A 'frictionless' gold rush: How online sports betting swept the nation in less than 4 years

The Golden State's upcoming ballot referendum in November on sports betting is shaping up to be the biggest test of their savvy marketing strategy, which has persuaded many states that the increased tax revenue from a nascent $52.7 billion industry will help them weather the pandemic downturn, despite concerns that making betting accessible at one's fingertips will lead to more gambling addition.

It also pits the powerful new industry dominated by DraftKings and FanDuel against California's politically connected Native American casinos.

"If you look at the ballot initiative in California that MGM, DraftKings, FanDuel and others are doing, the money is going to homelessness and mental health, which is the top issue, overwhelmingly, across demographics," a top industry operative told Insider, requesting anonymity to candidly discuss how the companies strategize during their lobbying efforts.

If it sounds easy, that's because a highly efficient state-by-state lobbying effort has made it so.

Almost four years after a relatively unknown Supreme Court decision opened the floodgates for legal online sports betting, some 100 million Americans can now use their smartphones to gamble on just about any professional or even college game in the country.

Before the Murphy v. National Collegiate Athletic Association Supreme Court ruling in 2018, sports gambling was limited to a handful of states — Nevada, Delaware, Oregon, and Montana — while Native American casinos outside of those states offered more traditional kinds of gambling.

So how did the US go from black market bookies and limited in-person betting to a multi-billion dollar omnipresent mobile sports betting industry that is flooding the airwaves with commercials featuring celebrities like JB Smoove, Jamie Foxx, and the Manning brothers? In short, a near complete lack of partisan polarization and an easy revenue boost during the pandemic, combined with massive lobbying efforts, proved too much for many states to resist.

Momentum into a pandemic boom

After New Jersey prevailed in the landmark 2018 Supreme Court case, the gold rush was on.

New Jersey, Delaware, Rhode Island, Mississippi, West Virginia, New Mexico, Arkansas, and Pennsylvania all passed some form of a state-sanctioned sports betting law by the end of the year. With the casinos and mobile app companies already circling the wagons, sports gambling bills began making their way through legislatures across the country.

Then the COVID-19 pandemic caused sales tax and transportation-related revenue to plummet, decimating state budgets.

Just a few months into the pandemic, Colorado and Michigan legalized sports betting, followed by Maryland, Louisiana, and South Dakota in November.

Before President Joe Biden's American Rescue Plan was a sure thing, the revenue offered by legalizing sports betting served as a catalyst for states to get moving.

"Suddenly, hey, wait, we have an opportunity — without taxing anybody — an opportunity to bring significant revenue to state government," said Bennett Liebman, a government lawyer in-residence at Albany Law School who served on New York's gaming commission for a decade and as former Gov. Andrew Cuomo's Deputy Secretary for Gaming and Racing.

"In 2018, I don't think anyone thought that the market would be this overwhelmingly large," Liebman said, noting that Nevada's "near-absolute monopoly on sports gambling" was not seen as a lucrative draw, making up only a small percentage of most Vegas casinos' revenue.

But millions of millennials already addicted to their phones and familiar with the interfaces of fantasy sports apps proved a perfect market for a newly legal form of gambling.

"The market's in mobile," Liebman said. "We see that everywhere. It's much easier to play a sports bet on a phone than going to a kiosk or going to a cashier at a brick and mortar facility."

Apps like DraftKings and FanDuel have become "the major players" in the industry, Liebman added, despite mighty casinos ramping up their mobile sports books.

From 2021 to 2022, legal sports betting spread from 19 states to 32, along with the District of Columbia. Out of those states, 15 allow mobile sports betting across the board, while 12 more have restricted online bets to specific locations, like Native American tribal casinos.

One demographic in particular is driving the market, the industry operative who has worked on sports betting legislation in more than 20 states told Insider.

"It's men ages 22 to 50, white, college educated, have disposable income … That's who's betting," the industry insider said.

"It's not my grandmother going to Atlantic City and playing slots," they continued. "She's not jumping on the DraftKings app and placing bets there."

'Pretty frictionless for any state'

Unlike retail casino expansion — which, in many cases, involves intense fights over potential locations, tax breaks, and concerns about attracting crime — online and mobile sports betting have been an easier pill for lawmakers to swallow, the industry operative said.

