Freeman: 1 percent cut could “kill business” before it starts
As the U.S. Supreme Court considers arguments in NCAA v. Christie, in which New Jersey argues for elimination of the federal ban on sports betting, one of the plaintiffs in the case, the National Basketball Association, is taking a different tack on the issue.
The NBA was one of four professional sports leagues to join the NCAA in filing suit to block New Jersey’s 2014 law authorizing sports betting as a violation of the 1992 Professional and Amateur Sports Protection Act (PASPA). However, more recently, NBA Commissioner Adam Silver and others within the league have promoted legalized sports betting, along with a consistent regulation originating at the federal level.
Last week, NBA attorney Dan Spillane testified before a New York Senate committee in favor of the state legalizing sports betting, with one very significant proviso—that 1 percent of all wagers on NBA games go to the league.
Spillane also said fans should be able to bet on smartphones and kiosks, and not just inside casinos or racetracks.
“We have studied these issues at length,” Spillane said in his statement to lawmakers. “Our conclusion is that the time has come for a different approach that gives sports fans a safe and legal way to wager on sporting events while protecting the integrity of the underlying competitions.”
Integrity issues aside, it was the proposal that the NBA get a cut of wagers on its games that raised eyebrows across the country, including at the American Gaming Association, perhaps the leading advocate for the legalization of sports betting.
As analysts predicted that other leagues would also want a cut of wagers—including the NFL, which has been the most ardent opponent of legal sports wagering—the AGA quickly issued a statement denouncing the idea as placing any legal sports betting operation in an impossible competitive position when stacked up against illegal bookmakers, as well as diminishing the revenue states stand to gain from legal sports betting.
“We are pleased that the National Basketball Association (NBA) today joined with the gaming industry in support of vigorously regulated sports wagering,” said the AGA statement. “We can all agree that the 25-year ban on sports wagering has been a failure in every regard. Now, let’s get real about eliminating the illegal market, protecting consumers and determining the role of government—a role that most certainly does not include transferring money from bettors to multibillion-dollar sports leagues.”
The AGA statement backed up its position with statistics. “A legal Nevada sports book realizes 3.5-5 percent in revenue,” the statement said. “A 1 percent ‘integrity fee’ on all money wagered legally by Americans, as proposed by the NBA, amounts to 20-29 percent of total revenue. Money that leagues skim off the top decreases the total amount of money taxable by state/other governments. These dollars fund vital community services.
“Money that goes directly to the leagues distorts the odds that legal bookmakers are able to provide and encourages Americans to continue to operate criminally in the illegal market. Americans are currently wagering approximately $150 billion illegally on sports annually. All leagues have retained outside resources to track betting activity in the current marketplace (legal and illegal). A legal market in the United States is expected to process approximately $150 billion in wagers, or the same amount that the leagues are currently confronting.”
In a subsequent interview with CDC Gaming Reports, AGA President and CEO Geoff Freeman said giving the leagues a cut of wagers would simply help the illegal market.
“There’s a risk that we have a legal sports betting market in name only,” he said. “With those type of rates, you’re now beginning to affect the odds that the legal market is able to provide. And if the legal market can’t provide compelling odds, the customer is going to continue (wagering) in the black market, which has proven to be reasonably effective for their purposes, and that will simply undercut the legal market.
“This is a very, very complex business, and it’s certainly a fear of ours that legislators kill the business before it even gets up and running.”
Spillane also testified he would like to see lawmakers limit action on certain types of bets that could be more easily manipulated, such as in-game proposition bets currently available in Nevada—such as betting on who will draw a game’s first foul.
The 1 percent proposal came from Indiana where state Rep. Alan Morrison introduced House Bill 1325 to legalize sports betting at the state’s racinos, riverboats and satellite facilities, if the U.S. Supreme Court overturns the federal ban; a decision is expected by June. However, a provision of the bill—the so-called “integrity fee– is causing controversy throughout the gaming industry, state legislatures and elsewhere. Based on input from MLB and the NBA, it would give participating leagues a 1 percent fee, paid quarterly by operators and based on the amount of money bet on a governing body’s events, leading to multimillion dollar windfalls for the leagues.
