Sports book advertising: past, present & future regulatory environment

Introduction

Without question, Americans have whole heartedly embraced legalized sports betting. Since the Supreme Court struck down the Professional and Amateur Sports Protection Act in 2018, allowing states to legalize and regulate sports betting, 33 states and the District of Columbia have enacted some form of live, legal sports betting. According to the Pew Research Center, between September 2021 and September 2022, around one-in-five adults in the United States bet money on some form of sporting event. As of March 14, 2023, the total handle in the United States is over $200 billion, with over $15 billion reported revenue. As more states legalize sports betting and go-live, these numbers are positioned to grow.

The social costs, however, associated with legalized sports betting are readily apparent. The National Council on Problem Gambling (“NCPG”) reports that between 2018 and 2021 (the most recent year for which data is available), the risk of gambling addiction has grown an estimated 30 percent. The NCPG also saw a roughly 45 percent increase in calls to its helpline between 2021 and 2022. Indeed, the numbers are no better, if not worse, at the state level. For example, Connecticut had a 91 percent increase in helpline calls in the first year of legalization, while in Illinois calls rose 425 percent between 2020 and 2022. While this surge may be due in part to the increased visibility and promotion of gambling helplines, legalized sports betting appears to pose a problem with respect to gambling addiction.

Sportsbook advertisements play a direct role in both the economic benefits to states and the increase in problem gambling. As the sports betting industry is still in its infancy in the United States, state and federal governments are grappling with ways to regulate advertising and balance the competing interests.

At present, some states require that advertisements contain a problem gambling assistance message. Others forbid the promotion of sportsbooks on college campuses. In Maine, where sports betting is legal but has not yet launched, there are proposed rules prohibiting the use of professional athletes and celebrities in advertisements and banning promotions and/or bonuses on television all together.

Ohio was the frontrunner in enacting and enforcing advertising regulations. In January of 2023, the Ohio Casino Control Commission (“OCCC”) implemented rules banning the use of “risk-free bets” and “free bet” in offers that require bettors to use their own money before receiving bonus credits. The OCCC has since issued numerous notices of violation and fined three major sportsbooks in amounts ranging from $150,000 to $350,000. While there is no uniformity in the state laws, there appears to be a consensus that certain changes are needed with respect to advertising.

Although legalized sports betting is only a recent development in the United States, regulators can draw on past experiences and glean insights from related “sin advertising” regulations, the Supreme Court’s reaction to such “sin advertising,” international laws, and public reaction in general.

Betting on Our Future Act – Overview

In early February of 2023, Rep. Paul Tonko, D-N.Y., introduced the “Betting on Our Future Act” which, if passed, would ban all advertising of sportsbooks on any medium of electronic communication subject to the jurisdiction of the Federal Communications Commission (the “FCC”). In practice, this would likely mean sports betting operators would be prevented from promoting their products through cable, television, radio, satellite and wire, but would still leave open advertising through print media such as newspapers or magazines. While a ban of this nature may appear novel, there are existing laws that mirror the Betting on Our Future Act’s framework and sentiment. Specifically, there is a line of Supreme Court precedent showing increased judicial tolerance for what some call “sin advertising.” Sin advertising includes advertisements of, for example, tobacco, marijuana, liquor and, of course, gambling.

“Sin Advertisement” Legislation and Case Law

I Cigarette Advertisements

The Betting on Our Future Act is modelled after the Federal Cigarette Labelling and Advertising Act (“Cigarette Advertising Act”), which prohibits any advertising of cigarettes and little cigars on radio, television, or other media regulated by the FCC. Of interest, after its passage in 1969 and implementation in 1971, the Cigarette Advertising Act faced little pushback. Even then, the opposition largely came from the broadcast companies, not cigarette manufacturers. Supporters of the Betting on Our Future Act point to the Cigarette Advertising Act as precedent, asserting that it is a noncontroversial and successful policy. However, there a few key differences that make the Cigarette Advertising Act’s framework non-transferable to sports betting advertisements – the most important of which is the time of its passage.

The Cigarette Advertising Act became law before the Supreme Court generally granted First Amendment protection to commercial speech in 1976. The Court then developed guidelines for determining whether a regulation of commercial speech satisfies First Amendment review in 1980. Such guidelines originated in the case Central Hudson Gas & Electric Corp. v. Public Service Commission of New York. The “Central Hudson” test is a multi-prong analysis which asks: (1) whether the speech at issue concerns lawful activity and is not misleading and (2) whether the asserted governmental interest is substantial; and, if so, (3) whether the regulation directly advances the governmental interest asserted and (4) whether it is not more extensive than is necessary to serve that interest.

There is certainly some question as to whether the Cigarette Advertising Act would pass First Amendment constitutional muster under the Central Hudson test. Specifically, there would be an uphill battle trying to prove that Cigarette Advertising Act is “not more extensive than necessary.” As such, the Betting on Our Future Act would likely face this same challenge with the “not more extensive than necessary” prong (presuming the preceding prongs are satisfied).