"Pretty frictionless for any state," they told Insider. "The tax collection is pretty easy."

Legalized marijuana is still largely a cash business because federal law limits most banking options for the industry, creating complications for collecting tax revenue. But taking a cut from the sportsbook apps is far more straightforward. And, according to the industry insider, sports gambling is unique in American politics simply because it doesn't feed into the highly polarized atmosphere.

"There are not strong partisan lines around the issue of sports betting," the operative said.

"You have a little bit on the Evangelical hard right," they continued. "There are strong Republican states that don't even have a lottery for that reason."

But in a revenue crunch, sports betting tends to be more palatable for conservative lawmakers than legalizing marijuana, the operative added.

"It is a cure to a problem that was not getting much attention, which is a pretty scurrilous illegal market that is offshore and has no legal protections," the industry insider added.

Many of these bills also gained the support of the four major professionals sports leagues in the US, along with local teams.

In New York, for example, the Knicks, Nets, Rangers, Sabres, Bills, and Yankees all hired lobbying firms ahead of the Empire State's 2021 legalization of sports betting, paying as much as $10,000 to $20,000 per month to secure their services, according to public records.

Expanding to mobile sports betting ensures the highest payouts, both for the sports teams and the states looking to increase revenue.

"The places that don't have the revenue are places that don't go full mobile," the insider said. "People are used to e-commerce and not having to go anywhere."

"You're not gonna go back to that," Liebman said of retail casinos, which tend to underperform compared to what advocates promised in tax revenue.

In October, New Jersey became the first state to cross $1 billion in annual revenue from online sports gambling. And in New York, $2.45 billion in online wagers were made in February, just the second month gambling was legal in the state.

Promises made, risks overlooked

In 1988, Congress passed the Indian Gaming Regulatory Act (IGRA), legalizing gambling on Native American reservations. The surge of popularity in mobile sports betting could pose a major long term threat to those Native American-owned casinos, which until recently faced little competition outside of established gambling meccas like Las Vegas.

In California, for example, tribal casinos have already spent $100 million to fight out-of-state sports books from being included in that state's legalization efforts.

"In 2000, Californians voted to give sovereign Indian nations the exclusive right to operate gaming in California. The online sports betting measure sponsored by out-of-state corporations violates that promise of sovereignty, which has worked exceptionally well now for over two decades to the benefit of the tribes and California," the San Manuel Band of Mission Indians, the Rincon Band of Luisueño Indians, and Wilton Rancheria tribe said in a joint statement.

Both Liebman and the industry operative were more optimistic about the future of tribal casinos — which were hit hard by the pandemic — because, in their view, the overall sports gambling market has proven it has plenty of room to grow.

"You have to assume that the tribal casinos will find a way to be part of this," Liebman told Insider, adding that betting on horse racing could prove to be the far bigger loser in the long run because "they can't compete with the money that's coming from" online sports books.

DraftKings has also pursued partnerships with Native American operators, joining forces in Connecticut with the Mashantucket Pequot Tribal Nation out of the Foxwoods Resort and the Tulalip Tribes in Washington.

Many of the sports gambling bills have come with specific programs to be funded by the gambling revenue, as well as mandatory disclaimers on gambling addiction.

But the risk of gambling addiction remains, even in a regulated environment. A review of more than 140 studies by the National Council on Problem Gambling found "sports gambling grows explosively at the same time that mobile and online technologies evolve to create seemingly unlimited types of wagering opportunities," according to the Daily Gazette of Schenectady.

As for the future of legalized sports gambling, California has become the industry's holy grail, with a ballot measure coming as soon as November.

California, like New York, has seen some of the major gambling companies join forces behind the same lobbyists to secure their preferred legislation, according to Liebman.

"There's a commitment to spend a lot of money there because it's the fifth largest GDP in the word if it was a country," the operative said. "So that's a very large prize... After that, it's Florida, Texas."

Until then, the money will keep flowing in an attempt to sway public opinion and secure future customers. The major US sportsbooks collectively spent more than $1 billion on football ads alone in 2021.

"These are smart companies," the operative said of the massive spending. "They're investing in a giant market to bank future revenues.

"It's here, it's happening already," they added. "The illegal market is still massive, so it's kind of comparable to marijuana in that way … So okay, let's legalize it, tax it, bring some sunlight to it."