Testimony: The Fundamental Differences Between Legal and Illegal Sports Wagering

I. INTRODUCTION

Mr. Chairman and other distinguished members of the Committee:
I am pleased to be here today on behalf of the American Gaming Association to discuss legal and illegal sports wagering and their separate effects.  We welcome this opportunity to set the record straight about the fundamental differences between the legal sports wagering that takes place on a relatively limited basis in my home state of Nevada and the massive illegal gambling that flourishes in the other 49 states, particularly on and around college campuses.

The American Gaming Association is the national trade association for U.S. commercial hotel-casino companies and casino operators, gaming equipment manufacturers, and vendor-suppliers of goods and services to the commercial gaming industry.  Our members are primarily comprised of publicly traded companies that are carefully licensed and closely supervised by state regulators.  These companies are also subject to federal supervision by the Securities and Exchange Commission on general corporate matters as well as by other federal agencies on specific gaming-related issues (e.g., taxation and money handling).

The U.S. commercial casino industry directly employs hundreds of thousands of people and indirectly employs many hundreds of thousands more in each of the 11 states that permit commercial casino gaming.  Our industry has invested billions of dollars in those 11 states on behalf of its tens of millions of direct and indirect shareholders, including several states represented on this committee: Nevada, Michigan, Missouri, Louisiana and Mississippi.
Our members are major sources of state and local tax revenues in these 11 states and outstanding corporate citizens with stellar records of commitment to the communities in which they operate.  Just last month, the gaming industry was singled out for recognition at a Capitol Hill luncheon by local United Way organizations in the nation’s major commercial gaming markets for their charitable contributions and those of their employees.  In addition, commercial gaming companies purchase billions of dollars of goods and services from virtually every state in the country in order to serve our tens of millions of customers.
 The American Gaming Association’s Nevada members operate legal race and sports books in their Nevada hotel-casino-resorts.  For all practical purposes, Nevada is the only state in which legal sports wagering is permitted, by acts of Congress and the Nevada legislature, on college and professional sports.  (The Oregon lottery has a weekly state lottery game based on professional football games during the NFL season.)

II. SUMMARY

We agree that rampant illegal gambling on sports, including among college students, is a very serious national problem.  We also share the goal of protecting the integrity of amateur athletics.  For these reasons, Nevada’s legal sports books are part of the solution, not part of the problem.  This is particularly true when the volume of legal sports wagering is small relative to massive illegal gambling.

Nevada’s limited legal sports wagering is easily distinguished from the illegal sports gambling that should be of concern to this Committee.  There is no factual basis on which to lump them together, nor is there any connection between the two.  The argument that the one-percent of sports wagering in Nevada somehow “fuels” the 99 percent out-of-state that is illegal is absurd on its face. The NCAA knows better because it did not seek to ban Nevada’s sports wagering when it made detailed recommendations to the National Gambling Impact Study Commission (NGISC) just last year. In fact, the NCAA said it would not do so.
The Committee does not need to merely take our word that, as laudable as it is to reduce illegal sports gambling and protect amateur athletics, the pending bills to ban legal sports wagering in Nevada will not accomplish either objective.  Instead, the Committee should consider the independent views of commentators, editorial writers, respected sports analysts, a sampling of which follows:

George F. Will – “Congress now is contemplating a measure that sets some sort of indoor record for missing the point.”  The Washington Post, March 12, 2000

FBI Special Agent Michael Welch – “The mob will always be involved in sports bookmaking, whether it’s legal in Las Vegas or not.”  The New York Daily News, March 12, 2000

Columnist Rick Reilly –  “In fact, passing the bill would be like trying to stop a statewide flood in Oklahoma by fixing a leaky faucet in Enid.  Nevada handles only about 1% of the action on college sports.  Not that bookies and the mob wouldn’t very much like to get their hands on that 1%.”  Sports Illustrated, March 22, 2000

Chicago Sun-Times – “A Nevada ban is more likely to push wagers underground or onto the Internet. … A ban will do little to stop betting on college games.”  Editorial of February 3, 2000

Columnist Mike DeCourcy  –  “The NCAA has put no thought whatsoever into its push. … This is strictly a public relations move that offers no tangible benefit.”  Column in The Sporting News of January 19, 2000.

