Testimony: Proposed Legislation Banning College Sports Wagering

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 the fundamental differences between legal and illegal sports wagering.  We welcome this opportunity to set the record straight about the legal sports wagering that takes place on a relatively limited basis, but that is very important, in my home state of Nevada, and the massive illegal gambling conducted by others in the remaining 49 states.

The American Gaming Association is the national trade association of U.S. commercial hotel-casino companies, gaming equipment manufacturers, and vendor-suppliers of goods and services to the industry.  Our casino members are primarily comprised of publicly traded companies that are carefully licensed and closely supervised by state regulators.  AGA members with Nevada hotel-casino resorts operate federally-grandfathered, state-regulated race and sports books among the many entertainment choices offered in their world class resort facilities.

The U.S. commercial casino industry directly employs over 325,000 people in the 11 commercial casino gaming states in which our members have invested billions of dollars.  Commercial gaming companies purchase billions of dollars in goods and services from virtually every state in the country to serve our tens of millions of annual customers, thus indirectly creating many hundreds of thousands of more jobs nationwide.

AGA members are major sources of state and local tax revenues in the states in which they are located (e.g., over $2.5 billion in annual direct gaming tax revenues alone) and outstanding corporate citizens with stellar records of commitment to the communities in which they operate.

SUMMARY

We agree that illegal gambling on sports and otherwise, particularly among college students, is a very serious national problem.  We share the NCAA’s goal of protecting the integrity of amateur athletics, but even the NCAA admits that  Nevada sports books have been helpful to them in their enforcement efforts.

This Committee presently has three bills pending before it on sports wagering and a fourth bill already approved by the Committee that is very relevant to this discussion, H.R. 3125 on Internet gambling.  Of the three pending bills, H.R. 3575 is built on the faulty premise that ending the small amount of legal wagering in Nevada that Congress approved in 1992 will reduce illegal gambling outside Nevada.  In fact, H.R. 3575 will do nothing to change the atmosphere on our nation’s campuses, where illegal campus sports gambling problems originate.

H.R. 3575 will also do nothing to improve law enforcement, increase research, or bring treatment and prevention programs into wider use.  The attached chart compares the three bills in question.

By contrast, H.R. 3800 and H.R. 4284, by mandating Justice Department actions and strengthening penalties for violating federal anti-gambling laws, are properly directed at the illegal gambling problems at issue. Each bill is based on recommendations of the National Gambling Impact Study Commission, the NCAA, and the AGA.  Thus, they form a solid basis on which to move forward constructively in the few remaining days of the 106th Congress.
The Committee does not need to take our word for it that H.R. 3575 will not reduce illegal sports gambling or protect the integrity of amateur athletics.  Listen to just some of the independent analysts who have spoken out to date:

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.

Sports Illustrated 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.

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.
Chicago Sun-Times Editorial– “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.
Sporting News 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, 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 on March 17, 2000.
The public agrees with these independent analysts.  In a recent national opinion survey, only 38 percent of those polled supported banning legal sports wagering in Nevada, while in response to another question nearly 70 percent said banning the small amount wagered in Nevada would be unlikely to eliminate most illegal betting (Luntz/Hart survey for the AGA).

THE IMPORTANCE OF INTEGRITY TO NEVADA’S GAMING INDUSTRY

We share the goal of this Committee that the integrity of amateur sports be protected for three basic reasons.  
First, our members have legal duties to meet as state-licensed, regulated enterprises.
Second, our members have moral obligations to uphold as good corporate citizens.
Third, our members have an overwhelming financial interest in maintaining the integrity of all games offered, including wagers placed at their Nevada sports books.  This financial interest takes two forms.  Our industry will rightfully lose public confidence and with it customers if gaming is not conducted fairly and honestly.  Furthermore, Nevada’s sports books can unfairly lose money if a customer places a wager while attempting to manipulate the outcome of the game.  Thankfully, we agree with the NCAA that these scandalous incidents are rare.

KEY ASPECTS OF NEVADA’S STATE-REGULATED SPORTS BOOKS

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.

High School and Olympic Wagering Are “Red Herrings”

The NCAA has thrown two red herrings into this debate to divert attention.

First, there is no legal wagering on high school sports in Nevada.  By contrast, there no doubt is a serious problem at high schools with students betting on sports and otherwise gambling with fellow students.  Congress should consider requiring high schools to include gambling awareness instruction much as they already disseminate information on alcohol and drug abuse.  The high school level is certainly not too early or too late to communicate the important message that minors should refrain from gambling – period.

