Pocket Aces

US Sports Betting Hearing: Inside the False CSIG / Jon Bruning Written Testimony

Today’s hearing on possible federal legalization of sports betting, held before the US House Subcommittee on Crime, Terrorism, Homeland Security, and Investigations, turned out to be every bit the anti-online gambling charade that the subcommittee’s chair, Rep. James Sensenbrenner, and the Judiciary Committee’s chair himself, Rep. Bob Goodlatte, sought to put together on behalf of benefactor Sheldon Adelson. You can find links to live blogging of the hearing’s lowlights or to a video of the roughly 90-minute hearing in its entirety elsewhere. Here today, though, we’ll look inside the long-form testimony of the representative of Adelson’s Coalition to Stop Internet Gambling (CSIG), former Nebraska Attorney General Jon Bruning.

CongressBruning read from his full written testimony before the subcommittee, but it’s when one digs deeper into the written nine-page version of the statement, that the full aims of Adelson’s CSIG strategy are laid bare. With Bruning serving as the loyal foot soldier for the moment, that strategy amounts to the following:

  • Attempt to create some form of gambling legislation at the federal level, to create a possible avenue to curtailing online-gambling legalization in a slowly growing number of US states;
  • Attempt to co-opt any gambling-related hearing into a concerted railing against online gambling, as happened today with what was presumably a sports-betting related hearing;
  • Attempt to demonize — by any means possible — regulated online gambling within the US by conflating it with unregulated online gambling offered by a minority of offshore regulators;
  • Attempt to disqualify the successful age and location verification procedures implemented by all US-located regulated sites through an unending series of outright false statements and unwavering fear-mongering.

All four elements were on clear display within Bruning’s / CSIG’s formal statement. Let’s take a closer look.

False equivalencies and bad math

Here’s a chunk of Bruning’s statement that suggests that states’ legalization of sports betting is a money loser, because black-market offshore sites are more efficient operators:

Before going into law enforcement’s concerns with legalizing online sports betting, I think it’s helpful for the Subcommittee to understand the economics of sports betting. States that believe they can solve their budgetary problems by licensing and taxing sports books are going to find there is no pot of gold at the end of the rainbow. And, by taxing licensed sports books, they will drive sports betting to illegal sites and bookies – who do not pay taxes, have compliance costs, or report winnings to the IRS.

Sportsbooks are low-margin ventures. One casino company determined that of every $100 bet in a sports book, the casino keeps only $1.40 – and that is before the casino pays any state taxes or potential integrity fee. Last year, Nevada sportsbooks returned just .02% of the total casino wins from slot machines and table games. Of the nearly $800 million in gambling taxes collected by Nevada, sports betting tax revenues generated a mere $18.5 million in taxes.

The problem is that licensed sports books face more efficient competitors – illegal black market competitors. Even though broad sports betting was effectively legal only in Nevada before the Supreme Court tossed PASPA, over 90% of U.S. sports betting takes place outside of Nevada. Most is wagered through offshore sportsbooks located in the Caribbean and Central America. These offshore sites do not require gambler verification, pay taxes, or report large winnings to the IRS.

Likewise, local bookies stand to benefit. They do not report winnings to the Internal Revenue Service (IRS) or pay taxes or integrity fees. They offer credit, are conveniently located, and keep no banking records. And, they can use online tools such as bookiemarket.com to run their sportsbooks.

Bruning’s entire premise is crap. People bet with underground bookies and on offshore sites because they don’t have easy access to locations where they can place sports bets through legal means, which until recently meant being physically within the state of Nevada. The specific crap about black-marketing sites being able to offer better odds flies directly in the face of the balancing force, which is the non-zero chance that an unregulated offshore site runs off with the customers’ funds. That’s a significant deterrent, and Bruning chooses to ignore it in its entirety; the growth of legal sports-betting opportunities means money will move from unlicensed to licensed operators, not the other way around. Local bookies in legalized regulations do not stand to benefit, though the handful in such backwater states as Bruning’s Nebraska (which won’t be legalizing sports betting any time soon) might feel more emboldened in the very short term, but is Bruning arguing his case on behalf of the US, or just his version of how Nebraska ought to be?

Then there’s that LOL bad math: “Last year, Nevada sportsbooks returned just .02% of the total casino wins from slot machines and table games. Of the nearly $800 million in gambling taxes collected by Nevada, sports betting tax revenues generated a mere $18.5 million in taxes.” That’s roughly 2%, not .02%. Sports betting is indeed a small percentage of a casino’s overall take, but not as infinitely small as Bruning claims. And why is it that these silly math errors always occur in favor of the weak claims being argued?

