In May 2018, the Supreme Court declared the Professional and Amateur Sports Protection Act (PASPA) unconstitutional in a 6-3 decision. What this means is that it will be left up to the states to decide whether or not to allow its residents to bet on sports. They will also be able to establish their own “regulated” sports betting.
PASPA was signed into law by then-President George H.W. Bush in 1992 but went into effect in January 1993. It essentially banned states from both regulating and taxing sports betting.
The act seemed ineffective, even dated as the rise and rapid growth of the Internet-fueled the massive popularity of online sports betting. The act did nothing to stop online sports betting, it only moved it underground.
The American Gambling Association (AGA) estimates that at least $150 billion a year is gambled on sports in the US alone. Of that, 97% was bet illegally.
Many state lawmakers have encouraged setting the right regulations in place to crackdown on organized crime and offshore operations.
Although this new decision is going to bring on a “Gold Rush” of transactions for payment processors, the downsides could prove problematic.
The “thorn in the side” of payment processors will surely be the higher potential for fraud.
To contend with this potential threat, payment processors have to have the right tools and strategies in place to keep the fraudsters at bay.
There are also fears that some gambling operations would want to jump on the gravy train, developing apps and web sites to sign up as many users as possible, without verifying their user’s IDs.
It’s important to note that not all states have adopted the legalization of online sports betting. Many states are still studying the landscape and taking a “wait and see” approach. There are estimates that say that in five to 10 years, there will be a total of 20-30 states that could have legalized sports betting.
Because of this, it is critical that payment firms have advanced authentication techniques in place to ensure that the bettor is living in a state that has adopted the new betting law.
Many of the states that have legalized online sports betting have their own reasons to legalize. There are some who want to use a portion of the revenue to fund early childhood education, then there are those who want to save their own ailing casino industry, others simply want to put the online gaming black market out of business.
Whatever the reason, payment processors need to stay up to date with each state’s legislation and status to ensure they are only allowing users that reside in those legally abiding states. The top stressors that payment processors will have to deal with are issues such as age verification, credit card fraud, and the location of the bettor.
The more fraud management systems payment processors have in place, the more manageable this new tide of revenue will be.