Business Week –  “Now (the NCAA) is looking to fix its image with a bill only a bookie could love” (January 31, 2000).

USA Today Founder Al Neuharth – “University and college presidents and coaches properly are concerned about the integrity of campus sports.  But the solution to the problem is getting their own houses in order.”  USA Today column of March 17, 2000.
III. THE IMPORTANCE OF INTEGRITY TO NEVADA’S GAMING INDUSTRY

The gaming industry, including those who operate Nevada’s legal sports books, share the goal of this Committee that the integrity of amateur sports be protected for the following simple reasons.

First, many of us are former high school and college athletes and have strong memories of our own experiences playing various sports.

Second, our Nevada members have legal duties as state-licensed, regulated entities to follow, and moral obligations as good corporate citizens to uphold.

Third, and too often overlooked, is that commercial gaming companies have an overwhelming financial interest in maintaining the integrity of all games that are offered to the public, particularly those of our members who operate Nevada’s sports books within their resorts.

Our industry will rightfully lose public confidence, and with it the customers on whom our employees and we depend, if the gaming offered, including sports wagers, is not conducted fairly and honestly.  Furthermore, Nevada’s legal sports books can lose money if a customer places a sports wager when someone is attempting to manipulate the outcome through point shaving.

It is for these reasons that legal sports books take elaborate security measures and cooperate fully and regularly with federal and state law enforcement agencies as well as with the professional sports leagues and the NCAA. To their credit, the NCAA has acknowledged the value of that assistance (see below). Thus, Nevada’s sports books are part of the solution, not part of the problem.

IV. KEY ASPECTS OF NEVADA’S STATE-REGULATED SPORTS BOOKS

A. Overview

Legal sports wagering in Nevada is relatively small in volume, accessible only by adults who are Nevada residents or visitors to the state, strictly regulated, closely-supervised, subject to taxation, and part of a broader entertainment experience that drives the industry that is the backbone of Nevada’s economy.

As with gaming and gambling generally, there are fundamental distinctions between legal and illegal sports wagering.  It is simply wrong to lump them together or to manufacture connections between them where none exist.  These distinctions are not just of degree or shades of gray, but bold differences that make them separate types of activities that should be viewed accordingly by this Committee when examining various types of sports wagering and their effects.

B. High School and Olympic Wagering Are “Red Herrings”

At the outset, I would like to emphatically dispense with two “red herrings” that the NCAA has thrown into this debate to divert attention from the real issues.

First, there is no legal wagering on high school sports in Nevada and representatives of national high school associations have acknowledged that fact.  By contrast, there no doubt is a serious problem on high school campuses with students betting on sports and otherwise gambling with other high school students.

Nevada’s state-regulated sports books have nothing to do with what happens in high school hallways across the country.  Instead of being allowed to get away with this maneuver, those high school groups that have weighed in on the issue of Nevada’s legal sports books should be called to account for what they are or are not doing about the serious problem of illegal gambling in their own schools.  To do anything less is to miss an opportunity to raise student awareness and thus affect student behavior in a positive direction.

Second, when it comes to the Olympics, there has been only minimal legal wagering on selected events such as the men’s basketball “Dream Team” several years ago.  The wagering volumes on these events have been very small.  It is important to point out that a representative of the U.S. Olympic Committee recently told the Associated Press that this virtually nonexistent legal wagering has caused no problems. Nonetheless, Nevada gaming regulators will have to determine on a case-by-case basis whether any Olympic wagering is ever appropriate in the future.

C. State Regulation of Legal Sports Books

Legal wagering on professional and college sports in Nevada is subject to careful regulation by the Nevada Gaming Commission and the Nevada Gaming Control Board. Only adults who are at least 21 years of age and physically present may place a legal wager with a Nevada sports book.  Out-of-state wagering is strictly prohibited. Nevada’s regulators have taken steps in recent years to strengthen this and related prohibitions. There is no suggestion, much less any evidence, that Nevada’s legal sports books are anything but well regulated and well run.