False online gambling allusions — a CSIG trademark

When I saw this paragraph in Bruning’s written testimony, my first thought was, “It’s back!” And “it” refers to the cherry-picking of a statement regarding possible money-laundering opportunities within various forms of gambling offered by an anti-gambling FBI agent to a US Senator back in 2013. The excerpt Bruning chose to offer reads as follows:

The FBI has warned Congress that “online casinos are vulnerable to a wide array of criminal schemes,” which may be used to “exchange money to launder criminal proceeds,” and could be exploited by organized crime to “generate revenue, steal personally identifiable information, and engage in public corruption.” Similarly, the Department of Justice (DOJ) has testified before this Committee that: “Internet gambling carries a potential for fraud and money laundering and the involvement of organized crime in online gambling.”

Well, if one looks at the original, which CSIG itself has faithfully preserved, it’s clear that the focus of the agent’s concern was what he termed TOCs, or transnational organized crime groups, that are either representative of illegal offshore operators or presume that US states who legalize internet gambling are willing to license the mafia to run those online sites. That’s simply not what regulated US online gambling is all about. But it is straight from CSIG’s playbook, meaning this constant conflating of unregulated offshore sites and the regulated-by-US-states version.

Bruning claims its unconstitutional for other states to not do what Nebraska wants

Then there’s the gobsmacking arrogance of Bruning in declaring that other US states are violating the US Constitution by not acting as he as a former Nebraska official would want them to — within their own state boundaries. Bruning begins by describing an alleged increase by Nebraskans in going to neighboring Colorado, where marijuana is legal, and bringing it back over the border, where it isn’t. From there, he goes off on a bizarre tangent that online gambling must be similarly banned to protect Nebraska — and in particular Nebraska’s children — from the possibility of gambling on illegal international sites.

Except the illegal offshore sites wouldn’t be affected by any US-based legislation anyway. Any “RAWA”-style legislation designed to make online gambling illegal would only impact legal, inside-the-US operators, otherwise known as Sheldon Adelson’s competitors. And in floating this Godzilla-sized turd, Bruning and CSIG have to pretend that regulated geolocation and ID verification simply don’t exist.

Which brings us to this utter crap from a man who was once Nebraska’s highest law enforcement official:

[L]et’s not forget the rights of states in which marijuana is illegal. Since marijuana was legalized in Colorado, Nebraska law enforcement has been overwhelmed with the amount of illegal marijuana flooding into the state.

In the border town of Sidney, Nebraska, the Police Chief has indicated that 5 out of every 10 traffic stops results in a marijuana arrest. Another sheriff said the county is getting so many felony drug cases involving Colorado marijuana that it’s draining the county’s resources to jail those arrested and to pay for criminal defense attorneys.

As Attorney General, I filed an original action against Colorado in the United States Supreme Court asking the Court to declare Colorado’s marijuana laws violated the U.S. Constitution. But the Supreme Court refused to take our case. And to this day, Nebraskans continue to suffer from Colorado’s legalization of marijuana with no legal recourse.

This same harm will come to Nebraska when states legalize online sports betting. Nebraska will be compelled to rely on the good graces, and regulatory capabilities, of those states that have legalized online sports betting – and trust the online casinos, including those located overseas. And when this good grace falls short, Nebraska law enforcement won’t be stopping cars with illegal drugs along the interstate. They will be chasing foreign online companies with no physical presence in Nebraska.

States like Nebraska, and others where online gambling is not legal, have neither the resources nor the authority to protect their kids from nefarious illegal online gambling operations offering tempting games on their cell phones. Thus states legalizing online gambling without preventing the online gambling from being offered in Nebraska are violating our 10th Amendment right to control gambling within our borders.

The difficulty a State not wanting online casinos will face was recognized as far back as 2007 when Chairman Goodlatte correctly observed:

“With the development of the Internet, however, state prohibitions and regulations governing gambling have become increasingly hard to enforce as electronic communications move freely across borders. Many gambling operations are beginning to take advantage of the ease with which communications can cross state lines in order to elicit illegal bets and wagers from individuals in jurisdictions that prohibit those activities.”

If anything, technological advances, and the ease of access to the Internet by children, makes the challenges imposed on states where Internet gambling is illegal even greater today. …

No. Goodlatte made an intentional, lying misstatement when he wrote “across state lines”; the only possibly correct assessment, then and now, would have been “across international boundaries”, and that only by a minority of offshore unregulated sites. Yet financed by Adelson, Goodlatte and CSIG and Bruning and Jason Chaffetz and their ilk have pushed that falsehood ever since.


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