This is the written version of Flipping The Field’s recent deep dive into the shady history of sports gambling in America. If you haven’t listened to that episode, check it out with the player below, or find it on any podcast-hosting app.
In the five years since a landmark Supreme Court ruling struck down the Professional and Amateur Sports Protection Act (PASPA) of 1992, making sports gambling legalization a state decision rather than a federal one, the United States has seen an unprecedented expansion of all things wagering. Legalization has spread to more than half the country, advertisement has become all but unavoidable, and the conversation around every major American sport has shifted heavily towards gambling as not just a topic of discussion, but as the focal point.
The most recent expansion of legalized sports gambling into the mainstream of American culture may very well be its most significant to date. On Aug. 8, ESPN – the world’s largest sports broadcaster – announced a $2 billion, 10-year deal with Penn Entertainment that would create ESPN BET, which is exactly what it sounds like. It’s the culmination of that shift into gambling coverage, as ESPN takes its breathless promotion of sports wagering to the next level, presenting an ESPN-branded sportsbook to funnel viewers into.
As the Worldwide Leader so bluntly described it in a PR release, this Penn-directed sportsbook will “receive odds attribution, promotional services inclusive of digital product integrations, traditional media and content integrations, and ESPN talent access, among other services.” In human terms, ESPN is turning its abundance of gambling content into an advertisement for a sportsbook it now has a major financial stake in. And if ESPN’s past efforts in promoting gambling are any indication, this is just about the only thing you’ll see or hear when you engage with anything ESPN. Studio programming, game broadcasts, podcasts, written content, and even the score-tracking app will be tied in, all in an effort to “collectively generate maximum fan awareness of ESPN BET.”
There’s plenty that can be made of this move, which only further disintegrates the line that used to exist between sports content and marketing, but what must first be investigated is the winding road that took sports gambling from the shadows to the spotlight in America. It’s a long story filled with nefarious actors, and for our purposes, it starts in 1949.
We’re in Nevada, and as part of a newly passed sweeping reform centered largely around creating much stricter gaming licensing requirements, pari-mutuel wagering on horse racing has been legalized, discarding a 1915 act that barred it. Pari-mutuel wagering is a pretty simple concept that will probably sound familiar. It’s just a kind of bet with a money pool, which has taxes and the house-take removed. The odds are then calculated based on the percentage of pool money on any given outcome, and the pool is then paid out for winning bets. It’s primarily used for horse racing, but this wasn’t the only thing of note in the bill.
Unlike that 1915 bill it was basically overwriting, the 1949 edition didn’t have anything to say about bookmaking. Nothing. It just says you have to have a license.
The Reno-Gazette Journal reported on this on July 1 of 1949, a bit after the bill had been approved, writing that “in discarding the 1915 act, the 1949 legislature apparently left the way open for bookmaking. The 1915 act expressly barred bookmaking and prohibited furnishing of information to poolrooms or their agents. The 1949 act makes no mention of bookmaking.”
Really, this just made legal what was already happening under the table. The places where this stuff was happening and continued to happen were called turf clubs, which is just another name for a horse track. They were suddenly legally allowed to arrange these big races and accept wagers on them, but they could also now take wagers on sports.
This happened for the same reason that all of this happened: Money. The state needed to find about $1 million more than the governor had asked for in his budget, and it was open to just about anything. There was talk of tax increases, many of which were established, but there was also the introduction of State Senate Bill 146, which “defined the powers of the state tax commission to regulate gambling” and accomplished the goal of bringing in money. A lot of money.
The law was written as such that bookmakers could take a maximum commission of 12 percent from the gross amount of money handled for these deals, but it also stated that 1/6th of that commission had to go to the state general fund. That doesn’t sound like much, but when you add it in with the licensing fees, it comes out to $1,389,336.86 in that first year for the state, as reported by the treasury on Jan. 10, 1950. That was an all-time high.