Second, as to the Olympics, there has been only minimal wagering on events such as the men’s basketball “Dream Team” several years ago. A U.S. Olympic Committee representative told the Associated Press that this virtually nonexistent wagering has caused no problems. Nevada regulators will have to determine whether any Olympic wagering is allowed in the future.

State Regulation of Legal Sports Books

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

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 the small state of Nevada and its economy when the Professional and Amateur Sports Protection Act (PASPA) was enacted in 1992.  Far from being a “loophole” as some erroneously claim, Congress expressly included a “grandfather clause” in PASPA to defer to all states, including Nevada, with pre-existing statutes.  This was done to protect legitimate economic interests and legal principles.  Senate Report 102-248 makes this case very strongly:
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, if any, should be permitted in each state, and if so, how lawful wagering is regulated.  The federalism principle underlying this division of authority is enshrined in the Tenth Amendment to the Constitution.

A unanimous National Gambling Impact Study Commission, a majority of whose members were self-described as “anti-gambling,” reaffirmed this state-based approach (see Recommendation 3.1). The Public Sector Gaming Study Commission, a panel of state and local government officials sponsored by the National Council of Legislators from Gaming States, made a similar unanimous recommendation this year.  The primacy of state gaming regulation enjoys broad public support (75 percent approval in an American Viewpoint survey last year).

The Committee should carefully consider the important constitutional issues raised by H.R. 3575.  In a series of cases, starting with U.S. v. Lopez (1995) through U.S. v. Morrison (May 15, 2000), the Supreme Court held statutes unconstitutional because they intruded on areas of traditional state law enforcement and regulation notwithstanding their worthy objectives and claims that Congress had acted within its Commerce Clause authority.

Furthermore, the Nevada “grandfather clause” is consistent with the legislative purpose of PASPA.  The statute’s legislative history clearly reflects that its primary purpose is to prevent the expansion of sports wagering as a state-sponsored activity via lottery games.  Allowing Nevada to continue its well-regulated intrastate sports books does not detract from preventing states from expanding sports wagering through their lotteries.  In fact, PASPA has succeeded in accomplishing that basic purpose.

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 strengthens the case for not re-opening (much less arbitrarily overturning) the “grandfather clause.”  In reliance on that provision, Nevada’s casino-hotel industry has invested tens of millions of dollars in state-of-the-art race and sports book facilities that are very popular with millions of adult patrons each year. The “grandfather clause” has taken on even greater economic significance in the eight years since it was enacted in 1992.  Now that commercial casino gaming has spread to ten other states, and Native American casinos have spread to about half the states, legal sports wagering is one of the characteristics of Nevada’s resort experience that distinguishes it from other states.  To repeal it now, as H.R. 3575 proposes, would break the bargain that was essential to PASPA’s enactment.

Congress Is At Odds Over Betting Lines In Newspapers

The Committee should be aware of the serious policy and factual conflicts posed by H.R. 3575.   On the one hand, proponents of H.R. 3575 argue that ending legal wagering in Nevada will reduce illegal gambling elsewhere by removing the justification for newspapers to publish point spreads (see below).  On the other hand, both the existing Wire Act (18 USC 1084(b)) and H.R. 3125, the Internet gambling bill approved by this Committee earlier this year, expressly protect the news reporting of gambling-related information such as point spreads.

We respectfully submit that the Congress cannot have it both ways.  Since the First Amendment and federal statute protect the publishing of point spreads, Congress should not legislate a legal business into oblivion, as H.R. 3575 proposes, on the mere theory that doing so will eliminate “protected” point spreads from newspapers and the Internet, and in turn reduce illegal gambling.

The Senate committee report on S. 2340 boldly asserts that, “The point spreads are generated (in newspapers, on the radio, television and the Internet nationwide) for no other reason than to facilitate betting on college sports” (page 3 of Rpt. 106-278), but offers no proof.  Similarly, the NCAA told the Senate hearing that, “The pending legislation will eliminate any justification for the publishing of point spreads (betting odds) on college games in our nation’s newspapers” (Dr. Charles Wethington, page 3) (emphasis added), again without any proof.  However, the NGISC’s executive director testified that the commission did not consult with newspapers or otherwise determine whether ending wagering in Nevada would have the intended effect on the publication of point spreads.  The nation’s newspapers are in the best  position to speak to this issue.

When we met with the NCAA last October, we were told that ending point spreads to put a dent in illegal gambling was the primary reason for their proposal.  We informed them that initial betting lines are generated for sports books by independent odds-making services. Decisions about whether to publish betting lines are made by hundreds of independent newspaper editors. The NCAA said they had been unsuccessful in getting newspapers to stop publishing point spreads.

