This week the Supreme Court ruled in favor of a pastime that seems to be nearing a tipping point in terms of public acceptance: sports betting. But will it be enough to overcome staunch opposition from those who stand to lose the most? Time will tell.
Back in 2011, New Jersey voters overwhelmingly approved an amendment to their state constitution to allow sports betting in the Garden State. The following year, then-Gov. Chris Christie signed a law permitting the practice. In doing so, he challenged anyone to "try to stop us."
The federal government and professional sports leagues tried to stop him.
They cited a 1992 federal statute, the Professional and Amateur Sports Protection Act (PASPA), which made it illegal for states other than Nevada to sponsor or permit sports betting. But in a 6-3 Supreme Court decision, the court just struck down PASPA, ruling that it had unconstitutionally commandeered the state legislatures. States may now permit sports betting.
According to one industry report, New Jersey, Delaware, New York, Mississippi and Pennsylvania are all poised to legalize sports betting now that the federal government will no longer stand in the way. Of these states, Pennsylvania and New Jersey plan to permit online sports betting. Given the staggering market potential, other states may soon follow.
Who will try to stop them?
If you're like most people, you probably expect the biggest opposition to come from consumer advocates. In particular, you'd expect regulations to be promoted by those worried about gambling addiction and other social maladies. And you'd be wrong.
For years, the staunchest opponent of online gaming has in fact been one of the nation's most successful gambling moguls, Sheldon Adelson. Through the Las Vegas Sands Corp., he controls some of the most noteworthy casinos both in and outside of Vegas. And through the Coalition to Stop Internet Gambling he has personally bankrolled the nation's largest interest group opposed to online gaming.
Adelson insists this isn't about money. "This is a moral issue," he says. Perhaps the sin of gambling — ahem, online gambling — does keep Adelson up at night. But at the risk of sounding cynical, perhaps we should consider why a casino titan — and the casino industry in general — might oppose new ways for people to gamble.
The idea that regulations are both shaped by and ultimately reflect our benevolent (and genuine) concern for the public interest was popular in the early part of the 20th century. But by the 1970s, it was widely recognized by economists and economic historians to be an incomplete understanding, if not entirely wrong. By 1976, economist Roger Noll reported in a survey article that the public interest theory of regulation, as the idea is known, was "no longer widely shared."
In markets as diverse as electricity, railroads, radio, airlines, taxis, oil, natural gas, finance, trucking, television, health care and pharmaceuticals, regulations can favor powerful status-quo players over upstarts and average Joes. Through government rules that protect their profits from competition and raise rivals' costs, insiders can push markets to be less efficient and less equitable, rather than more so, as the public interest theory would predict.
The reason is simple: The politically organized are smart, well-positioned to influence the law and don't always like competition.
Though economists long ago rejected the public interest theory of regulation, it continues to dominate the minds of some of our more naive public servants. Adelson's crusade against online betting shows how the political market for regulations usually works: Small and organized groups typically outmaneuver large and unorganized groups, such as individual consumers. They use that superior organization and better information to push for rules that ostensibly protect consumers but typically protect profits.
Fortunately, the dominance of special interests is not always assured, and new legal regimes can sometimes create an opportunity for reform.
In the next few years we will see if that is the case with online sports betting.
Matthew Mitchell is the director of the Mercatus Center at George Mason University's Study of American Capitalism.