The Supreme Court has opened up the door for a potential flood of new tax revenue for states.

On Monday, the Court struck down a 1992 federal law that, in most states, had prohibited gambling on sports. The Court said the law violated constitutional principles that are meant to limit the federal government from controlling state policy, and struck it down by a 6-3 vote.

States will now have the opportunity to decide for themselves if sports gambling is right for them. New Jersey, which originally petitioned the Court on this issue and has been working to get the law overturned for years, plans to be first. Delaware, Mississippi, Connecticut, Pennsylvania, and West Virginia are among the states that have already passed laws that make gambling legal, and are poised to immediately have them enacted now that the ban has been lifted. Another 14 states are considering active bills: New York, California, Louisiana, South Carolina, Oklahoma, Kansas, Missouri, Iowa, Indiana, Illinois, Kentucky, Michigan, Maryland, and Rhode Island.

These states' fervor to get legislation passed is not surprising when one considers how much they stand to gain in tax revenue. Currently, 24 states have commercial casinos, which pay tax rates ranging from around 7 percent of revenue to as high as 34 percent. Assuming the action on sporting events would be taxed at a similar rate, it could mean a windfall for municipalities around the country.

West Virginia, for example, could generate as much as $16 million, while a more populous state like New Jersey could gain as much as $84 million in annual tax revenue, according to estimates from the American Gaming Association. In fact, legalized sports betting nationwide could provide $3.4 billion to states and local governments, according to a study by Oxford Economics commissioned by the American Gaming Association. And those figures haven't gone unnoticed by those who run the major North American sports leagues.

"The Big Four" - Major League Baseball (MLB), the National Football League (NFL), the National Hockey League (NHL), and the National Basketball Association (NBA) - know that there's substantial revenue to be gained. And without their product, they know that the proposition of sports gambling would be virtually worthless. So in order to ensure they're not left out of the action, a group that includes MLB and the NBA have been lobbying state legislators to award the leagues one percent of all bets placed on their sports and require sportsbooks to license and integrate their official data streams. Now that the ban has been overturned, the leagues, who all issued their own statements on Monday regarding the news, will undoubtedly turn up the pressure on this issue.

In addition to getting a cut of the revenue, leagues will also encourage uniformity in tax rates. That much was clear in NBA Commissioner David Silver's statement released shortly after the ruling.

"[The] decision by the Supreme Court opens the door for states to pass laws legalizing sports betting," Silver said. "We remain in favor of a federal framework that would provide a uniform approach to sports gambling in states that choose to permit it, but we will remain active in ongoing discussions with state legislatures. Regardless of the particulars of any future sports betting law, the integrity of our game remains our highest priority."

Why this focus on uniform rates? Keeping in the same principles and challenges small online retailers face, uniform rates would make it easier for online books to collect and report. And with the spigot of new revenue about to be turned on all at once, no one wants to miss out on cash from the early adopters.

There are kinks to be worked out, but state legislation that makes sports gambling legal seemingly makes fiscal sense for all the parties involved. For the leagues, they stand to gain access to money that has been made off their products, for which they have never previously been able to profit.  For the states, it should significantly curb an illegal practice, while padding their public coffers. The devil is in the details, and there are certainly many different directions this could take in the coming months, but it seems we're about to enter a whole new (and profitable) world.

Published on: May 16, 2018