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US States utilise exemption from sports betting ban Delaware has decided to utilise an The current economic crisis is running a deficit or borrowing forcing States in the US to money to cover operating exemption from a ban preventing scramble to find alternative expenditures is not an option, as US States from authorising sports revenue streams to cover ever their constitutions, unlike the wagering to launch a sports lottery. increasing budget deficits. With tax federal constitution, require Linda J. Shorey, Robert A. Lawton, revenues falling significantly, the balanced budgets. This leaves States States are trying to find ways to with three primary options: Anthony R. Holtzman and Ashley J. increase revenues to avoid deep ● draw down available reserves; Cameron, of K&L Gates LLP , cuts to state-supported programs ● cut expenditures; or examine the plans and how they without increasing taxes on ● raise taxes. illustrate that States are willing to individuals. One popular potential Drawing on reserves, of course, consider regulating forms of source for new revenues is the requires a State to have reserves gambling industry. This article will and few, if any, have reserves gambling in order to meet State provide a brief overview of the sufficient to weather a significant budget shortfalls. deficit problem, the perceived role downturn or recession. The two of the gambling industry in fixing remaining options are not always it, and Delaware’s related proposal viable either, particularly during a to take advantage of its exemption recession. from the Professional and Amateur Expenditure cuts and tax Sports Protection Act (PASPA) 1 , a increases pose a dilemma because federal law, enacted in 1992, that they may further slow a State’s prohibits States from authorizing economy during an economic sports wagering. downturn and, thereby, contribute to an even greater reduction in tax Budget shortfalls revenues. When a State cuts According to the Center on Budget spending, among other things, and Policy Priorities, at least 47 employees will likely be furloughed States faced or are facing budget or laid off and have benefits shortfalls for the current and reduced, vendor contracts will upcoming fiscal years. The likely be canceled or restricted and combined budget shortfall for subsidies to educational these States for the remainder of institutions and non-profits will this fiscal year and the following likely be reduced. As a result, the two fiscal years is estimated to total private sector will likely have less more than $350 billion. The money to spend on salaries and amount of shortfall by State, in supplies, which in turn will result certain cases, is quite significant, in reduced spending and reduced e.g., for fiscal year 2009, California State tax revenues. If taxes are also is projected to have a deficit of increased, individuals and $13.7 billion, New Jersey $3.6 businesses will have even less funds billion, Massachusetts $2.4 billion, available to spend for Florida $2.3 billion, North consumption. The result is a Carolina $2.0 billion, and New vicious cycle that makes it unlikely York $1.7 billion. The projected a State can overcome its budget deficits grow substantially for fiscal deficit without some ‘outside year 2010, with California benefit’ to break the cycle. projected to have a deficit of $25.9 billion, Massachusetts $3.1 billion, Gambling as a viable alternative Florida $5.8 billion, North Carolina $3.3 billion, and New Increasingly, gambling is being York $13.7 billion. perceived by States as an ‘outside States are somewhat limited in benefit’ to help close budget how they can react to a budget deficits. According to the American shortfall. For the vast majority, Gambling Association, 20 States as 13 world online gambling may 2009
US of 31 December 2007, have operated with little competition Governor Markell is wagering commercial casinos, racetrack from surrounding States, except for that Delaware can enjoy these casinos (‘racinos’), or a the casinos in Atlantic City, New significant benefits because, as combination of both 2 . These Jersey and racinos in West Virginia. explained more fully in the gambling activities generated, in In 2004, Pennsylvania approved following section, it is one of just total, almost $40 billion in slots to be operated at its racetracks four States that can legally offer revenues, resulting in tax revenues and stand-alone facilities. In sports wagering. Nevada is the to the 20 States in excess of $8 November 2006, Pennsylvania’s current mecca for legal sports billion. By far, Nevada was the first racino opened, with more wagering in the US. While in 2008, largest beneficiary, with almost $13 opening since then. In 2007, West $2.58 billion was legally wagered in billion in casino revenues and over Virginia approved table games at Nevada, this amount represents $1 billion in tax revenues. But, its existing racinos. In 2008, less than one percent of all sports States that have only recently Maryland approved racinos and wagering in the US. The balance is authorized casino-style gambling, stand-alone slots casinos. wagered with illegal gambling such as Pennsylvania and New While the total impact on operations. This is the key to York, have had impressive Delaware of these actions by Governor Markell’s plan - beginnings, generating tax nearby States is not known, there is garnering a share of the sports revenues of $461 million and $450 concern that Delaware will lose a wagers illegally made. Delaware million, respectively. With such tax significant amount of tax revenues. would not directly compete with revenues, it is little wonder that This is a realistic concern, given Nevada’s sports books. States increasingly see gambling as that Delaware’s annual casino tax The National Gambling Impact a budget deficit cure-all. revenues dropped $8 to $10 Study Commission estimates that According to a recent Associated million when the initial illegal sports wagers reach $380 Press article, at least 14 States are Pennsylvania racinos opened for billion annually and are placed currently considering proposals to business. Delaware expects either through local sports book allow or expand slots or casinos 3 . Maryland’s recent authorization of operators or via the internet. These include Texas, Kentucky, slots to be even more significant, Delaware’s plan is to provide New Hampshire, and New York, estimating a $70 million annual another legal venue, located on the which are all considering proposals loss in revenues once the slots heavily populated East Coast, for to allow the presence of video locations are fully operational. This wagers on sporting events. Even gambling terminals at their projected loss is significant to with just a portion of the illegal racetracks. Maryland and Kansas Delaware’s budget woes because sports wagering market, the recently passed legislation revenues from the State lottery - amount of income to Delaware via authorizing slots gambling at which includes traditional scratch- tax revenues and other revenues, racetracks or at stand-alone off games as well as slot machines such as hotel accommodations and locations. A ballot proposal to and other gambling devices at its food, is potentially significant. permit casino-style gambling in three racinos - account for 8% of Sports wagering also offers an Ohio has been submitted to the total budgeted revenues. Any opportunity for Delaware to Ohio Attorney General’s office. If reduction in the amount of differentiate its racinos and future approved - and supporters of gambling revenues received widens casinos from those in Pennsylvania gambling gather the necessary the State’s budget deficit, currently and Maryland, which offer only signatures - Ohio residents will projected to be $700 million. slots, or West Virginia, which offers vote on the issue this fall. slots and table games. At some point, however, it seems Delaware’s plan - sports wagering Delaware’s PASPA exemption inevitable that the expansion of casino-type gambling will suffer To counter the projected losses, Delaware is one of only four States from the law of diminishing Delaware’s newly elected Governor, exempt from PASPA’s prohibition returns. Delaware is trying to avoid Jack Markell, announced his of State authorized sports being the poster child for this intention to seek reauthorization of wagering. PASPA provides that: impact. Delaware approved casino- a sports lottery. The Governor ‘It shall be unlawful for a style wagering at the State’s three projects that his proposal, if governmental entity to sponsor, racetracks in 1994, with the first implemented, will result in $55 operate, advertise, or promote ... a racino opening one year later. For million in tax revenues in the first lottery, sweepstakes, or other the next ten years, Delaware year of operations alone. betting, gambling, or wagering 14 world online gambling may 2009
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