It was also way, way too loud, catching the attention of president Harry Truman, who said in February of the same year that World War II had been followed by “a resurgence of underworld forces, living on vice and greed.” He wanted to do something about it.
This was not specific to Nevada, which was actually somewhat immune because gambling wasn’t against the law there, but it implicated a lot of people with pretty strong connections to Nevada as the Senate backed an investigation into rackets of all kinds less than a month later.
There were also anti-gambling bills cropping up around this time, but the big news of April 1950 was a Senate hearing that included three men who were described as having wide influence over illegal bookmaking and gambling: odds maker James J. Carroll, Frank Costello – known then as the nation’s No. 1 gangster (no really, that’s what they called him) – and Frank Erickson, who sort of split the difference between the two.
They didn’t say anything. Carroll testified that he didn’t know anything about a nationwide gambling or crime syndicate. Costello said that “he wasn’t qualified or equipped” to give the Senate any information. When Senator Ernest McFarland from Arizona, chairman of this committee, asked why, Costello said, “maybe I don’t know about it. I might have been a sort of a betting commissioner 15 years ago. That’s a sort of bookmaking.”
Erickson, who was described by the AP as a “pudgy-faced gambler,” spent pretty much his entire session saying that questions about his business infringed on his constitutional rights. The AP went on to describe a scene straight out of a mafia movie.
“Erickson and his attorney took seats at the witness table. A roll of fat bulged over Erickson’s coat collar and he spoke in a squeaky voice that could be heard only a few feet away. Erickson explained he had a cold and couldn’t speak any louder.”
Even without getting much of anything from these schmucks, this all comes to a head in 1951. The federal government agrees to put a 10 percent gross receipts tax on gambling pools in May, which most directly impacts Nevada but was created more to dissuade other states from following suit. This is really, really bad news for gambling. It causes a huge decline, and also keeps sports betting out of the bigger casinos, limiting it to those aforementioned turf clubs.
The hits keep coming, too. Nevada adjusts to make this work as best it can – both legislatively and with crooked dealings at these individual clubs, where wagers would often be written up as only 10 percent of their true worth to dodge the tax – but the feds deliver another blow in 1961 with the Federal Wire Act. This one prohibits the use of wire communications for interstate sports gambling, and is actually still in effect, which is important because it is essentially the reason sports gambling is under the purview of states and not the federal government.
In response, Nevada spends the next decade working with the government to clean up its act, in hopes of getting that tax either removed or cut down significantly. They introduce the Nevada Gaming Control Board, spend a whole lot of time and money lobbying, and eventually they get their breakthrough.
Let’s talk about Howard Cannon. Born in St. George, Utah – which is the really crazy part of Utah – Cannon is an utterly bizarre figure in American politics. He was the second Mormon elected to the Senate in a state other than Utah, which I mention largely because he is essentially Mormon royalty. His dad, Walter, was one of 31 children of David Cannon, who was the brother of George Q. Cannon.
George, a huge figure in the early days of the Mormon church, merits a quick sidebar. He lived as a teen with his aunt and uncle, Leonora and John Taylor, the latter of whom accompanied Joseph Smith to Carthage Jail, where he was killed. Young George was asked personally by Brigham Young a few years after moving in with his aunt and uncle to serve as a missionary in California, which he did for a few months, before being shipped out for four years to what was then the Kingdom of Hawaii. While there, he even worked to translate the Book of Mormon into Hawaiian.
He was eventually named an apostle in 1860, at 33 years old, shipped out again, this time to preside over the church’s mission to Europe. He came back to help fight for Utah statehood in 1862, left again, and eventually became the managing editor of the Deseret News in 1867, a role he held until 1874. This is a busy guy, and he only gets busier, as he was elected to be the non-voting delegate for the Utah Territory in the Congress in 1872.
Cannon filled that role for 10 years while also serving as a member of the church’s First Presidency starting in 1873. His stint in Congress came to an end in 1882 after a long fight relating to a contested 1880 election that George won handily, but that was called into question because of both his being born in England and also his six wives, with whom he fathered 33 children.
