A Solution To The Legislative Stalemate On Sports Betting Legalization In Massachusetts

May 14th marked the four-year anniversary of the U.S. Supreme Court’s decision that struck down the federal ban on state-authorized sports betting. For the past four years, Massachusetts – home to one of the most sports-obsessed markets in the country in Boston – has watched from the sideline as nearly every other state in New England has passed sports betting legislation. Rather than wait for lawmakers to approve sports betting, many Massachusetts residents have opted to travel to nearby states to place bets. Since sports betting went live in New Hampshire in December 2019, Massachusetts gamblers have accounted for about 15% of all mobile bets, according to the New Hampshire Lottery. Boston-based DraftKings reported that 28% of all Super Bowl bets made on its platform in New Hampshire this year came from customers with Massachusetts addresses.

This missed opportunity is costing Massachusetts over $35 million in annual tax revenues and tens of millions more in licensing fees, not to mention a significant reduction of visitation to the state’s three licensed casinos – costing the Commonwealth many millions more in lost tax revenue. However, a solution is now closer than ever with the Massachusetts House and Senate each passing sports betting bills – the first time that’s ever happened – and headed towards a conference committee to iron out the differences in the two bills before the July 31st deadline.

While the House and Senate proposals differ in several critical respects – particularly on the permissibility and scope of collegiate sports wagering, the tax rate to be imposed on operators, the number of mobile licenses, and the breadth of advertising restrictions – these differences are far from insurmountable. Having closely followed the state-by-state legislative landscape around sports betting legalization since the demise of the federal ban, we believe that the approaches taken in other states to resolve similar policy disagreements offer workable solutions to the conference committee members as they seek to resolve their differences. Here are our recommendations.

College Betting. One major gap between lawmakers is betting on college sports. The House bill would permit wagering on all college games, while the Senate bill proposes a total ban on such betting. A blanket prohibition finds precedent only in Oregon, which is a smaller and less active market. And it’s no coincidence that Oregon is the only state to have lost money in its first year of legalized sports betting. While we believe that collegiate betting bans are unwise, ineffective, and counterproductive – causing a migration of bettors and tax dollars to neighboring states – we also recognize that a compromise may be necessary here, especially given the large number of collegiate athletic programs in Massachusetts and the not-too-distant memory of the late 1970’s point-shaving scandal involving Boston College. But there is no need to reinvent the wheel.

Drawing upon the precedent of at least 10 other states (including New Hampshire, New York, and Rhode Island), Massachusetts lawmakers should compromise on the issue of collegiate sports betting by excluding only bets involving in-state colleges and collegiate games played within state borders, as well as proposition bets on individual college players. Such a targeted ban would adequately protect the Commonwealth’s colleges and universities, while eliminating the bets with the highest perceived risk: those based on a player’s own individual performance.

This is the compromise that has been struck in nearly every state which has sought to impose restrictions on collegiate sports betting. There is no need for an outright ban. It wouldn’t stop the betting anyway – it would just send Massachusetts residents to any number of bordering states (such as Connecticut, New Hampshire, New York, and Rhode Island) that allow wagering on Massachusetts colleges, or, worse, to offshore websites which lack any modicum of consumer protections. Further, it would prevent any in-state monitoring of such bets, leaving regulators (and the colleges and universities themselves) completely in the dark about wagers made on those games and unable to detect suspicious wagers. The bottom line: Massachusetts would lose out on millions of dollars in annual tax revenue (mostly to neighboring states) without making a meaningful dent on collegiate sports betting and forfeiting an important detection mechanism.

One further suggestion: if a partial collegiate ban were enacted, lawmakers should include a carve-out permitting wagers on major intercollegiate events (such as college football bowl games and NCAA March Madness tournament games) involving Massachusetts colleges and universities. (Connecticut approved a similar carve-out in its sports betting law to allow for wagers on tournament games involving Connecticut colleges). These major events offer significant revenue potential and carry less risk due to their high-profile nature and the sheer number of eyeballs on the games.

Tax Rate. The House bill proposes that operators pay a 15% tax on revenues from mobile sports bets, while the Senate proposes a 35% tax on the same class of bets. As support for the higher tax rate, some Senate lawmakers have pointed to the 50% or higher tax rate in three of the four states surrounding Massachusetts. However, the nation-leading rates in New Hampshire and Rhode Island are predicated on market exclusivity for a single operator. Additionally, New York’s 51% tax rate – in a state which allows nine mobile operators – has made it difficult for operators to turn a profit, with one prominent online sports betting company (BetMGM) recently announcing that it would be scaling back its marketing expenditures in New York due to the high tax rate. Along the same lines, it is worth noting that the co-sponsors of New York’s mobile sports betting legislation recently proposed amendments that would lower the tax rate for online wagers to 25% by 2024, raising the prospect that New York’s prohibitive tax structure will soon be overhauled.

But these are outliers in any event. Most states that have authorized sports betting since the demise of the federal ban tax online revenues at percentage rates in the high single-digits to the low-to-mid teens. A logical compromise in Massachusetts would be to land at 20%, which splits the difference between the House bill and last year’s Senate leadership proposal. This rate would still be among the highest in the country. As such, Massachusetts lawmakers should also include a provision that would allow betting companies to deduct promotional or free bets from taxable revenues, just as lawmakers in other states with high tax rates (such as Pennsylvania) have done. (One suggestion here would be to place a cap on the amount of the deduction for the first three years to generate additional tax revenue for the Commonwealth during the initial launch phase). Without a write-off or deduction for promotional bets, operators would be paying a tax on transactions where money does not change hands, thereby artificially inflating the net tax rate.