Nevada’s gaming regulators, including Gaming Commission Chairman Brian Sandoval and Gaming Control Board Chairman Steve DuCharme, their commission and board colleagues, and their staffs, can provide additional information to the Committee on Nevada’s strict regulatory regime.  You will find that there are sound reasons why Nevada’s gaming regulatory system is used as a model by other jurisdictions, not only in the United States, but also around the world.

When it comes to the regulation of sports wagering, Bobby Siller, the former Special Agent in Charge of the Las Vegas office of the FBI, and currently a member of the Nevada Gaming Control Board told the Las Vegas Review-Journal: “From what I understand of this legislation (to ban legal college wagers), it defeats the one system, the Nevada system, which has the ability to detect illegal gambling” (February 6, 2000).

D. Federal Law, Gaming Policy and Sports Wagering

1. The Professional & Amateur Sports Protection Act (PASPA)
Congress explicitly recognized the importance of legal gaming, including sports wagering, to Nevada and its economy when the Professional and Amateur Sports Protection Act (PASPA) was enacted in 1992.  Far from being a “loophole,” as some now erroneously claim, PASPA’s “grandfather clause” was included by Congress to defer to all states, including Nevada, with pre-existing sports-wagering statutes.  This was done to protect legitimate economic interests and legal principles.  Senate Report 102-248 reads in pertinent part as follows:

Neither has the committee any desire to threaten the economy of Nevada, which over many decades has come to depend on legalized private gambling, including sports gambling, as an essential industry, or to prohibit lawful sports gambling schemes in other States that were in operation when the legislation was introduced.

Under paragraph (2) [of S. 474], casino gambling on sports events may continue in Nevada, to the extent authorized by State law, because sports gambling actually was conducted in Nevada between September 1, 1989, and August 31, 1990, pursuant to State law.  Paragraph (2) is not intended to prevent Nevada from expanding its sports betting schemes into other sports as long as it was authorized by State law prior to the enactment of this Act.  Furthermore, sports gambling covered by paragraph (2) can be conducted in any part of the State in any facility in that State, whether such facility currently is in existence.

PASPA’s preservation of previously enacted state statutes is consistent with the fact that since the founding of our country, states, not the federal government, have determined what gambling should be permitted in each state, if any, and how any lawful wagering is regulated.  The principle of federalism underlying this division of authority is enshrined in the Tenth Amendment to the U.S. Constitution.  A unanimous National Gambling Impact Study Commission, a majority of whose members were self-described as “anti-gambling”, reaffirmed this approach.  (See Recommendation 3.1 in the NGISC’s June 1999 Final Report.)   The primacy of state gaming regulation continues to enjoy broad public support (75 percent in an American Viewpoint survey last year).

Furthermore, the “grandfather clause” in PASPA is consistent with the legislative purpose of that statute.  The statute’s legislative history clearly reflects that PASPA’s primary purpose is to prevent the expansion of sports wagering as a state-sponsored activity via state lottery games.

2. Nevada Has Relied On Current Federal Law For A Decade
Nothing has changed since 1992 to alter the legal and economic basis for PASPA’s prospective application.  If anything, the passage of almost a decade of time strengthens the case for not re-opening (much less arbitrarily overturning) that “grandfather clause.”  Until only recently, there has not been a single complaint about it from the NCAA or any other interested party, including when the NCAA testified on several occasions before the National Gambling Impact Study Commission just last year (see below).

In reliance on PASPA’s “grandfather clause,” Nevada’s casino-hotel industry has invested tens of millions of dollars in state-of-the-art race and sports books that are very popular with millions of their adult patrons each year.  This is particularly true in each of the major “mega-resorts” that have opened on the Las Vegas Strip in the past few years as well as sports books in resorts of longer standing.  The overall investment in each of the “mega-resorts” nearly exceeds or does exceed one billion dollars apiece.

Furthermore, now that commercial casino gaming has spread to ten other states, and Native American casinos have spread to about half the states, mainly since PASPA’s enactment, Nevada’s “grandfather clause” has taken on even greater economic significance.  Legal sports wagering is one of the characteristics of Nevada’s resort experience that distinguishes it from that offered in other states.