Morrison’s measure also stipulates that participating leagues would have the ability to “restrict or limit wagering on sporting events conducted by the governing body to ensure the integrity of its contests.” Leagues would have rights over the data and video used by bookmakers to grade wagers and the types of bets that could be offered.
MLB and the NBA are partnering in a lobbying effort in Indiana which could spread to other states. The two leagues hired San Francisco law firm Orrick, Herrington & Sutcliffe to lead the lobbying push. In the past two years, that firm successfully led a campaign resulting in 20 states passing laws clarifying the legality of daily fantasy sports, on behalf of operators DraftKings and FanDuel.
The NFL, NHL and Indianapolis-based NCAA have not commented on the integrity fee issue. However, members of the Division I Athletic Directors Association have been reviewing the situation. DI President and Chief Executive Officer Tom McMillen, a former U.S. Congressman, said, “Eighty percent of our members are against this, but we’re looking at it.”
Morrison said the participation of MLB and the NBA is “a piece of the puzzle to make this whole thing work. The integrity language and the integrity part of it is going to be very important. I don’t think it’s a bad thing to implementing that in there.”
Indiana state Senator Jon Ford also introduced a sports betting bill, SB 405, which does not include an integrity fee for the leagues.
“We deal with businesses in the state house every day, and we put requirements on them and we don’t pay for it. And this is a business, and quite honestly, if this is successful, the leagues have the potential of making more money through advertising, more people watching their games, get better TV contracts. That’s where I think they make the money. If you can help all the parties, sure, politically, it might help. But at the same time, I’m not sure of the appetite for the vote or taxpayer to keep subsidizing this kind of thing.”
In West Virginia, the state Lottery Commission will introduce legislation allowing sports betting at state casinos, said Lottery Counsel Danielle Boyd. “We hope to have a plan in West Virginia to take advantage of being first in the market as we were with racetrack video lottery and table games,” she said.
The commission’s bill would join two bills already introduced in the House and Senate to legalize sports betting in the state, including a bill sponsored by Delegate Shawn Fluharty who introduced a similar bill that was not taken up in the 2017 regular session. Fluharty said, “If we’re able to get in front of this, we might be able to get out ahead of the other states for a few years. The state desperately needs to generate new revenue.” Current House leadership has been strongly opposed to any proposal that could be considered expanded gambling.
Senate Finance Chairman Craig Blair said he believes the sports betting legislation “has potential on the Senate side,” especially since illegal sports betting is rampant.
Last fall, the Lottery Commission awarded a $160,000 contract to Eilers and Krejcik Gaming of Santa Ana, California, for a study to “review opportunities and potential economic impact of implementing sports betting and other forms of internet gaming in West Virginia.”
Lottery revenues have declined every year since 2007-2008, since 29 casinos and racinos have opened in Ohio, Pennsylvania and Maryland, attracting West Virginia residents. The Lottery Commission now projects gross revenue will fall below $1 billion in the 2018-2019 budget year, ending 15 consecutive years of revenue collections surpassing the $1 billion mark.
At the other end of the sports betting spectrum, Mississippi state Reps. Ron McNeal and Nick Bain recently introduced HB 1113 which would amend the Mississippi Gaming Control Act so “no wagering shall be allowed on the outcome of any athletic event” or any event that takes place outside of a legal casino. Fantasy sports are exempted from the legislation. The bill was referred to the House Gaming Committee, along with state Rep. Beckie Currie’s HB 1154, which would create a committee to study sports betting in Mississippi.
Last year, Mississippi lawmakers passed HB 967, which legalized fantasy sports in the state and also paved the way for sports betting, depending on the U.S. Supreme Court’s decision. Mississippi Gaming Commission Executive Director Allen Godfrey recently met with casino officials from New Jersey and Pennsylvania to discuss the issue. Godfrey said, “We are trying to prepare ourselves for the outcome.”