Mobile Licenses. The House bill provides for an unlimited number of mobile sports betting licenses with no tethering requirement, meaning they do not have to be tied to a brick-and-mortar casino. Conversely, the Senate bill allows for just nine mobile licenses, one for each of the three state-licensed casinos and the remainder awarded under a competitive bidding process. No state with a comparable population size offers fewer sports betting licenses than the Senate’s proposal.

For a compromise solution, Massachusetts lawmakers should consider the approaches taken by similarly sized states to determine the optimal number of licenses. For example, in Maryland, which has nearly one million fewer people than Massachusetts, lawmakers have authorized over 100 sports betting licenses, including 60 online licenses. In Ohio, lawmakers have authorized 65 licenses for sports betting – consisting of 25 online and 40 retail licenses – in addition to the potentially up to 2,500 bars and restaurants that will be allowed to have sports betting kiosks within their commercial establishments. Indiana, with roughly 140,000 fewer people than Massachusetts, has already licensed 15 brick-and-mortar sportsbooks and 17 online sportsbooks (with the potential to issue up to 40 online sports betting licenses). Arizona, a slightly larger state than Massachusetts, has authorized 20 online sports betting licenses– 10 of which are allocated to the state’s professional sports teams. Finally, Kansas, which is one-third the population size of Massachusetts, recently enacted a sports betting law that will allow for 12 online sports betting operators plus kiosks at professional sports facilities and at up to 200 retail locations. These states reflect a national trend towards greater stakeholder participation, not fewer licenses.

Drawing upon these close comparators, Massachusetts lawmakers should authorize between 16 and 20 online sports betting licenses – an amount that would be in line with most similarly sized states. Additionally, lawmakers should consider allowing the Commonwealth’s professional sports franchises to host sportsbooks (including betting kiosks) at their stadium and arena facilities, as an increasing number of states (including Arizona, Illinois, Kansas, Maryland, and Ohio) have done. In fact, next year’s Super Bowl at State Farm Stadium in Glendale, Arizona will be the first one played at a venue with an in-stadium sportsbook. The times are certainly changing, and the country’s most sports-obsessed market should be part of this growing national trend. While so much of the recent focus is understandably on mobile sports betting – since such bets account for roughly 85% of the overall sports betting market – let’s not lose sight of the fact that the Commonwealth’s iconic professional sports franchises (the Red Sox, Celtics, Patriots and Bruins) – with their tens of millions of loyal fans – represent the best and most cost-effective way of building a robust retail market, which will inure to the benefit of all stakeholders.

Finally, we should also ensure fair and equitable access. Towards that end, a specified number of licenses should be earmarked for minority and women-owned businesses. (Several states, including Maryland and Virginia, emphasize diversity of ownership in its licensing criteria). In addition, sports betting kiosks should be allowed in select bars and restaurants, particularly those that are already state-licensed lottery agents. (Maryland, Ohio, Montana, and the District of Columbia already allow sports betting kiosks in bars and restaurants). As the group Fair Play Massachusetts correctly points out, this would provide more revenue to the state above and beyond just having bets made in casinos and online; would ensure greater participation by small businesses (many of which are minority-owned); and, equally important, would help these small businesses retain and create more jobs. In a Commonwealth that has become a hub for tech and innovation, we should ensure that all companies get a fair chance to participate in sports betting.

Advertising Restrictions. The House bill requires that sportsbook advertising generally not be deceptive, false, misleading, untrue, or appeal to persons under the age of 21. By contrast, the Senate bill imposes stricter advertising rules, including a “whistle to whistle” ban on sportsbook ads during live televised sporting events (including both five minutes before and after the game), a ban on in-arena sportsbook ads that are disruptive of the experience, and generally requires that sportsbook ads be placed only in mediums where at least 85% of the audience is 21 or older.

Rather than codify these restrictions, Massachusetts lawmakers should defer to the expertise of the Massachusetts Gaming Commission (”MGC”), the state’s highly regarded gambling regulatory agency. The MGC recently prepared a white paper on gambling advertising practices in anticipation of sports betting becoming legal in the Commonwealth. As they prepare for that possibility, the MGC has already gotten the jump on the process by studying the gaming advertising regulations (including those pertaining to sports betting) enacted by other states. The vast majority of these states, including New York, Colorado, and Pennsylvania, have deferred to the expertise of their gaming commissions or equivalent regulatory bodies on the issue of gambling advertising. So too should Massachusetts, especially given the significant advance work done by the MGC. A major advantage of going this route would be the opportunity for public comment through the regulatory rulemaking process, a feature that is generally not available in the legislative arena.

In short, there is no need to reinvent the wheel. There are solutions to each individual issue that have been tried and tested in other jurisdictions. If they are resolved by the end of the session, Massachusetts bettors could place wagers on the 2023 Super Bowl and get back to leading from the front.

John Nucci, a recent graduate of Penn State Law, co-authored this article. Mr. Nucci recently served as the President of the Penn State Law Sports Law Society. He was awarded first-place in the 2021 Sports Lawyers Association Writing Competition.