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Will The Supreme Court's Sports Gambling Ruling Create A New CRE Market?

The U.S. Supreme Court made a momentous decision Monday in striking down PAPSA, the law preventing states from regulating sports gambling.

The sports betting area at the MGM Grand casino in Las Vegas.

Because states have now been given the freedom to design their own sports gambling framework, uncertainty reigns over just how much effect the ruling could have on commercial real estate.

The 6-3 decision in the case of Murphy v. NCAA was first brought by New Jersey Gov. Chris Christie, and his successor, Tom Murphy, replaced him as plaintiff. As a result, New Jersey will be among the first states to roll out legalized gambling, with its legislation that precipitated the court case already on the books.

New Jersey and Mississippi, which also passed legislation in anticipation of the ruling, will so far restrict betting activity to casinos and racetracks, according to UNLV International Center for Gaming Regulation Associate Director Jennifer Roberts.

Revel casino in Atlantic City as of March 2013.

"Mississippi is pretty much ready to go, New Jersey has been ready for a long time and already has the approval of voters in place to allow for it," Roberts said. "So you may see a few states roll this out before the NFL season begins.”

CBRE Senior Economic Advisor Spencer Levy isn't so sure, due to the challenges of turning voter approval into a fully regulated industry.

“I think it’ll be quite some time before you see the first legal sports bet placed outside of Nevada," Levy said. "Until states get that infrastructure set up and licensing, it could be a year or more in some restrictive states.”

International gambling powerhouse William Hill already has a space set up at Monmouth Park, a racetrack in New Jersey that company representatives estimate could be up and running in a matter of weeks. Whenever it kicks off, state regulations have all but assured that casinos and racetracks will be the first benefactors, Tower Investments CEO and owner of the former Showboat Casino in Atlantic City Bart Blatstein said.

DraftKings co-founder and CEO Jason Robins

"For Atlantic City specifically, it’s going to be a windfall," Blatstein said. "Most sporting events occur between the end of the summer and right before the summer begins, which are the slower times in Atlantic City. So that should have a giant effect.”

Though it seems highly unlikely that allowing sports gambling could be anything but a boon to the casino and racetrack industries, just how much comes down to one of the central questions every state must address: What do you do about the internet?

William Hill owns a huge chunk of sports books in Nevada, where the practice has been legal since the 1970s. William Hill does have an online platform for sports gambling in Nevada, but it requires bettors to go to a casino to open an account and to cash out in order to drive foot traffic.

If a state does not require such in-person elements, a sizable portion of online betting could bypass casinos entirely, leaving them out in the cold.

Soon after the ruling went public, DraftKings sent an email to its reportedly 10 million members. In the email, the daily fantasy sports company said it is "uniquely positioned to succeed" in the anticipated online market, but acknowledged that its rollout is beholden to state regulations. The company encouraged its users to lobby their state representatives to facilitate the process.

Another possibility is a state running sports betting through its lottery system, like Delaware does.

"[Delaware] uses William Hill as a third-party provider [for sports betting], but it’s operated by the lottery," Roberts said. "So an expansion of that program may be an option.”

Gas stations and convenience stores would stand to benefit in that case, which would have relatively little impact on real estate. Even if casinos do cash in, the market does not seem to have much room for new development, Levy said.

A William Hill retail betting house in the U.K.

Another potential wild card in the development of sports gambling around the country could be the single biggest factor in determining the extent of the ruling's impact on commercial real estate: stand-alone betting shops.

In the U.K., where sports gambling has been legal since the 1960s, stand-alone sports betting houses dot many retail streets in secondary and tertiary markets. New York allowed off-track betting shops, known as OTB, which operated specifically in conjunction with horse racing tracks until the operator shut down in 2010. Combined with Delaware's lottery half-measure, it proves that building such infrastructure is possible where allowed.

While the casino industry may lobby against it, Levy believes such shops would make an "incremental impact" on retail in cities.

“It’s not dissimilar to the effect we’ve seen in the marijuana industry, with increased operations in central business districts among those states that have legalized it,” Levy said, acknowledging the likely location restrictions based on nearby schools and the like. “But I do think you’ll see over time a greater acceptance of it and closer encroachment into CBDs as well.”

Though Levy considers it a "strong possibility" that some states opt to allow sports betting shops, Roberts is not so sure. When the U.K. allowed sports gambling, there was no internet and the aforementioned secondary and tertiary markets had no casinos, so retail shops proliferated rapidly, Roberts said.

“We’re now in a digital age, so there won’t likely be lots of betting shops because states are likely to implement location restrictions such as [those for] casinos and racetracks,” Roberts said. “If a state does allow for betting shops, it’s a possibility, but from the dialogue I’ve been hearing, it sounds like it will be pretty limited to the gambling options most states already have.”

“There used to be restrictive covenants in many shopping centers against bowling alleys because of the noise, of the bars, where people had opposed them," Levy said. "Now, people are in favor of them because they create foot traffic. And without casting stones at any moral aversions to these things, now with retail at this point where there are extenuating forces against the sector, creating a new incremental demand driver will be well-received by retail landlords and other retailers who could benefit from the foot traffic.”

CORRECTION, MAY 15, 11:20 A.M. ETThe Supreme Court reversed the lower court's ruling by a 6-3 margin. A previous version of this story misinterpreted Justice Stephen Breyer's vote, which joined the other six justices in the majority for every part of the ruling but Part VI-B, according to SCOTUSblog. This story has been updated.