‘Integrity Fee’ Becoming an Issue in Sports Betting Legalization
Silver: 1 percent fee would pay league for “intellectual property”
Major League Baseball last week joined the National Basketball Association’s lobbying effort to create sports betting regulations that include a 1 percent “integrity fee” on all wagers paid to the league sponsoring the games. However, NBA Commissioner Adam Silver may have thrown a monkey wrench into the leagues’ argument for the fee.
MLB lobbyists drafted a bill to be introduced in the Missouri legislature that would regulate sports betting should the federal ban on wagering be lifted through repeal of the federal ban imposed by the 1992 Professional and Amateur Sports Protection Act (PASPA)—either through congressional action or a ruling favoring the state of New Jersey in NCAA V. Christie, now before the U.S. Supreme Court. It is one of 20 state-level bills to legalize and regulate sports betting on the demise of the federal ban.
As the NBA promoted in arguments before the West Virginia legislature, MLB’s proposed bill would impose a 1 percent integrity fee—a tax on all wagers placed on each league’s games, payable to the league regardless of the results of a game. As the NBA previously described it, the fee would be used for increased technological and other safeguards to ensure the integrity of games and of the sports-betting operation in general.
However, just as the MLB was making its argument in Missouri, NBA Commissioner Adam Silver changed the argument for the fee in comments that make it look much more like a money grab than anything related to the integrity of the sports. In comments at an NBA All-Star Weekend press conference, Silver referred to the potential fee not as integrity insurance, but as a royalty to the league for wagers on its “intellectual property.”
“I would only say from the NBA’s standpoint we will spend this year roughly $7.5 billion creating this content, creating these games,” Silver said. “Those are total expenses for the season. So this notion that as the intellectual property creators that we should receive a 1 percent fee seems very fair to me.”
The revealing comments only stand to fuel the controversy already surrounding the proposed fee, which has been assailed by gaming lobbyists led by the American Gaming Association as unworkable. As the AGA has pointed out, legal Nevada sports books already pay a 0.25 federal excise tax on revenues, in addition to a 6.75 percent tax on gross gaming revenues—a GGR tax that is sure to be much higher as sports betting is approved by states seeking to close budget gaps.
Legal books end up with an average 3 percent profit margin, which means a 1 percent fee would prevent them from offering odds to compete with the illegal bookmaking that already accounts for the vast majority of sports wagering in the U.S. The AGA has taken the position that the integrity fee would doom legal sports betting before it begins.
Back in West Virginia, one of the sponsors of the sports betting legislation there spoke out against the proposed integrity fee. “I think the 1 percent integrity fee is an absolute joke,” said Rep. Shawn Fluharty, lead sponsor of West Virginia’s sports-betting bill, speaking to WVNews. “Nevada doesn’t even pay them. I can’t help but see the irony that MLB won’t let Pete Rose in the Hall of Fame because he bet on sports, yet now the league wants to make money on sports betting.”
Meanwhile, states where college sports reign are fighting against legal sports betting even beginning. In Mississippi, Rep. Roun McNeal has introduced a bill that would ban sports betting in the state, should the federal ban be overturned. “We don’t want to be caught with our pants down” if the federal ban is overturned, McNeal told NBC News.
A spokesperson for the NCAA—the lead plaintiff challenging New Jersey’s 2014 sports betting law before the U.S. Supreme Court—joined the Mississippi lawmaker in speaking out against any legal betting on college games. “The NCAA opposes all forms of legal and illegal sports wagering, which has the potential to undermine the integrity of sports contests and jeopardizes the welfare of student-athletes and the intercollegiate athletics community,” the NCAA posted on its website.
“There are some deep-seeded feelings that this is a particularly delicate situation in the college arena,” said Tom McMillen, president and CEO of the NCAA Division 1 Athletic Directors Association, in an interview with NBC. “These kids are on scholarship. Listen, we’ve seen point-shaving scandals before. We’re concerned.”
Any decisions on the bills, of course, will likely come after the Supreme Court issues its decision in the New Jersey appeal, which is expected this spring.
In Rhode Island, Major League Baseball and the National Basketball Association have hired a lobbying firm to carry their message on sports betting. They seek legislation that would put them in control and obtain the profits from sports betting.
A decision lifting the ban by the U.S. Supreme Court would be needed first. Two months ago, Senate President Dominick Ruggiero introduced a bill that would allow the state’s two casinos, both owned by Twin River, to offer sports betting if the 1992 Professional and Amateur Sports Protection Act (PAPSA) is ruled unconstitutional.
NBA and MLB have hired former state Senator Stephen Alves, who once chaired the Senate Finance Committee, for $5,000.
Mike Bass, a spokesman for the NBA, issued this statement, “We’ve dedicated years to carefully studying the issue of legalized sports betting and we agree the time has come to give sports fans a safe and legal way to bet on sports while protecting the integrity of our games. We look forward to working with the governor and the legislature on a framework that includes appropriate safeguards.”
The NBA seeks a 1 percent “integrity fee,” which works out to be a fifth of what a sportsbook operator charges, and to be able to control data used by sportsbooks to set wagers and odds.
