This SportTechie Legal article was written by Ryan Martin, an attorney based in the Chicago office of Loeb & Loeb LLP.
More than six months ago, the United States Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), the federal law that prohibited states from permitting sports betting. Since then, state legislatures and gaming agencies have been busy establishing regulatory frameworks to legitimize the sports betting market, whose illegal industry is estimated to be valued at $150 to $400 billion.
Delaware, Connecticut, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island, and West Virginia have legalized some form of sports betting so far in 2018. But in most of those states, to place a sports bet, you need to head to your nearest brick-and-mortar sportsbook. That may come as a surprise for most Americans familiar with transacting their day-to-day lives through a computer or mobile device. Just because sports betting may be legal in your state, does not mean gambling on sports is particularly easy. To date, only certain licensees in New Jersey and Nevada can offer online or mobile sports wagering, with Pennsylvania expected to offer the same in 2019.
While some in the industry (including the polar opposites of Art Manteris of Station Casinos and Keith Whyte of the National Council on Problem Gambling) have cautioned against an open online gaming framework, mobile betting advocates argue that transactions and profiles are more-easily analyzed when placed online, and that geolocation and customer verification technologies are precise enough to properly enforce platform rules. To address the patchwork of state laws around sports betting, mobile platforms must use geolocation technologies to make sure users are within a state in which mobile betting is permitted and in which they are licensed to receive bets. Interstate betting would not only violate state law, but would also likely violate the Federal Wire Act. Stakes are potentially highest for mobile sports betting platforms—consequences for permitting out-of-state players range from revocation of state licensure to federal criminal prosecution.
A recent case in California illustrates how companies can be susceptible to attempts to play from outside of locations where they are licensed to operate. In May, professional poker player Gordon Vayo sued PokerStars, an online poker game, aiming to recover more than $600,000. Vayo claimed he had fairly won the money while playing in an online poker tournament on the platform from within Canada, but PokerStars froze the winnings after a security review suggested that he had played from far across the border in California. The company cannot legally offer its product there, and alleged that Vayo had used a virtual private network to spoof a Canadian IP address.
To try to resolve the dispute, PokerStars requested evidence that Vayo was in Canada at the time of the tournament. Vayo submitted bills from his internet service provider and bank account statements, but PokerStars later received a tip that those records were falsified. When confronted with allegations of forgery, Vayo voluntarily dismissed his lawsuit and his attorney withdrew from the case. Now, PokerStars is seeking to recover nearly $280,000 in attorneys’ fees and court costs.
But DraftKings and FanDuel seem to be well-positioned to capitalize on the mobile sports betting market. These companies are leaders in the daily fantasy sports industry, which has an online-first model with no real brick-and-mortar equivalent to the established sports betting industry. Having gone through the crucible of legal enforcement and public scrutiny as a reaction to the sudden growth of daily fantasy sports in 2015, they already have the technology developed and partnerships in place to harness geolocation to combat fraud and illegal betting.
And in spite of the technical challenges and legal risks mobile operators may face, the potential rewards are high. Revenue reports in New Jersey illustrate the popularity of mobile gaming, with gross revenues from online sports betting accounting for 47 percent of total gross revenues since legalization this year. DraftKings and FanDuel together make up around 89 percent of the New Jersey online market. Resorts Digital Gaming, LLC, which operates both the DraftKings mobile sportsbook and betstarsnj.com, is the highest grossing sports betting licensee in the state, and all of its revenue—nearly $16.6 million this year—comes from its internet-based products.
As states develop their regulatory frameworks and consider embracing digital sports betting, companies and legislators may look to New Jersey for reference. The Garden State serves as a valuable test-case of the technological obstacles and advantages to providers seeking to offer digital sports betting products.