E. Sports Wagering and Nevada’s Destination Resorts Today

1. Overview
Legal sports wagering is enjoyed by many of Nevada’s nearly 40 million visitors each year, nearly 34 million of which visit Las Vegas.  These visitors come from all 50 states and dozens of foreign countries.  For those who do so, placing a legal sports wager in a closely supervised setting is just part of the broader entertainment experience that destination resorts provide. The race and sports books offer a safe and comfortable surrounding to view sporting contests on large screen systems that in part duplicate the fun of seeing a game in person.

Visitors no longer come to Nevada solely or even primarily for casino gambling.  Visitors increasingly spend their precious leisure time and hard-earned vacation dollar on fine dining, viewing fine art, playing golf and pursuing other recreational activities, and seeing spectacular headliners and production shows, in addition to taking part in exciting casino gaming.  In addition, there are now many unique retail outlets and national chains whose Las Vegas stores are among their highest-grossing locations.  Nevada is still the home for professional boxing championships and other bouts, while more recently it has become the home for professional golf tournaments, rodeo events and NASCAR races.

When coming to Nevada, visitors to our state also frequently make side trips to experience the great natural wonders of our region, from the heights of the Sierra Nevada mountains near Lake Tahoe to the depths of the Grand Canyon in our neighboring state of Arizona.

2. The Economic Significance Of Nevada’s Sports Books
While race and sports book revenue is a small percentage of the total gaming and non-gaming revenue in Nevada each year, this comparison vastly understates the importance of legal sports wagering to Nevada’s tourism industry and the jobs that are dependent on it.  For example, this past January, an estimated 250,000 visitors came to Las Vegas for Super Bowl Weekend when the hotel occupancy rate was essentially 100 percent.  The Las Vegas Convention & Visitors Authority estimated that the non-gaming economic impact of these visitors was $80 million over that single weekend.

A similar economic impact is occurring this month during the NCAA basketball tournament and will occur again this fall during football season.  The jobs generated are not only those in the race and sports books, but extend throughout each of the hotel-casino-resort complexes to maids, valet parking attendants, food and beverage servers, and casino floor personnel.  This job creation also includes those employed by the airlines, rental car agencies and taxi services that transport visitors to and around the fastest-growing major metropolitan area in the country.  These jobs, as well as general and tourist-specific federal, state, and local tax levies, help generate billions of dollars in federal, state and local government revenues annually.

F. The History of Nevada’s Legal Sports Wagering

To understand legal sports wagering in Nevada, and the fundamental differences between legal sports wagering and illegal sports gambling, it is important to understand a little bit of history.

While legal race and sports wagering in Nevada dates back to the 1930s and 1940s, the modern race and sports books at hotel-casino-resorts only go back to about the late 1970s and early 1980s.  In the earlier years, the legal wagering facilities were known as “turf clubs” that were separate from hotel-casinos and largely offered horseracing bets, with only small amounts of wagering on team sports.  This changed as a regulatory regime was put in place that allowed hotel-casinos to operate legal race and sports books, as the popularity of team sports increased, and as team sports became more widely distributed over a wider variety of cable and non-cable TV channels (many devoted exclusively to sports).  The expansion of television coverage allowed fans from the around the country to follow and develop a loyalty to teams outside of their traditional “home” areas.

G. Legal Sports Wagering Is Dwarfed By Illegal Sports Gambling

A critical point to make about legal sports wagering in Nevada is that it is relatively small, in fact almost infinitesimal, in comparison to the various forms of illegal sports gambling.
 According to the National Gambling Impact Study Commission’s Final Report, the “guesstimates” of illegal sports gambling range as high as $380 billion each year (Final Report at page 2-14).  By contrast, the total legal sports wagering in Nevada is less than one percent of that amount.  The Final Report concluded that “sports betting [is] the most widespread and popular form of gambling in America” (Final Report at page 2-14).

