With States Free To Legalize Sports Betting, Do The Pro Leagues Deserve A Cut?

In late January, NBA vice president Dan Spillane explained to the New York state Senate why the state, one day, should give the league some cash. In a joint effort with Major League Baseball, Spillane had come to testify about the prospect of legalized sports betting and what provisions the professional leagues believed should be included in potential laws.

Among those positions was the rationale for a desired feature some league executives call simply “The Fee.” In his testimony, Spillane argued that gambling operators should be legally obligated to pay each league 1 percent of the total amount bet on their games, as compensation for providing the inventory for the wagers and for the leagues’ efforts in monitoring suspicious activity. Commissioner Adam Silver backed up the plan in February at his All-Star Weekend news conference, and the proposed 1 percent tax became known as an “integrity fee.”

As many states race to pass legislation in the wake of Monday’s Supreme Court ruling that allows states to determine the legality of sports wagering, the proposed integrity fees have caused debate in state legislatures and caught the attention of gaming industry insiders. League officials say they are a necessary and fair distribution of revenue. Sports betting experts view them as a desperate request unaligned with the financial realities of sportsbooks.

[For sports leagues, legalized sports betting offers new risks and massive rewards]

MLB vice president Bryan Seeley said a more accurate term is a “sports betting right and integrity fee.”

“The point is, it’s about more than just integrity,” he said. “It’s about the fact that this betting is on our games. We are the primary input into sports betting on Major League Baseball. We think that we should share in some of the money that’s going to be made by bookmakers in offering betting on our sport.”

Breaking new ground

Nevada casinos have offered sports betting for decades without paying leagues any fees, and regulations in that state will not change based on the Supreme Court ruling. A state that agrees to an integrity fee would be willingly handing over money that Nevada does not.

“It seems far-fetched that any state lawmaker is going to put his or her sportsbooks at a disadvantage to Las Vegas,” said Ryan Rodenberg, a sports law professor at Florida State University.

Gaming executives say integrity fees do not account for how thin profit margins are for sportsbooks. Oddsmakers believe if leagues took 1 percent, it would equal more than 20 percent of their profit. Some Las Vegas casinos, especially those with smaller sportsbooks, view them as an amenity to get customers in the door as opposed to an independent profit source.

“Once these decision-makers or legislators understand the financials of the Las Vegas sportsbooks, they’ll understand why they can’t give the leagues 1 percent of their handle,” said Jay Kornegay, vice president of the Westgate Las Vegas Resort & Casino SuperBook. “It’s just not feasible to do something like that.”

[From January: If sports gambling is legalized, the NBA wants in on the profits]

As part of their argument for fees, leagues say it will cost them more to monitor betting lines, and they should be reimbursed. But operators in Las Vegas have the same incentive for fair outcomes, Kornegay said, and can handle the task without help.

“We’re already paying people to do that,” Kornegay said. “We have a complete department that looks at daily transactions on both sides of the counter. They’re watching us and looking at the guests placing the wagers.”

The NBA and MLB have a counter: The world has changed since Nevada started taking sports bets, and Monday’s ruling revolutionized the industry so much that professional leagues deserve to be compensated. Under the old federal law, only Nevada, a state of roughly 3 million, could offer full sports betting. By the end of 2019, there could be more than a dozen states with legalized sports betting, and a total population in the tens of millions could have constant access.

“We didn’t have a seat at the table and didn’t engage when Nevada was passing sports betting legislation many years ago,” Seeley said. “Sports betting is going from a small, one-state industry into a nationwide, large industry. And exposure of our players, our umpires, our official scorers to sports betting is going to increase exponentially.

“I think there’s significant increased risk to our brand. There’s significant increased cost to protecting the integrity of our sport. I think if you’re going to unlock an industry that’s going to make potentially billions of dollars that we should share in it, regardless of what’s been happening in one state.”

Dollars and sense

New York state Sen. John Bonacic, the chairman of the state’s Racing, Gaming and Wagering Committee, agrees to a point. He supports legislation, set to be introduced Friday, that would pay leagues a quarter of 1 percent of money bet on sports. He believes the money would account for leagues upgrading technology and hiring personnel to track betting trends. He said he conservatively estimates the state would take in $30 million, while leagues would get between $4 million and $10 million in fees.

“Integrity monitoring goes to the heart of their industry, for sponsorship, for faith in the product, for fan interest,” Bonacic said. “I think it’s fair to do an integrity fee. Now that every state is rushing to pass laws in the state legislature, there’s going to be much more of a demand on professional leagues.”

[What the Supreme Court’s sports gambling decision means]

Indiana state Sen. Jon Ford filed legislation in early January, before the leagues had made their integrity fee pitch. After league officials reached out, wanting to talk with Ford and other Indiana legislators, Ford remained opposed.

“When you really break it down, for every dollar bet, a casino is making 5 cents,” he said. “The integrity fee, if we passed it the way they want it, the leagues would make more money than the casinos. For the leagues, they’re going to make more money off of increased viewership, increased activity at locations through sports wagering. I’m going to continue to advocate we do not give them an integrity fee. They still haven’t made the case to me why they need it. The term ‘integrity fee,’ what does that really mean?”

The leagues also gained no traction in New Jersey, which is set to become the first state to legalize sports wagering. The state’s lawsuits paved the way for the Supreme Court ruling and were opposed by the leagues, who wanted a federal law instead of a patchwork of state laws. The legal fight did not make New Jersey warm to paying a fee.

“That’s not going to happen,” New Jersey Deputy Assembly Speaker John Burzichelli told the Associated Press earlier this month. “We’re supposed to sit down and write a check to the same people who have fought us every step of the way in our effort to provide sports betting?”

Aside from the influence of lobbying dollars, sports leagues have little means to convince states to make integrity fees part of their laws. They can state their case and ask for the money, but they have no realistic recourse if states refuse.

“There is no leverage,” said lawyer Michael Rueda, an expert in sports law at the firm Withers Worldwide. “This is really just a request. . . . On its face, [the integrity fee] seems to make sense. The way it’s been presented, if you break down the components of what they’re asking for, it gets a little more difficult to justify.”

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With States Free To Legalize Sports Betting, Do The Pro Leagues Deserve A Cut?

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With States Free To Legalize Sports Betting, Do The Pro Leagues Deserve A Cut?