The fight brought national attention to Utah and led directly to the passing of the Edmunds Act – put very simply, the anti-polygamy law – which actually sent him to prison for six months in 1888. One of his sons, Frank J. Cannon, was the first senator from Utah.
Oh, and BYU’s touchdown cannon is named after him.
Alright, back to Howard Cannon and the early 1970s. The long and short on him is that he retired from the military as a major general with a Purple Heart and a Silver Star and was elected as a Democratic senator from Nevada in 1958, where he remained until 1983 when he was enmeshed in a teamsters bribery scandal and lost a general election.
Cannon was, for most of his career, a pretty standard western democrat. He was big on transportation and the military and not much for taxes or regulation. He was mostly just some guy for the first decade of his tenure. But, the only thing we really care about with him is the very busy year he had in 1974, by which point he had been named as chair of the Senate Rules Committee.
If you know your history, you might be making some logical leaps about where this is headed. I need you to stick with me.
Starting in January of 1974, Cannon was included, along with attorney general Robert List, on a panel reviewing the national policy towards gambling. The policy was pretty much exclusively against. Cannon wasn’t, though, for pretty obvious reasons given the state that elected him. He wanted that 10 percent tax gone, and he did a lot to hammer away at it.
Before he could really do that, though, he had some work to do. There’s a whole list.
In March of 1974, he said that the spirit of the country was “at its lowest point since the great depression.” In May, he called for the release of federal data on the effects of viewing television violence. In June, he opposed a bill requiring all new radios costing more than $15 to have both AM and FM signals. In August, he publicly urged President Richard Nixon to sign into law a bill he crafted that would impose the death penalty against airplane hijackers who take innocent lives. And while he did all of this, he presided over hearings on vice presidential nominations for Gerald Ford and Nelson Rockefeller and also set the stage for a Senate impeachment trial of Nixon.
All the while, he drafted a bill that would have cut the gambling tax completely, but that was largely expected to get bumped up to one or two percent as a compromise. The Senate approved the bill as a full cut, and then a committee approved of an amendment in September that would cut the 10 percent tax down to two percent.
It wasn’t everything the bookmakers in Nevada wanted, but it was more than enough to open the floodgates. Jackie Gaughan opened the first sportsbook inside a casino at the Union Plaza in 1975. Frank “Lefty” Rosenthal set the template for sportsbooks at the Stardust a year later, and that was pretty much that. The tax was lowered even further, to 0.25 percent, in 1983, but the dam had burst well before that. Nevada was all-in on sports gambling.
We’re going to pick back up in the early 1990s. A lot has happened since we left off, but not that much within the world of sports betting. Jimmy The Greek was hired by CBS in 1976 to provide game predictions, and only game predictions, because the NFL didn’t allow its TV partners to discuss point totals. He was later fired for being horribly racist. Pete Rose was banned for life from baseball in 1989 after betting on his own games. Everything else is largely as it was.
The next really big shift comes in 1991 with a Senate panel meeting on June 26. Paul Tagliabue, commissioner of the National Football League; Fay Vincent of the MLB and David Stern of the NBA all testified in favor of House and Senate bills that would prohibit states from establishing any legalized gambling on professional or amateur sports events. Vincent delivered an especially striking comment:
“The legalization of team sports betting by any state or municipality would increase the chances that persons gambling on games will attempt to influence the outcome of those games. High rollers have high incentive to induce players to fix games or to shave runs or points.”
The federal government, with some prodding from a serious army of lobbyists paid for by these leagues, agreed with that assessment. After a pretty nasty and long fight, which was all but over when the senate voted 88-5 in its favor, George H. W. Bush signed the Professional and Amateur Sports Protection Act, written by Senator Dennis DeConcini and co-sponsored most notably by Orrin Hatch and Bill Bradley. It was known at various points as the Bradley Act, because the former NBA player-turned Senator had been one of its most outspoken proponents.