This month’s NCAA men’s basketball tournament is a case in point.  The total amount wagered legally in Nevada will run between $60 and $80 million.  (As with all legal sports wagering, the net revenue to the sports books is less than five percent of the total amount wagered.)  By contrast, published reports indicate that in 1995 the FBI estimated that the amount wagered illegally was $2.5 billion. That amount has no doubt grown with the NCAA’s marketing efforts and the growing popularity of the tournament.  NCAA president Cedric Dempsey was quoted in the news media last year as estimating that illegal wagers on the tournament would be closer to $4 billion that year. An article in The Cincinnati Post (March 18, 2000) stated that $3 billion would be bet illegally this month.  The Christian Science Monitor (March 22, 2000) said that, “An estimated 10 million fans will go online to get odds or more information on teams, often to place wagers.”

V. ILLEGAL SPORTS GAMBLING IS A SERIOUS  NATIONAL PROBLEM

A. Overview

Distinct from legal sports wagering, illegal sports gambling takes many forms.  At one end of the spectrum are office pools and other casual betting among friends that many argue is harmless.  While in most states this gambling technically violates the law, as the NGISC found it is not prosecuted.  On the other end of the spectrum is the dark underworld of professional and amateur bookies in many communities and on too many college campuses.  These bookies often have direct or indirect links to organized crime, as the NGISC learned in testimony from a New York City Police Detective who has done undercover work in this area (See NGISC hearing on September 11, 1998).  This organized crime connection extends, at least indirectly, to student bookies on many college campuses (NGISC Final Report at page 3-10).

B. Illegal Sports Gambling Over the Internet

The most dangerous development in the growth of illegal sports gambling is the Internet, whose illegal operators stand to benefit if Nevada’s legal sports wagers are banned.  Given widespread access to the Internet, including by minors, and the fact that persons operating Internet gambling sites are unregulated and offshore, the negative effects of this form of illegal gambling will only grow.

According to a recent in-depth report by Bear, Stearns & Co., there are now more than 650 Internet gambling sites, including many that take sports wagers.  The growth in Internet gambling was 80 percent from 1998 to 1999.  Thus, every home with a personal computer is a portal for young and old alike to wager on sports and otherwise, illegally, with unregulated cyber-casinos and cyber-sports books that lack the legal protections that apply to Nevada’s state-regulated sports books.  Internet gambling will be unaffected by a ban on Nevada’s sports books taking college sports wagers.

C. Illegal Sports Gambling Is Already Illegal

Illegal sports wagering thrives despite the fact that federal and state law already prohibits it.  For example, as a general rule, every state prohibits all forms of gambling that are not expressly approved by law, and then, only by state-licensed enterprises.  This is equally true for sports gambling.  In addition, PASPA prevents additional states from sponsoring sports wagering via state lotteries and from authorizing it via private entities within their states.  Use of the telephone or the wires to transmit wagers across state lines has been against federal law since the early 1960s.  Sports bribery is a serious federal crime.  Other federal statutes prohibit the interstate shipment of certain gambling paraphernalia and the transport of unregulated wagering devices.

Thus, if merely enacting prohibitory laws were enough to deter this activity, the problem would not be as severe as all concede it is today.  The solution, then, is not a matter of having more laws on the books to prohibit illegal sports gambling or banning the very small amount that takes places in Nevada.  Rather, the solutions lie in properly enforcing existing laws and making certain that the penalties are adequate to deter violations.  Congress should hear directly from federal, state and campus law enforcement officials before deciding whether to proceed with the pending legislation to ban college sports wagering in Nevada to the exclusion of concrete steps to address illegal sports gambling.

D. Illegal Sports Gambling on College Campuses is Out of Hand

The problems created by the various forms of illegal sports gambling are compounded many times over on our nation’s college campuses. The NGISC concluded that, “There is considerable evidence that sports wagering is widespread on America’s college campuses” (Final Report at page 3-10).

