagers… shall be fined under this title or imprisoned not more than two years, or both."31

In short, the Wire Act makes it illegal for persons engaged in the business of sports betting to offer or take bets over the phone lines or though other wired devices from gamblers in a state other than where the sports book operator is physically located.32

A number of courts have held that the term, "wire communications facility" encompasses transactions over the internet.33

As currently enacted, the Wire Act does not make it illegal for a business to take bets intrastate. However, it would prevent the establishment of a national, online market. Even if gambling was legalised in all 50 states, online operators would restricted to accepting bets only from consumers located within the same state as it. As the whole point of the internet is to break down geographical boundaries, this appears to be a real impediment to the sort of growth that has been seen in recent years in Europe and Asia. Without such growth, regulated operators may not be able to offer the same kind of value for money as those that operate in the unregulated market.

The Wire Act would also require a betting operator to have some physical presence in each state that it intended to accept bets in. This would result in additional costs; thereby diminishing the economies of scale that would come from a bookmaker having one, centralised facility. This would impact upon the bookmaker’s profit margin and, in turn, the value for money it could offer the customer.

Further, in the modern world where travel between states is commonplace and customers would expect to be able to access their betting account remotely, the provisions of the Wire Act would be an impediment to both operators and consumers. Operators would need to use geo-blocking technology to ensure that they did not commit a criminal offence. Whilst this is unlikely, of itself, to push customers into unregulated markets, it may be a contributing factor.

The Wire Act was enacted in 1961 as part Robert Kennedy’s "war on organised crime".34 In the post-PASDA world, its continued existence would appear to be an unnecessary impediment to a well- regulated betting market which would undermine the flow of cash into illegal betting syndicates. Repeal or reform appears to be a necessary step in the building of a system that has the integrity of sport at its core.

Regulating Sports Betting: State or Federal Level?

The second difficulty is likely to arise from the uncertainty as to whether the system would be regulated at a state or federal level.

As noted above, the decision in Murphy v. National Collegiate Athletic Association means that states can now authorise and licence gambling on sport. However, the Supreme Court’s decision does not prevent Congress from regulating such a market on a federal level.

In Great Britain we have one Gambling Commission. By virtue of this, it is consistent in its licence conditions and in its policy papers. If it updates its position on, for example, in-play betting or advertising, then said policy will apply immediately to all sports and all bookmakers. The benefits and successes of this system have been detailed above.

If Congress choses not regulate betting on a federal level, but rather each state creates its own system of licensing and regulation, then the complexities for sports governing bodies, operators and those seeking to maintain the integrity of sport will be enormous. There will be fifty different sets of rules and licensing conditions as well as fifty different regulators to liaise with. Time and money would be wasted on dealing with this complex web of bureaucracy. There is also the possibility that information relating to match-fixing (or match-manipulation) could become lost in such a web.

In advocating for a central system, these authors recognise that states are unlikely to want to surrender their power to tax gambling operations. An answer to this problem may be the creation of a hybrid structure whereby states license bookmakers and receive tax revenues but there is a federal mechanism that will address integrity issues directly or, at the very least, require states to adopt common minimum standards. ESSA (Sports Betting Integrity) operates across Europe and provides a platform where online bookmakers can voluntarily come together to share information. The weaknesses in this system, particularly when compared to that which operates within Great Britain, is that bookmakers only report on betting patterns and not specific activity (i.e. customer level information). This indicates there is a problem but not who is causing the problem. Identifying patterns cannot secure integrity. Authorities must be able to identify the perpetrator and take action against them. Such perpetrators can only be identified by the sharing of the information held by the operators.

Whilst sports betting has been a hot topic in the US media since the possible unconstitutionality of PASPA was raised, discussions about Congressional reform have been taking place within a system of near political deadlock. In May 2017, Congressman Pallone introduced a "discussion draft" of a bill titled, Gambling Accountability and Modernisation Enhancement Act (the GAME Act). The GAME Act envisaged a new federal regime based around data analysis of unusual betting patterns but also a national integrity platform. Nothing has happened since this draft was introduced. With mid-term elections taking place in November 2018, it is highly unlikely that anything will happen until the 116th Congress is sworn in. Even then, agreeing a framework will be a very difficult task given the numerous competing interests that will be lobbying to protect their position.

Regardless of whether matters are dealt with at a federal or state level, it is the opinion of these authors that the Big 4 Leagues35 and the National Collegiate Athletic Association need to take immediate action to create a pan-sport integrity unit. This is a necessity if they are to ensure that the integrity of their sports are not compromised. Just as the SBIU does in Great Britain, such a body would act as an information and intelligence hub. It would be able to monitor, collate and share information between the interested parties. Such a unit would also be able to assists sports governing bodies with their investigations so as to avoid unnecessary duplication. If such a body was not created, then the Big 4 Leagues would need integrity units that had relationships with 50 different state regulators. A huge amount of resources would be directed to dealing with issues on a state level when they could be better utilised by having a well financed national body taking pro-active steps to disrupt the criminality that leads to match-fixing. Such a unit may sit within a centralised licensing body, as it does in Great Britain, but this is not essential. The important part is to have the centralised hub accumulating information that is relevant to all sports.

Conclusion

Following the decision in Murphy v. National Collegiate Athletic Association, the USA now has an opportunity to build a gambling system that has the integrity of sport at its very core. When designing this system, we believe that it can benefit from the lessons that Great Britain has learned over the last 50 years. The US state and federal system creates complexities that do not exist in Great Britain, but these should not prevent the interested parties from working together to create a system where education, customer experience, information sharing and collaboration all exist and align to ensure that criminals cannot undermine the integrity of a sporting event. If such a system can be created, then sports and their participants will benefit.

 

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About the Author

Steven Flynn

Steven Flynn

Steven Flynn is a barrister and head of the Sport, Media and Entertainment Group at St John’s Buildings Barristers’ Chambers. He specialises in sports related commercial and disciplinary matters and regularly represents governing bodies and participants in match-fixing cases, as well as lecturing on the topic.

Rick Parry

Rick Parry

Rick Parry chaired the Sports Betting Integrity Panel for the UK government in 2009. In 2016 he co-authored "The Key to Sports Integrity in The United States: Legalised, Regulated Sports Betting" with Dr David Forrest for The American Gaming Association.

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