The NCAA gave USA Today as an example, yet the point spreads published by that paper are provided by Danny Sheridan of Mobile, Alabama.  Even if Mr. Sheridan’s line were removed from newspapers, the same information is available from “800” and “900” telephone services and over the Internet.  Several years ago, the NCAA tried to withhold press credentials from sports reporters for newspapers that publish point spreads.  The NCAA was forced to abandon that effort in the face of First Amendment and other legal objections.  There is no basis to conclude that the NCAA would be any more successful just because legal wagering was no longer offered in Nevada.

The Economic Significance Of Nevada’s Sports Books

Nevada Governor Kenny Guinn recently wrote this Committee to express his strong concerns about the negative economic effects that H.R. 3575 would needlessly inflict on Nevada’s economy and its citizens.
While race and sports book revenue is a small percentage of total gaming revenue, 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 positive economic impact occurs during the NCAA men’s basketball tournament and 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.  These jobs, as well as federal, state, and local tax levies, help generate billions of dollars in government revenues.

Legal Sports Wagering Is Dwarfed By Illegal Sports Gambling

Nevada’s sports wagering is relatively small, in fact infinitesimal, in comparison to illegal sports gambling.  According to the National Gambling Impact Study Commission, illegal sports gambling is as high as $380 billion each year (Final Report at page 2-14).  By contrast, legal sports wagering in Nevada is less than one percent of that total.

The NCAA men’s basketball tournament is a case in point.  The total amount wagered legally in Nevada runs between $60 and $80 million.  By contrast, in 1995 the FBI estimated that the amount wagered illegally was $2.5 billion.  NCAA president Dempsey was quoted last year as estimating that illegal wagers would be closer to $4 billion.  The Cincinnati Post (March 18, 2000) stated that $3 billion would be bet illegally this year.  The Christian Science Monitor (March 22, 2000) concluded that, “An estimated 10 million fans will go online to get odds or more information on teams, often to place wagers.”

ILLEGAL SPORTS GAMBLING IS A SERIOUS NATIONAL PROBLEM

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 violates the law, the NGISC found that it is not prosecuted.  On the other end of the spectrum is the dark underworld of professional bookies in many communities and on too many campuses.  These bookies often have links to organized crime that extend, at least indirectly, to student bookies (NGISC Final Report at page 3-10).

Illegal Sports Gambling Over the Internet

The most dangerous development in the spread of illegal sports gambling is the growth of Internet gambling, whose illegal operators stand to benefit handsomely if Nevada’s legal sports books 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 unless Congress acts very quickly to combat it.

According to a recent report by Bear, Stearns & Co., there are more than 650 Internet gambling sites, including hundreds of sites that take sports wagers despite the prohibitions in the Wire Act.  Every personal computer is a portal for young and old alike to wager illegally with unregulated cyber-sports books that lack the legal protections that apply to Nevada’s state-regulated sports books.

Illegal Sports Gambling Is Already Illegal

Illegal sports wagering thrives despite the fact that federal and state law already prohibits it.  PASPA already prevents additional states from sponsoring sports wagering via state lotteries and from authorizing it via private entities.  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 already prohibit the interstate shipment of 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 gambling or banning the very small amount of regulated wagering that takes place in Nevada.  Rather, the solutions lie in properly enforcing existing laws and making certain that penalties are adequate to deter violations.  Congress should hear from federal, state and campus law enforcement before deciding whether to proceed with legislation to ban wagering in Nevada (H.R. 3575) in lieu of concrete steps to address illegal sports gambling (H.R. 3800 and H.R. 4284).

Illegal Sports Gambling on College Campuses is Out of Hand

The problems caused by illegal sports gambling are compounded many times over on 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 are wired to the Internet, a laptop in a single dorm room has access to twice or triple the number of Internet sports gambling sites than there are sports books for those present in Nevada.  That access will continue uninterrupted even if Nevada’s sports books are federally preempted.  College administrators should act swiftly to address access to Internet gambling on their campuses by installing appropriate filtering software on campus-owned computers and Congress should enact H.R. 3125.
Second, according to the NCAA, there are illegal student bookies on virtually every campus, 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.

