Published: June 3, 2018

Battle begins to shape future of sports betting

The Supreme Court decision clearing the way for states to legalize sports betting has set off a scramble to influence new laws and regulations. 

Five states, plus Nevada, have already passed sports wagering legislation, and legislatures in 14 additional states have bills in the works.

The policymaking action is likely to be intense, with tens of billions of dollars in potential revenue at stake.

In 2017, according to estimates from the American Gaming Association, people in the U.S. illegally bet more than $4 billion on the Super Bowl. That total, amassed for a single sporting event, hints at the vast sums that could flow into sports betting once it is aboveboard.

“The action is going to be hot and heavy in the states, that's where we're moving very quickly, making sure our industry is armed with everything it needs to ensure smart effective policy on the state level,” said Geoff Freeman, the president and CEO of the American Gaming Association.

But the group is taking no chances, even after the Supreme Court ruling. The group is still holding meetings with policymakers on Capitol Hill, sessions Freeman said are dedicated to “making sure nothing bad happens in Washington” to snuff out sports gaming.

Most professional and collegiate sports leagues have been opposed to sports betting, and many of them sued New Jersey when the state attempted to legalize it. 

The Supreme Court took the case and ruled in New Jersey’s favor this month, overturning the Professional and Amateur Sports Protection Act (PASPA), a federal law that stopped states from regulating and taxing sports betting. Nevada and a handful of other states that had been grandfathered in and were exempt from that law. 

In response to the ruling, more than a dozen states have moved quickly to set up infrastructure for the burgeoning industry, and leagues are moving just as rapidly. 

The NBA has been working with Major League Baseball and golf’s PGA Tour, meeting with government officials and lawmakers to influence how legislation is crafted. 

“My perspective, having dealt with this for a good portion of the year, is the casino lobby [is] powerful in the states. They're used to, on gaming legislation, not having a lot of other voices in the room,” one high-ranking MLB official told The Hill. “Trying to get state legislators in the mindset that, we're a stakeholder and you should listen to our concerns, has been our objective." 

Despite longtime opposition to sports gambling from most professional and collegiate sports — with the primary exception of the NBA — many leagues are now pushing for measures that include an “integrity fee” garnered from any betting profits. The payment, which has been dubbed a "royalty fee" by some, would defer the costs of any new regulations or enforcement burdens put on the sports leagues with the influx of legalized gambling. 

The current figure being floated by the leagues nationwide would set a fee of one-quarter of a percent of all wagers before states even take their cut in taxes. At one point, the NBA was pushing to earn 1 percent from all bets.

"It’s a royalty in a way," said Dan Spillane, the NBA's assistant general counsel, said at an event last week. "These are our games. [They] are the backbone of the whole business of sports betting, and we think it makes sense for us to be compensated. We’ve invested billions of dollars in creating this product. You can’t have sports betting without our game."

“If betting becomes widely legal, that is going to cost money,” Spillane said. “The integrity fee is intended to cover those expenses.” 

The request has drawn skepticism from many states, casino operators and sport book holders, and Freeman called the idea a nonstarter. He argues that bets placed on sporting matches are so low-margin for casinos that skimming money off the top of all bets would make it difficult for casinos to compete with illicit sports books. 

"If the math doesn't work, you've bastardized the game in such a way that the illegal market offers better odds," Freeman said.

Though casinos are willing to talk through the disagreement, Freeman added, he would like those negotiations to take place in the private sector and not be resolved in legislation. 

“There are certain things we said we would do back,” the MLB official said, in reference to the integrity fee requests, asking for anonymity because he is not authorized to speak about internal business decisions. “One of the big things is offshore betting. We would help curb people betting illegally offshore, including having agreements with data suppliers so that they can't provide data to illegal sportsbooks.”

In Nevada, where sports gambling is already legal, an integrity fee is not part of the system. In private, the leagues argue that, although the margins on sports bets are about 5 percent, the amount of pure profit is much higher. ("Sports betting is not as profitable as a slot machine, but it's still profitable on its own," one person told The Hill.) 

Leagues also want casinos to buy real-time data from them, they say, so that gamblers have the most accurate information when placing bets. Many of the sports are emphasizing the protection of intellectual property as a chief concern for legislation. 

The use of data is just one of the variables being discussed between states, leagues and the betting industry.  

“We've learned that there's much more that we have in common than we have that divides us,” said Freeman, referring to casinos and sports leagues.

The gaming industry shares, he says, a commitment to “the integrity of the game.” Without consumer confidence in the gambling process, “we don’t have a viable product.” 

“Who is going to bet on a game if they feel it's going to be fixed in any way?” he asked

There is also widespread agreement about the need for consumer protection, responsible advertising and promoting responsible gaming. Addiction advocates, meanwhile, are pressing states to set aside money for gambling addiction prevention and treatment with any legalization. 

Although most of the action on sports betting is occurring in the states, there is still an effort to have the federal government set a nationwide standard.

The NCAA, which has been perhaps the most vocal opponent of sports betting, has been pushing for federal intervention. The NFL and NBA also prefer a single standard, rather than have states each create different rules. 

“While we recognize the critical role of state governments, strong federal standards are necessary to safeguard the integrity of college sports and the athletes who play these games at all levels,” said Mark Emmert, NCAA president, in a statement released after the Supreme Court ruling.

But some individual universities are bucking the NCAA and seeking to receive a cut of gambling proceeds. 

West Virginia is the most recent state to pass a bill that allows gamblers to bet on sports, and two schools — West Virginia University and Marshall University — are working together with professional leagues to get in on the action.  

ESPN reported earlier this month that there could be a deal in the works in West Virginia for the schools to receive a cut of all bets made, which could set a precedent for similar agreements.

Because the legislation has already passed, any final policies will be worked out commercially, primarily between sports leagues and casino operators, rather than through legislation.

If West Virginia is any indication, leagues could have an uphill battle in winning an “integrity fee” from betting handles. 

While West Virginia Gov. Jim Justice (R) said earlier this month that he was close to reaching a “tentative deal” with leagues and casino operators on the fees, the gaming industry in the state said that the May 9 closed-door meeting ended in a stalemate. Casinos in the state remain steadfast against imposing such a fee.

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