Scandals, Get Your Scandals Here
Three of the top stories on ESPN.com this week involved sports betting scandals, which are increasing in frequency.
The Bulletin Board
NEWS: Details emerge in the Jontay Porter betting scandal, and it doesn’t look good, with one arrest already made.
NEWS: MLB suspends five players for violating betting rules, including a lifetime ban for Tucupita Marcano.
NEWS: What states are likely to follow in Illinois’ footsteps and increase the sports betting tax rate?
BEYOND the HEADLINE: When states return to the sports betting legalization drawing board in 2025, will the tax rates increase?
AROUND the WATERCOOLER: Betting scandals are headline news.
STRAY THOUGHTS: Buyer’s remorse.
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Brooklyn Man Charged in Jontay Porter Betting Scheme
Long Phi “Bruce” Pham was charged Tuesday in connection with an alleged illegal sports betting scheme involving Jontay Porter. Three other unnamed coconspirators remain at large. Pham was arrested at JFK Airport as he was attempting to board a one-way flight to Australia.
“After allegedly amassing large gambling debts to co-conspirators in the alleged scheme, Porter, called "Player 1" in the court complaint, was encouraged to clear those debts by withdrawing from certain games prematurely to make sure bets on his performance were successful.”
Porter hasn’t been charged, but that could change, given the contents of a group chat he sent:
“On April 4, in a group chat among Porter and the conspirators, Porter wrote to the group that they "might just get hit w a rico," referring to a racketeering charge, and asked if the group chat participants had "delete[d] all the stuff" from their personal cell phones, according to the complaint.”
Of all the betting scandals, the Porter scheme is the most insidious, as it involves market manipulation — fortunately for the NBA, it didn’t involve game outcome manipulation.
However, for those looking for a silver lining, it has illuminated one of the challenges sports betting faces: how to offer the player prop and SGP markets that bettors want without creating exploitable situations in easily manipulated markets.
MLB Suspends Five Players, Including One Lifetime Ban
Sticking with my scandal theme, Major League Baseball said, “Goodbye to You” to San Diego Padres infielder Tucupita Marcano.
Marcano is accused of placing 387 baseball-related bets totaling $150,000 over about a year (October 2022 to November 2023).
According to the investigation, Marcano placed the bets through a legal sportsbook, which contacted MLB about Marcano’s betting.
Marcano placed 25 bets on Pirates games while on the team’s roster. Per the AP, he “bet almost exclusively on the outcomes of games and lost all of his parlay bets involving the Pirates, winning just 4.3% of all of his MLB-related bets.”
Given his results, the ban certainly has a “does the punishment fit the crime” feel, but this longstanding MLB policy helps remove any temptation.
“The strict enforcement of Major League Baseball’s rules and policies governing gambling conduct is a critical component of upholding our most important priority: protecting the integrity of our games for the fans,” MLB Commissioner Rob Manfred said in a statement. “The longstanding prohibition against betting on Major League Baseball games by those in the sport has been a bedrock principle for over a century. We have been clear that the privilege of playing in baseball comes with a responsibility to refrain from engaging in certain types of behavior that are legal for other people.”
MLB issued one-year suspensions to four other players for betting violations:
Michael Kelly of Oakland
Jay Groome of San Diego
Andrew Saalfrank of Arizona
José Rodríguez of Philadelphia
Each of these raises the question of impermissible bettors and how they are not being proactively prohibited from placing bets. The leagues, the sportsbooks, and the third-parties offering monitoring services need to work on this.
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Tax Increases: What States Might Follow Illinois’ Lead?
Illinois’ decision to increase the tax rate on sports betting operators isn’t the typical news item that comes in scorching hot and gets replaced the next day.
This is one of those rare instances that will stay in the news cycle for months and be cited for years, as other states interested in bumping up the tax rate on sportsbooks will point to Illinois as a precedent.
In a recent Industry Note, the team at JMP called the tax rates imposed on online sports betting operators during the legalization period of 2018-2023 “generous” and that “the adjustments upward in Ohio and Illinois will only fuel investor concern surrounding further changes to tax rates, the structure of markets, including the ability to deduct promotions from taxable revenue, or changes to the Federal Tax rate (0.25%).”
JMP also quoted industry veteran Michael Pollock, who said his experience indicates “politicians will never leave money on the table… and decisions in gaming are often made for what is happening now, not the long term.”
And remember that gambling tax rates only move in one direction: Up.
So who might be next?
In a recent flash note, Eilers & Krejcik Gaming (a newsletter sponsor) pointed to four factors that would make a state a candidate to increase its tax rate:
Factor 1. Governor and/or legislative leadership supporting/championing a tax rise
Factor 2. Exigent fiscal need (e.g., budget deficit)
Factor 3. Below average tax rates or average tax rates with unlimited promotional credit deductions
Factor 4. Previous legislative attempts to increase tax take
EKG listed seven states that meet at least two of the above criteria.
In my estimation, it will take a combination of Factors 2 and 3 to get a governor or legislative leader on board (Factor 1) or, conversely, a governor or legislative leader to bang the drum before a state realizes it could squeeze more money out of licensed sportsbooks.
EKG zoomed in on two specific candidates, Pennsylvania and Michigan, for very different reasons.
As I mentioned last week, Pennsylvania seems an unlikely candidate, given its current tax rate of 36%. However, its effective tax rate is closer to 25% because it allows promotional deductions. If it ended promotional deductions, Pennsylvania could bump its tax rate by 9% without technically raising it.
Michigan also allows promotional deductions, and unlike Pennsylvania, it has a meager tax rate. As EKG wrote, the Michigan sports betting tax rate (9.65% for commercial operators and 8.4% for tribal operators) is far below the graduated rate it uses for online casinos (20% to 28% AGR). That gives it a clear target to aim for and a logical argument that it needs to align the two disparate rates.
The Sports Betting Alliance’s Jeremy Kudon presented the alternative view on X, pointing to several factors that make a tax increase less likely:
Sportsbook offices or HQs in the state.
GOP-controlled legislatures who are allergic to raising taxes.
States that legalized sports betting (and set the tax rate) via constitutional amendment.
Beyond the Headline: Will the Rate Go Up in Yet-to-Legalize States?
The other consideration is Illinois’s impact on states that have yet to legalize sports betting.
In a previous newsletter, I wrote that sports betting tax rates were already creeping up:
“Tax rates are quite divergent, with some states in the single digits and others over 50%. That said, the average tax rate has been relatively consistent (in the mid-teens)… until 2023… This is something to keep an eye on as states’ raison d'être to legalize online gambling swings more and more towards the financial.”
The team at JMP noted the 2024 candidates all had modest tax rates: Georgia (20%), Minnesota (20%), Mississippi (12%), and Missouri (12%). The modest rates could change when the topic is broached again in 2025.
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Around the Watercooler
Social media conversations, rumors, and gossip.
File this David Purdum tweet under “Everything is fine.”
I very much agree with this John Mehaffey response, which echoes what Mr. Prudum said in a recent podcast discussion (listen here).
Stray Thoughts
The honeymoon is over.
Legal sports betting has brought in tax revenue, regulated a widely available unregulated industry, created jobs, and boosted the economy. However, it has also set off several alarm bells about social harms, advertising, betting scandals, and the overall pace of legalization.
Those concerns are going to seep into the online casino debate.
If states are experiencing buyer’s remorse over online sports betting (see above), they will ensure they don’t make the same mistake when they explore the next online gambling frontier: casinos and poker.