Based on a January 12, 2000, article in the student newspaper of the University of Pittsburgh, the Sports Illustrated article remains accurate today, as the NCAA readily admits.  (See, “Gambling teaches students painful life lessons,” The Pitt News). “College betting rampant” in The Cincinnati Post of March 18, 2000 reached the same conclusion about the severity of the problem.  The May 2000 issue of SmartMoney magazine, published by The Wall Street Journal, documents virulent campus Internet day-trading and Internet gambling:

It’s not just trading.  Gambling, too, long a part of campus life, has become more rampant, with much higher stakes.  Forget penny-ante poker.  Today’s college students are wagering - and often losing - thousands of dollars with online sports bookies.  All it takes is a credit card and an Internet connection.

The phenomenon of illegal campus sports betting 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 is a violation of existing NCAA rules.  (See NCAA By-Law 10.3) The NGISC Final Report cites a University of Michigan study of NCAA Division I athletes.  The survey found that 45 percent of male student athletes gambled on sports in violation of NCAA rules.  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 one-half of one percent (2 of 460) indicated they had received money for not playing well. However, according to the NCAA’s Internet database of “secondary infractions,” only about two dozen enforcement actions were taken in the three years of 1996-1998 with respect to violations of NCAA by-law 10.3.

Despite the Sports Illustrated warning in 1995, 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.  (…)  (emphasis added).

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. (emphasis added)

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. (emphasis added)

FACT NOT FICTION ABOUT LEGAL SPORTS WAGERING

NGISC Final Report as it Relates to Sports Wagering

Congressional sponsors of legislation to prohibit Nevada’s sports wagering in the name of doing something about illegal sports gambling have echoed the NCAA’s refrain that H.R. 3575 “merely implements” an NGISC recommendation.

First, when it comes to sports gambling, the NGISC Final Report should be read in its entirety.   Doing so will reveal that the commission made a series of unanimous recommendations relevant to sports gambling and one recommendation on which it was badly divided.   The recommendation to end amateur sports wagering where it is now legal received only five votes, or a bare majority of the nine-member commission.  Unfortunately, H.R. 3575 only implements the one recommendation that divided the panel, while ignoring each of those on which the commission was in total agreement!

Second, the closely divided recommendation on amateur sports is open to interpretation.  We will not belabor that point here except to note two important facts.  The commission unanimously adopted Recommendation 3.1:
The Commission recommends to state governments and the federal government that states are best equipped to regulate gambling within their own borders with two exceptions –  tribal and Internet gambling.

In addition, Commissioner Dobson described his recommendation as follows: “And I would like to recommend that we recommend to the states that they ban legal betting on collegiate athletic contests.” (April 7, 1999 transcript at 136) (emphasis added).

The NCAA’s Presentations to the NGISC

In its presentations to the NGISC, the NCAA concentrated almost exclusively on illegal sports gambling without any claim of a connection between legal wagering in Nevada and illegal gambling.  The most illuminating evidence comes from the NGISC’s November 10, 1998, hearing:  
DR. DOBSON: Mr. Saum, you addressed most of your comments to illegal sports gambling.  You didn’t have much to say about legalized gambling on sporting activities.  Would you like to comment on that?

MR. SAUM: Commissioner Dobson, Madam Chair and the rest of the commissioners, we – fundamentally the NCAA is opposed to legal and illegal sports wagering, but much like this Commission, we have not drawn a moral line in the sand that we are going to come out and attempt to change the law.  Certainly, we would be adamantly opposed to any further legalization across the United States.  If we’re going to have sports wagering, let’s keep it in Nevada and nowhere else.  Let’s not allow individuals to wager from outside the state lines. (…)  So I don’t think you will see the NCAA start a campaign to remove sports wagering from the State of Nevada, but you would see us jump to our feet if it would expand outside of state (sic). (emphasis added)

Commissioner McCarthy asked Mr. Saum to provide written recommendations, which were sent via a six-page, single-spaced letter from the NCAA president dated January 28, 1999.  The letter contains this admission:
Despite our increased efforts in the area of sports gambling education, the NCAA is only scratching the surface in addressing the disturbing pattern of gambling behavior among college students and youth.  It is our hope that targeted recommendations contained in the Commission’s final report will provided the impetus for much needed action while also bringing focus to a problem that has long been overlooked.

The letter makes no mention of Nevada’s legal wagering as a source of the illegal gambling problem or as a threat to the integrity of amateur athletics.  There is likewise no request that Nevada’s legal wagering be banned.

Only several weeks after the NCAA’s letter was sent to the NGISC, the commission met on February 9 and 10, 1999.  Commissioners of all stripes on gambling generally were unanimous in their skepticism about the NCAA’s proposals being linked to them receiving federal funding to implement them.