Future Regulation of Sports Betting

By: Daniel Altshuller, RBFL Student Editor

On May 14, 2018 the Supreme Court found in Murphy v. National Collegiate Athletic Association that the Professional and Amateur Sports Protection Act (PASPA) was unconstitutional. PASPA was a Federal law that prohibited States from allowing sports betting. PASPA was unconstitutional because it violated the anti-commandeering doctrine which restricts Congress from controlling state legislatures “as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals.” Due to the Murphy v. National Collegiate Athletic Association decision, as of December 21, 2020, twenty-six states plus the District of Columbia have legalized sports betting. With the impending widespread legalization of sports betting, there are opportunities for sportsbook operators to generate high revenues, however sportsbook operators need to also be mindful of federal regulations such as the Bank Secrecy Act (BSA). The BSA, which is enforced and administered by the Financial Crimes Enforcement Network (FinCen) and the Office of the Comptroller of the Currency (OCC), is intended to help governments combat money laundering through increased regulations, and applies to all “financial institutions.” As it stands, the BSA only applies to sportsbook operators that have state licenses and have revenues over $1 million dollars. Even though all sportsbook operators facilitate wagers on sporting events, they have many important differences, and operate differently in different states. For example, some sportsbooks offer services exclusively online, only in person, or both online and in person. As well, some sportsbook operators offer their services in only one state, while other sportsbook operators offer services across many different states. Due to the different characteristics of sportsbook operators there has been much discussion over which sportsbook operators should be required to follow the BSA.

My Note mainly discusses three possible options that FinCen and the OCC should consider when deciding which sportsbook operators should be required to follow the BSA. The first option is to regulate all sportsbook operators regardless of their characteristics. This would allow for a more straight forward approach and give the most protection from money laundering activities. A second option that FinCen and the OCC could consider would be to allow all sportsbook operators to be exempt from the regulations of the BSA. This option would allow for more competition within the industry, more taxes collected by state governments, and extinguish any desire for sports bettors to use offshore sports betting services in states where sports betting is legal. Although, exempting sportsbook operators from following the BSA would leave the sportsbook operating sector vulnerable for money laundering. The third and most compelling option that my Note discusses is to require all sportsbook operators to follow the regulation of the BSA except for online-only sportsbook operators. My Note discusses this as the best option because it is logical, and an appropriate compromise between over regulation and under regulation. It is logical because online-only sportsbook operators are the most unlike traditional “financial institutions.” Furthermore, deposits into online-only sportsbook operators will likely have to pass through a financial institution that must comply with the Bank Secrecy Act, thereby making an online-only sportsbook operator’s compliance redundant. Lastly, this form of regulation will still accomplish the goal of outlawing offshore sportsbook operators, increasing taxes, and increasing competition while still maintaining a presence in regulating sportsbook operators.

 

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