In effect, this outlawed sports betting in every state but Nevada, which was the only one that had laws in place to protect it. For the next two decades and then some, this was the law of the land. But, before we can talk about what changed, we should probably talk about the Unlawful Internet Gambling Act of 2006.
By the letter of the law, this act, written by House Republican Jim Leach and signed into law by George W. Bush in October of 2006, “prohibits any person engaged in the business of betting from knowingly accepting credit, electronic fund transfers, checks, or any other payment involving a financial institution to settle unlawful internet gambling debts.” In the simplest terms, this was the most sweeping and overt response the government took against online gambling. Which was, for about a decade prior, a really big deal in America.
The key timeframe here is the late 90s, and the name to know is Planet Poker. This site was on the cutting edge of introducing online gambling, and specifically, internet poker into the mainstream. It made these games easily accessible for people with some computer skills, even sometimes offering access for free because Planet Poker and other sites like it really wanted to get people in the door. That might sound familiar.
As this poker boom is happening, the federal government realizes pretty quickly that it needs to close some loopholes. Rep. Robert Goodlatte (R-Va.) introduces the Internet Gambling Prohibition Act in May of 1999, which had pretty significant support and backing and seemed to be moving forward. It had passed the Senate and was expected to do the same, comfortably, in the House.
This was very bad news for the people involved with these online gambling scenes, and one of the involved companies, eLottery, did something about it. Around the same time the bill cropped up, they retained the services of Preston Gates & Ellis, the lobbying firm of their lead man on this case, Jack Abramoff. You could write an entire history just on this guy.
He had, at this point, been established as a man with significant influence in Washington, specifically in conservative circles. He joined Citizens for America in 1985, which existed to drum up support for the Contras, the Mujahedeen, UNITA, and any other evil causes they could find. It was actually Abramoff who organized the Jamboree in Jamba, which was a conference in celebration of all these aforementioned evil causes. From this grew the International Freedom Foundation, which Abramoff founded.
The IFF did a ton, but mainly, it broke as many financing laws as it could, accepting funding from apartheid South Africa. Abramoff then used that money, and a bunch of other people’s money, to produce Red Scorpion and Red Scorpion 2. From Newsday’s Dele Olojede, later a Pulitzer Prize winner, in 1995:
“A respectable Washington foundation, which drew into its web prominent Republican and conservative figures like Sen. Jesse Helms and other members of Congress, was actually a front organization bankrolled by South Africa’s last white rulers to prolong apartheid, a Newsday investigation has shown.
“The International Freedom Foundation, founded in 1986 seemingly as a conservative think tank, was in fact part of an elaborate intelligence gathering operation, and was designed to be against apartheid’s an instrument for “political warfare” against apartheid’s foes, according to former senior South African spy Craig Williamson. The South Africans spent up to $1.5 million a year through 1992 to underwrite “Operation Babushka,” as the IFF project was known.”
The IFF shut down when funding dried up in 1993, and Abramoff landed at Preston Gates & Ellis a year later, where he took on a bunch of lobbying gigs fighting for deregulation and, notably, legalized gambling. That’s what put him on eLottery’s radar, and what landed him at the center of this bill in 1999. He spent a ton of cash, lobbied anybody he could get his hands on, and in July of 2000, he successfully killed this bill. As the Washington Post wrote in 2005:
“Abramoff quietly arranged for eLottery to pay conservative, anti-gambling activists to help in the firm’s $2 million pro-gambling campaign, including Ralph Reed, former head of the Christian Coalition, and the Rev. Louis P. Sheldon of the Traditional Values Coalition. Both kept in close contact with Abramoff about the arrangement, e-mails show. Abramoff also turned to prominent anti-tax conservative Grover Norquist, arranging to route some of eLottery’s money for Reed through Norquist’s group, Americans for Tax Reform.”
