Future of Credit Card Processing & Sports Betting
Sports betting in the United States could be on the road to changing the credit card industry in very big ways. A landmark decision was made by the United States Supreme Court that will have a profound effect, nationwide, in terms of sports gambling and the industries surrounding it. One reason high risk credit card processing companies can be greatly affected is that because it opens up a massive market to their users. The issue lies that there is no doubt that gambling falls into a very high risk level transaction. This is especially true for the credit card processor providing payment processing. So, the next question that will have to be asked is, with estimates of illegal sports betting reaching upwards of $150 billion dollars yearly, is it worth the risk? The nullification of PASPA is sure to pave the way.
What is PASPA?
PASPA, is the Professional and Amateur Sports Protection Act of 1992. This piece of legislation made sport’s betting illegal across the vast majority of the United States. There were however a few exceptions made to the states of Nevada, Oregon, Delaware and Montana, Along with a few specific sports (jai alai, para-mutuel horse and dog racing).
Throughout the years since its signing, a number of states began to push back on the legislation looking for ways to open sports gambling to state taxation. It was not till 2009 that New Jersey made the first formal attempt to strike down the legislation. Although this attempt was unsuccessful, it did set in motion the events that would eventually bring it down.
Finally in May 2018, the Supreme Court found that parts of PASPA did in fact infringe on the tenth amendment. The decision fell in favor of PAPSA being unconstitutional, by a 6-3 vote. Although, the court’s decision did not legalize sports betting, it opens the possibility for the states to decide how they would like to proceed on the topic on an individual basis.
Already, with the pending changes, the industry and its surrounding industries are all a buzz on how they will be affected and who will walk away on top. The NCAA, along with numerous other sports associations were proponents of PASPA, likely because they did not want the sport being affected by the betting. This is especially true for collegiate athletes who are unpaid. The possibility of being compromised by outside forces before a season or a game could have very real ramifications on the outcome of a game. A missed field goal or an outfielders error could mean a big payday for a player associated with the gambling.
Additionally, seeing as sports betting was a $150 billion dollar “black market” enterprise, illegal bookies and foreign sport books will likely be losing a chunk of their earnings. Offshore sports books and domestic bookies managing bets could potentially see their market disappear once the government creates a legal market for them. The legalization could also lead to a landscape change for betting as a whole. A smaller market, especially an illegal one, raises the risk and the possible payout. A larger pool of people, equating to more potential winners may decrease the risk, altering the overall odds.
Inversely, businesses working to support the previously illegal sports betting industries could see an increase in revenue. Sports data mining and online betting companies along with the gambling companies and bookies in legal jurisdictions have a lot to gain. Their market just grew exponentially. The public can also gain from these changes. Legalization will mean that more people are likely to participate because it is no longer seen as illegal. Of all the winners reaping the rewards of these changes, there may be none greater than the credit card companies.
Effect to Credit Card Processing Companies
I am sure there is no doubt in anyone’s mind that betting is a high risk activity. No matter the odds you place your bet on, there is typically a high possibility of a loss. Loss is not something credit card companies typically enjoy taking part in, but with $150 billion in potential money on the table, it is pretty likely they will want to get their piece of the pie. The next piece of the puzzle that the credit card companies will have to situate is how to integrate gambling into their processing system and gambling credit limits.
At what point will the losses be too great and extensive that the credit holder will not be able to pay it back because of the lengths that they have bet. The credit card processing companies will look for all the possible ways to make the most money while extensively minimizing the risks present in this extremely high risk industry. Perhaps it will be other industries that will fill in the voids that the credit card companies leave. Whenever a need exists, the market tends to fill the void.
Unfortunately, this will be a new industry for most states, along with the fact that each state could have varying laws and regulations. Credit card processors, working with support businesses and finding the best way to compete in the sports betting arena will not only be the surest way for them to succeed, but for the people to reap the benefits of legalization.
Many credit card processors and financial institutes have quite a bit to gain with this change in legislation. The opening of sports betting takes hundreds of billions of dollars out of the shadows and into the mainstream light. The money is going to find its way somewhere, the high risk merchant account industry will have an opportunity to capitalize on the wave. This is especially true since as a whole, people are moving more and more towards electronic forms of payment as the norm. If credit card companies are not willing to move with the risk and profit, then like all true capitalistic systems always do, a new market is created for entrepreneurs looking to make a profit. This occurred with the credit cards used to purchase marijuana in legalized states, it will absolutely happen in sports betting as well. Capitalism always finds a way.
Author: Chris Fernandez
Small business authority and entrepreneurial journalist.
Contributing writer at HRMA-LLC
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