First, given the extent to which our nation’s colleges and their students are wired to the Internet, a lone laptop in a single dorm room on any campus in the country has more access to sports gambling sites than there are legal sports books in Nevada.  That access by underage students will continue uninterrupted if Nevada’s adult visitors and residents are denied access to legal sports books.  College administrators should do something directly about access to Internet gambling on their campuses, like installing appropriate filtering software on campus-owned computers and limiting credit card marketing to their students.
 Second, according to no less a source than the NCAA, there are illegal student bookies on virtually every college campus in the country, including some with links to organized crime (as noted above).  This burgeoning phenomenon was well-documented as far back as 1995 when Sports Illustrated published a three-part investigative series aptly called “Bettor Education” that began with this ominous warning:

Gambling is the dirty little secret on college campuses, where it’s rampant and prospering.  This SI special report reveals how easy it is for students to bet with a bookie, become consumed with wagering and get over their heads in debt.

The student-run illegal bookmaking operations described by Sports Illustrated are so prevalent and profitable that fraternities reportedly pass them on from graduating seniors to “deserving” underclassmen.  If a January 12, 2000, article in the student newspaper of the University of Pittsburgh is any indication, the description in the Sports Illustrated article remains accurate today.  (See, “Gambling teaches students painful life lessons,” The Pitt News, and “College betting rampant” in The Cincinnati Post of March 18, 2000.)

Students gambling with student bookies and students gambling informally with friends are commonplace despite the fact that this is blatantly illegal activity.  By their own admission, the NCAA and its member institutions have been unable or unwilling to contain that activity.  This phenomenon even extends to a large percentage of the student-athletes over whom the NCAA has the most control, despite the fact that any sports gambling (on professional or college games) is a violation of existing NCAA rules.

The NGISC Final Report cites a University of Michigan survey of NCAA Division I athletes published last year.  The survey found that 45 percent of male student athletes gambled on sports (college or professional).  The mean amount wagered through an illegal bookmaker was $57.25, or an average of $225 each month.  Most alarming, four percent reported having provided inside information, two percent bet on games in which they played, and almost one-half of one percent (2 of the 460 male respondents) indicated they had received money for not playing well in a game.

Despite the publication of the Sports Illustrated warning four years earlier, the NCAA’s staff painted a dismal picture of its efforts at the NGISC’s February 1999 hearings.  William Saum, the NCAA’s Director of Agent and Gambling Activities, and David Nestel, the NCAA’s Assistant Director of Federal Relations, gave the following testimony (according to the published hearing transcripts).

MR. SAUM:   We are starting to make baby steps forward by merely talking about it. … We have a major problem on our campuses, we can remove the – if we can take action with the student bookies on our campus, if we can convince our students and our student athletes that the activity is illegal, and that they should not accept it, we can convince our college presidents, convince our student affairs officers, I believe that that is a first step forward. …

I would say to you that three, four, five years ago, because we weren’t doing our part, that possibly our student athletes didn’t even know that laying a 20 dollar wager with a student bookie in the frat house was a violation of rule, or illegal.

MR. NESTEL:   And that we have found that our administrators, not just athletic administrators, but the college administrators on campus don’t recognize this as a problem, it doesn’t smell, it doesn’t – a lot of this now with Internet gambling can go down privately behind closed doors.  And it is hard to recognize.  And so the message that can be sent here is that we need to raise awareness.

MR. SAUM:  The NCAA, for the past 50, 55 years, has always cared about the issue of gambling, but in September of ‘96 they created the position which I’m fortunate enough to sit in.  In November they promoted that position to a mid-management level position within the association.  … We are also proposing to add staff to the issue of gambling.  We are willing to step up to the plate with money.  It will not be substantial sums of money, it will be more money than we have ever spent in the past. … I’m not saying they are enough, they are not.  Are we behind, yes.  But I think we are doing something. … But certainly our institutions’ feet must be held to the fire.

E. Conclusion

Mr. Chairman, with all due respect, diverting attention from the serious problem on college campuses by concentrating solely on the limited legal college sports wagering by adults in a controlled-setting in Nevada, in the face of the spreading cancer on college campuses, is not holding their feet to the fire as independent analysts have recommended and the NCAA’s testimony supports.

VI. THE NCAA’S POSITION ON LEGAL SPORTS BOOKS IS NOT FACTUAL

A.  Overview

If legal sports wagering in Nevada were relevant to illegal sports gambling, or threatened