With the bill out of the way, the poker boom grew even larger, until 2006, which brings us back to the Unlawful Internet Gambling Act. It had the support needed to pass this time, and it prohibited almost all online gambling, putting a lot of these companies out of business.
It had an interesting little quirk, though. In Sec. 5362, it detailed the definitions of what the law applied to. This included a lot of little details, but the one we need to focus on is the first one, which is the definition of “bet or wager.” The bill states that bet or wager “means the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.”
Really, all that this sections says is that risking anything of value on the outcome of a game subject to chance is prohibited. You can’t bet on sports online. It’s illegal. No more games of chance, no more sports betting with off-shore books, none of it.
Much more importantly, it later defines what isn’t included in this ruling. Notably, “any participation in a fantasy or simulation sports game.”
There’s the ballgame. Tacked on at the very end of a bill that was already tacked onto another bill, the federal government has declared that fantasy football is legal. You can play it, you can put money on it, and you can do it wherever you want. If it’s a game of skill, which this bill declares fantasy sports to be, it is not included as a bet or wager, and this law does not prohibit it.
They snuck it in there, and that’s what puts us onto the path that brings us to our current situation.
To get to the present day, we need to go to New Jersey.
Outside of Nevada, this is probably the state with the most interest in legalized gambling, and it became a pretty major project for Governor Chris Christie after he took office in 2010. He took up the cause of trying to revitalize Atlantic City within the first few months of his term, and eventually, he agreed to fight for legalized gambling in the courts – which he had initially rejected because he didn’t think it could be done. The first step in this came in 2011, when New Jersey voted in favor of a referendum that would permit sports gambling.
That referendum was swatted away at the national level before it could really do anything, but it was the start of a really long, really boring battle in the courts between New Jersey and opponents of legalized gambling, which at the time still included every major sports league and the DOJ. It’s easy to get bogged down in these cases, so let’s get right to the heart of this and not spend any more time talking about legal proceedings.
Christie changed his mind and committed in September of 2014 to support a bill that would effectively make sports gambling legal within certain establishments in the state. The leagues, plus the NCAA, sued the state as they had successfully done in 2012, and got a 9-3 ruling in their favor in August of 2016. Christie, for the only time in his entire life, showed some endurance here.
The language in that second ruling had been pretty loose, so Christie combined his case with another case in the state (NJ Thoroughbred Horsemen v. NCAA), New Jersey petitioned to the Supreme Court, and on June 27, 2017, the Supreme Court accepted it.
The case, which was filed as Christie v. National Collegiate Athletic Association, was renamed Murphy v. National Collegiate Athletic Association when Christie left office and Phil Murphy took over. The operative question was, “does a federal statute that prohibits modification or repeal of state-law prohibitions on private conduct impermissibly commandeer the regulatory power of States?”
The Supreme Court, which is at this point all about state’s rights, ruled 7-2 in December of 2018 that “one specific clause of PASPA did commandeer power from the states to regulate their own gambling industries, and thus was unconstitutional.”
In the majority opinion, Justice Samuel 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. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.” They then looked at whether that specific clause was severable, and six judges decided it wasn’t, declaring the law unconstitutional. The door’s open, boys.
Before we get to today, it’s worth looking at why this happened, instead of just how it happened. There’s a huge story package from the New York Times that came out last year that details a lot of this stuff, but this issue can be made pretty cut-and-dry if you don’t waste a bunch of time pretending that everyone involved with American politics isn’t horribly corrupt. Like everything else in this story, this was about money.
Specifically, this was about the money of companies like FanDuel, DraftKings, and a whole bunch of others involved with the gambling lobby. They had discovered, after that 2006 ruling, the money fountain of daily fantasy sports, or DFS. This was basically the closest thing you can get to betting on specific games at the time.