II Lottery Advertisements

There are post-Central Hudson “sin advertising” statutes and accompanying case law providing further guidance. There is even caselaw questioning the federal government’s “substantial interest” in regulating gambling, as required under the Central Hudson test. For instance, the lottery advertisement regulations serve as a good basis of comparison because, just like sports betting, lotteries are not legal in all states. To this day, there are still five states that do not offer government-operated lotteries or participate in interstate drawings with rollover jackpots such as Powerball or Mega Millions.

In 1993, the Supreme Court addressed a First Amendment challenge to 18 U.S.C. § 1304, a 1934 federal statute that generally prohibits the broadcast of any lottery advertisements. In United States v. Edge Broadcasting Co., the Supreme Court upheld the constitutionality of § 1304 as applied to broadcast advertising of Virginia’s lottery by a radio station located in North Carolina, where no such lottery was authorized. In this ruling, the Court analyzed § 1304 under the Central Hudson test. Under the facts, the Court found that the statute directly advanced the federal government’s substantial interest in supporting the policy of non-lottery states and not interfering in the policy of lottery states. The Court reasoned it did not burden substantially more speech than necessary to further the particularized interests, in a roundabout way of satisfying the Central Hudson test’s final prong.

Six years later, the Court backtracked. In Greater New Orleans Broadcasting Ass’n, Inc. v. United States, the Court found that such prohibition was unconstitutional as applied to advertisements of lawful private casino gambling that were broadcast by a broadcaster’s radio or television stations located in Louisiana, where such gambling was legal. Under the Central Hudson test, the Court cautiously accepted that the asserted government interest was substantial, but refused to recognize that the blanket ban directly advanced the asserted interest and was not more restrictive than necessary, as applied.

In making its case, the federal government argued two substantial interests: (1) reducing the social costs associated with gambling, and (2) assisting states that restrict or prohibit forms of gambling. While these interests were ultimately deemed substantial, the Court noted that its conclusion is by no means self-evident. The Court opined that, “in the judgment of both Congress and many state legislatures, the social costs that support the suppression of gambling are offset, and sometimes outweighed, by countervailing policy considerations, primarily in the form of economic benefits.”

The Greater New Orleans Broadcasting Ass’n opinion highlights the fact that Congress sanctioned casino gaming on Native American lands through approved tribal-state compacts and enacted other statutes reflecting approval of state legislation authorizing a host of public and private gambling activities. In contrast, the Court in Edge spent little time questioning the government’s purported interest. The Court’s new skepticism in Greater New Orleans Broadcasting Ass’n may give present-day sportsbooks some sense of comfort that a court would duly acknowledge the benefits to be had from sports betting and the government’s mixed signals on the same.

In Greater New Orleans Broadcasting Ass’n, § 1304 lost on the Central Hudson test’s third and fourth prongs. The government took the position that § 1304’s restriction directly advanced its interest in alleviating the social costs of gambling. The government asserted that “promotional” broadcast advertising concerning casino gambling increased demand for such gambling, which in turn increased the amount of casino gambling producing social costs. Presuming this is an accurate causal chain, the Court did not find an outright ban on television and radio lottery advertisements materially and directly advanced such interest. As part of its reasoning, the Court acknowledged it is a fair assumption that more advertising would have some impact on the overall demand, but one can also reasonably assume the advertising would serve the purpose of channeling a gambler to one casino over another.

In directly addressing the requirements of the third and fourth prong, the Court stated that there “surely are practical and nonspeech-related forms of regulation — including a prohibition or supervision of gambling on credit; limitations on the use of cash machines on casino premises; controls on admissions; pot or betting limits; location restrictions; and licensing requirements – that could more directly and effectively alleviate some of the social costs of casino gambling.”

What the Court found more important, however, circles-back to its quarrel with the substantial interest described above — the legislators’ mixed-signals. The government was condemning advertising private gambling, while simultaneously approving tribal casino gaming by way of the Indian Gaming Regulatory Act (“IGRA”). In this regard, the IGRA exempted tribal gaming from § 1304’s broadcast advertising restrictions. As such, the Court found the government could not assert that, as applied, § 1304 was directly advancing an interest in a manner that was not more extensive than is necessary.

Betting on Our Future Act Under the Central Hudson Test Precedent and Modern Society

Considering the above, the Betting on Our Future Act will likely face challenges in trying to pass First Amendment scrutiny. The reasons that § 1304 failed the third and fourth prong of the Central Hudson test in Greater New Orleans Broadcasting Ass’n are likely transferrable to the Betting on Our Future Act.

First, as the Court pointed out in Greater New Orleans Broadcasting Ass’n, there are practical forms of regulation that could more directly and effectively alleviate some of the social costs of gambling. One social cost concern is that members of the public do not appreciate the addictive effects of sports betting. In lieu of prohibiting television advertisements, states could enact legislation requiring sports betting advertisements to include warnings about the potential harmful and addictive effects of gambling. For instance, Massachusetts, a newcomer to the sports betting market, requires that advertisements include a link and phone number for the Massachusetts Problem Gambling Helpline “and such other information regarding responsible gaming as may be required by the [Massachusetts Gaming] Commission.”

