- Should you buy stock or place a bet?
Unless you have been living under a rock or in a coma for the past couple of weeks, you and everyone else not in the latter group have seen an army of internet trolls and chat room warriors take on Wall Street head-on in the stock market.
For sports fans watching this phenomenon happen many questions are being raised about the legality of stock market trading versus the illegality of sports betting
Investing in the stock market and sports betting share many similarities, both carry gains and losses, substantial research and knowledge of important terminology are crucial for success, and both are handled through a broker (stocks) or a book/ bookie (sports). Let’s see if you should buy stock or place a bet?
What does it mean to buy stock?:
When someone purchases a stock they are buying equity in a business. They are a small stakeholder in the business. It entitles the holder to a claim on the assets of the business as well as a fraction of the profits that the company generates.
When revenue is up the value of the holdings goes up, when revenue is down the value goes down. Only when the holder chooses to sell will they no longer have a stake in the company.
What does it mean to Sports Bet?
Placing a bet or wager on a sporting event is a zero-sum game. There is a winner and a loser. One side’s gain is the sum of the other side’s loss. As well in sports betting the bettor is given odds against their bet.
A wager that holds +100 odds means that the bettor has to wager $100 to win back $100 for a net return of $200. When the sporting event that is bet on begins there is no going back on the deal.
When the event is complete the winner is rewarded their earnings and the bet is history.
What is the difference between Stocks and Sports Betting:
A crucial difference between the two is the regulatory power that congress holds. In the stock market, the federal government regulates the industry through the powers of the Securities and Exchange Commission ironically known as the SEC.
Whereas sports betting has no federal regulatory agency, the government only had a law, now overturned, that prevented states from passing laws allowing sports betting.
Who is the SEC:
While most may hear SEC and think of Nick Saban and a carousel of southern schools trying to compete with the Crimson tide, this SEC does not compete on the gridiron. The Securities and Exchange Commission regulates the sale and distribution of stocks.
Before the formation of the SEC, securities regulation was handled at the state level. With no uniform code, the regulation of exchanging securities (stocks) was nearly impossible and seldom enforced.
This wild west of trading would lead to many backdoor deals between shareholders and investors as well as fraudulent financial statements. Ultimately these practices would lead to the stock market crash of 1929 and the formation of the federal agency.
The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC does this by requiring companies looking to sell stocks to the public to register with the SEC and provide access to basic financial information to allow potential investors to make informed decisions before investing.
Why is stock market trading federally legal in the United States and sports betting illegal?
As mentioned before the important difference between the legality of the two is the regulatory powers of the federal government. The Professional and Amateur Sports Protection Act of 1992 (PASPA) states that “No government entity may authorize, license, or endorse sports gambling” The law made exemptions for gambling in four states: Nevada, Delaware, Oregon, and Montana, which were grandfathered in because they already established laws before PASPA that allowed for sports gambling.
New Jersey tried to join the exempt list but failed because they did not pass legislation in time prior to the law being enacted.
The congressional investigation supported by testimony from NBA, NFL, MLB, NHL, and NCAA found that “Sports betting is a national crisis. It harms the integrity of sport and the harm is felt beyond the borders of states that sanction it” Leading up to the passage of this law in 1992 there were numerous scandals of point shaving and cheating across sports.
Most notably was the Black Sox scandal where members of the 1919 White Sox were accused of throwing the World Series in exchange for payments from a betting syndicate.
In 2011 New Jersey attempted to revise a previous state law that banned sports betting but was sued by the five leagues for violating PASPA. This would lead to a series of cases known as Christie I and II with the state courts ruling in favor of the five leagues. Encouraged by dissenting opinions from the Third Circut Appellant Court, New Jersey petitioned the Supreme Court to hear the case.
Instead of focusing on PASPA, New Jersey submitted an appeal to the Supreme Court about the enforcement of federal law on the state level. This case would be referred to as Murphy v. National Collegiate Athletic Association.
The Supreme court would rule in favor of Murphy (New Jersey) giving the reason that PASPA violated the 10th Amendment of the United States Constitution in that it commandeered power from the states to regulate their gambling industries.
Justice Samuel Alito would sum this up in his opinion stating “congress can directly regulate sports gambling if it chooses so, there is a distinction between requiring a state to act versus preventing action” The repeal of PASPA now opens the door for states to rule whether or not they sports betting is allowed.