The West Virginia Senate, in a 25-9 vote, approved SB 415, allowing betting on professional and collegiate sports contests. The bill now will go to the House of Delegates. State Senate Finance Chairman Craig Blair said, “The bill gives casinos one more tool to be able to provide entertainment. All our bordering states are considering this as well, so we need to remain competitive.”
Under SB 415, the West Virginia Lottery Commission would have the authority to regulate sports betting in the state, including authorizing online and mobile betting. Operators of the state’s five gaming facilities — four horseracing tracks and the Greenbrier– could offer legal sports betting on both collegiate and pro events to those 21 and older, after paying up to $100,000 for a 5-year sports betting operator license. They would pay 10 percent tax on gross betting revenue. Senators estimated legalized, regulated sports betting could generate $5 million in revenue in its first year.
State Senator Michael Romano, who voted against the bill, expressed concern that sports betting could lead to problems among the state’s 1.8 million residents; 18 percent live below the poverty line. He said, “When you make betting no harder than going down to your corner pizza place or beer joint and gamble, and you make it no harder than holding your phone in your hand to gamble, you’re taking a big risk with our citizens. Do we want to be a part of that?”
Romano added he did not believe the state would get an adequate return on its investment. But state Senator Mike Woelfel said $5 million in first-year revenue is probably a conservative estimate. “Based on my research, the five million is about half of what it’s going to be the first year. I think it’s going to be closer to nine or ten. And I’ll bet on it.”
Woelfel added he attended a Super Bowl party where people used their phones to place wagers. “They didn’t have to go to a track. So this is going on and this is a fact of modern society. And it’s a stream of potential tax revenue that I don’t think we can ignore. I see us capturing activity that’s already going on in our state and capturing tax revenue that’s going to be spent for good reasons.” He also pointed out sports betting would create new jobs.
In Illinois, state Senator and former National Football League linebacker Napoleon Harris III recently introduced SB 3432, which would legalize sports betting in Illinois in anticipation of the U.S. Supreme Court lifting the federal ban. Harris’ Sports Wagering Act includes an integrity fee provision.
With about 30 lobbyists in 16 states, the MLB and NBA are actively promoting the integrity fee, as well as for provisions allowing the leagues to control the data a sportsbook uses and the right to limit wagers sportsbooks can offer.
Harris, who was drafted by the Oakland Raiders in the first round in 2002, spent seven years in the NFL, playing for four teams. He won the 15th district seat and took office in 2013. The district covers parts of Cook and Will counties south of Chicago.
Harris’ bill would allow in-person and mobile gaming at licensed facilities or through licensed operators. Operators would pay an initial fee of $10,000 and a 12.5 percent tax on gross sports wagering revenue—compared to the 6.75 percent rate in Nevada and the 10 percent rate proposed by SB 415 in West Virginia.
The NBA and MLB claim they need the integrity fee to protect consumers and monitor activities such as preventing players from betting on their own sports. The leagues said casinos must be required to share real-time betting information, report abnormal betting and cooperate with league investigations. Proposed sports betting legislation in West Virginia and Iowa does not include the fee. In Illinois, only MLB—not the NBA—has a registered lobbyist, according to Bloomberg Law.
Other bills working their way through the Illinois legislature include:
• The Sports Betting Consumer Protection Act, sponsored by state Senator Steve Stadelman, would require a state agency to oversee rules, regulations and licensing of sports wagering. The bill, assigned to the Gaming Committee, does not include an integrity fee.
• SB 3125, sponsored by state Senator William E. Brady, would allow the Illinois Racing Board to adopt rules authorizing sports wagering by organization licensees and inter-track wagering location licensees.
• Also named the Sports Wagering Act, HB 5186, sponsored by state Rep. Tim Butler, would create the Division of Sports Wagering within the Illinois Gaming Board to issue licenses. The bill, moved to the House Rules Committee, does not include the integrity fee or other restrictions imposed by the leagues. It also states, “A tax of 30 percent is imposed on the adjusted gross receipts of sports wagering and shall be collected by the Board and deposited into the Capital Projects Fund.”
And in Iowa, the House Government Committee in a 16-7 vote recently passed HSB 592 which would legalize sports betting. The next step for the measure is the Ways and Means Committee, then the full House floor. The bill does not include the 1 percent integrity fee proposed by the NBA and MLB. Observers said, Iowa lawmakers reviewed the talking points and memos circulating around the U.S. from NBA and MLB lobbyists but felt the fee was not appropriate for their state.
The bill, sponsored by state Rep. Ken Rizer, would require a tax of 5 percent on the first $1 million of adjusted gross receipts, then 10 percent on the next $2 million. Rizer noted that’s slightly higher than the 6.75 percent tax on Nevada sportsbooks in Nevada, significantly lower than the 12.5 percent tax being considered in Illinois and lower than the 10 percent tax proposed in West Virginia. The bill would require operators to pay a $25,000 licensing fee.
Iowa Racing and Gaming Commission Chief Executive Officer Wes Ehrecke stated, “I think a lot of people enjoy sports, watching sports and the opportunity to bet on it. Especially in a legalized environment, and set the standards by our Racing and Gaming Commission and high levels of integrity, assure that you’re going to be paid and to have it here, I believe will be a positive.”