It used the fantasy sports formula where you draft a team, and limited it to daily results, either in head-to-head matchups or much larger pools. There were different levels with higher stakes, but this was a much faster-paced version of fantasy sports, and crucially, it was legal to play on your phone.
These were huge, and some of these companies picked up massive investments while elsewhere, big names in sports installed a DFS system of their own. In 2013, the MLB broke the dam by investing in DraftKings. Similar deals with the other major leagues were not far behind, as they all recognized just how much money this brings in and decided that they wanted to be a part of the cash train.
At this point, fantasy sports were just about accepted and embraced by the leagues that were still fighting further legalization efforts in court. Naturally, they were really half-assing those fights. The gambling lobby threw so much money around, and by the time it was ready to make its play, there just wasn’t all that much opposition left that hadn’t been looped into the racket.
The play was, as alluded to earlier with the 2006 bill, to argue that sports wagering was a game of skill, just like fantasy sports. It wasn’t a huge leap, and they had the support of pretty much everybody they needed support from. Public opinion had shifted significantly, the lobbyists had done their jobs, and the leagues were ready to cash in just like everybody else. Sports gambling’s legality was left up to the states, and the states wanted in.
Five years later, we’re here. There are 35 states currently taking bets in some form, including 21 with full mobile betting, four with limited mobile betting, and 10 that allow betting but only in-person. A lot of these states have more allowances still to come, and more states currently without legality are about to have it, like Kentucky, Maine, North Carolina, Nebraska and Vermont. Massachusetts, Ohio and Tennessee just got on the board this year. It’s a massive industry, and it’s only getting bigger.
For the Super Bowl this past year, GeoComply, which is the company that verifies the locations where gamblers are betting, saw 100 million sports-betting transactions. The gaming association projected that Americans would wager roughly $16 billion on that weekend alone. With very few laws in place in most states, these gambling companies are bringing in huge chunks of cash, and using them to pepper you with ads in pretty much every place they can do it. And, they’re doing it while paying basically nothing in local taxes.
“The gambling industry managed to scare state lawmakers into keeping tax rates low, in part by trotting out data about a sprawling underworld of illegal gambling,” an NYT report found. “The Times found that those figures, which suggested that Americans were placing as much as $400 billion of illicit bets each year, were unreliable.
“In state after state, while lobbyists for sports-betting firms, casino companies and professional leagues cultivated friendly relationships with lawmakers and regulators, the interests of taxpayers and people at risk of gambling problems were often on the back burner, if they were represented at all.”
It continues, breaking down the embrace of “free bet” promotions that have led much of the marketing charge.
“In 18 states, however, the promotions are not only permitted. They are also tax-deductible, allowing gambling companies to exclude at least some of the cost of the freebies from their taxable income. In other words, state governments are subsidizing the promotions.”
Podcasts, television, social media, sponsored content, company-affiliated media wings, deals with specific teams and leagues. Everything that can be advertised on is being advertised on, and at least some of it is being subsidized by the states that have legalized gambling.
College athletics are on board, too. You’ve certainly seen, read and heard more than your fair share of gambling content around college football and basketball, but there are universities cutting these deals too. Michigan State had a deal with Caesars, as did LSU. Colorado did one and picked up an extra $30 every time someone downloaded the company’s app and used a promotional code to place a bet. There are athletic departments and booster groups doing deals of their own.
And it just keeps going.
There are significant outlets covering college athletics that are either bought and paid for by these companies or outright owned by them. The newly ESPN-branded sportsbook used to be affiliated with Barstool, which has built its entire model around encouraging its audience to gamble, and later encouraging them to gamble at the Barstool sportsbook.
That’s the plan for the Worldwide Leader, which has billion-dollar deals with the leagues it is now encouraging you to bet on, at an ESPN-branded sportsbook. College football saw its conference structure critically altered earlier this month, in a realignment wave sparked by ESPN. There may not be a more powerful broker in the sport, and now, after helping to strip college football for parts, it wants to cut out the middle man and go straight for your money.