As another example, there are concerns that younger people are more susceptible to problem gambling. Many states prohibit, at a minimum, targeting sports betting advertisements or promotions to minors. A narrower way to address this would be to prohibit the promotion or advertisement of sports betting in university-owned news assets or on college campuses. Such legislation prohibits someone from handing out promo codes on campus and using other direct-to-consumer marketing tactics. This is already law in Arizona. That these options exist serves to likely undermine the contention that the Betting on Our Future Act is not more extensive than is necessary.

Second, in Greater New Orleans Broadcasting Ass’n, the Court emphasized that § 1304 devolved into a regulatory regime “so pierced by exemptions and inconsistencies that the government cannot hope to exonerate it.” This may be the Betting on Our Future Act’s fate, if passed. There is much open to interpretation in the Act considering: (1) the way advertising looks in 2023, (2) the fact “advertise” is not defined in the Act, and (3) the grasp that sportsbooks already have on the sports industry. For example, could a broadcaster show sportsbook stadium advertising signage on-air? Could an announcer reference an in-arena sportsbook without encouraging patronage? This gray area could serve as the basis for subsequent exemptions to the Betting on Our Future Act.

International laws as guidance

International gambling advertisement regulations also serve as a valuable case study for all United States sports betting stakeholders. As United States sportsbooks create and implement advertisements, consideration should be given as to whether similar advertisements received pushback, or would be prohibited, under international laws.

In 2018, Italy’s government approved regulation banning any form of advertising, sponsorship, or communication presenting promotional content relating to games or betting with cash prizes. Italian law is not limited to television and radio broadcast advertisements like the Betting on Our Future Act. Rather, Italy’s “Dignity Decree” bans gambling advertisements however carried out and by any means, including television and radio broadcasting, the press, billboards, internet, digital and electronic tools, and social media, with limited exemptions.

In early March of 2023, Belgium’s King Philippe signed a Royal Decree that will ban all gambling advertisements on all media platforms in all public places beginning July 1, 2023. The rules are considered the strictest gambling advertising regulations in any regulated market in Europe. For logistics, and in the interest of respecting ongoing contracts, Belgium’s government created transition periods for the sports industry. Beginning January 1, 2025, all gambling advertisements will be banned from stadiums, and from January 1, 2028, sponsorship of sports clubs by gambling companies will also be restricted.

There has been pushback against these regulations in both Italy and Belgium. Since 2018, the Italian Football Federation (“FIGC”) has been calling for authorities to suspend the ban. The FIGC claims that the ban is estimated to have cost Italian football clubs around EUR100m in potential sponsorship revenues and that the regulation was “bringing the entire sports sector to its knees.” Now, there are reports that Italy’s government is moving towards reforms that would allow some betting companies to sponsor teams.

Belgium’s sports sector confirmed it will challenge the Royal Decree, per an open letter from the country’s advocates of cycling, basketball, football and the organizers of major sporting events.29 The advocates contend a ban will not protect fans from gambling addictions, but will propel them towards the unsafe offerings of unauthorized providers. Instead, Belgium’s sports industry wants to play an active role in creating a solution to gambling addiction and take on responsibility in doing so.

Conclusion

Based on the foregoing, it may be that the path of least resistance in the United States is for industry operators to self-regulate without substantial government intervention — but that seems unlikely given the ubiquity of advertisements. If self-regulation is not possible, the best approach for all stakeholders is incremental regulations targeting narrow policy concerns. The Ohio “free” and “risk-free bets” prohibition – the first successful policy of its kind in the United States – took effect January 1, 2023. Since that time, multiple states adopted a similar policy and sportsbooks made a nation-wide change to such language. Now the advertisements say things to the effect of, “Get up to $1,000 paid back in bonus bets, if you don’t win.”

Moreover, on March 28, 2023, the American Gaming Association (“AGA”), which represents the United States casino industry, including commercial and tribal casino operators, sports betting and iGaming companies, gaming suppliers and other affiliated entities, updated its “Responsible Marketing Code for Sports Wagering.” Members of the AGA are required to follow the Code to stay in good standing. Among other things, the Code bans sportsbooks from partnering with colleges to promote sports wagering, bars payments to college and amateur athletes for using their name, image or likeness, and ends the use of the terms “free” or “risk-free” to describe promotional bets.

If the sports betting industry, as a whole, is able to take control of the narrative and determine a workable path to responsible advertising, such actions could short circuit the federal government’s desire to push for sweeping legislation like the Betting on Our Future Act.

Heidi McNeil Staudenmaier is Partner Coordinator of Native American Law & Gaming Law Services, Kate Pokorski is an Attorney in the Corporate and Securities practice group and Sports and Entertainment Industry Group at Snell & Wilmer, L.L.P

For information contact +1 602.382.6598 kpokorski@swlaw.com