Sports Leagues Bet Big on Winning Gambling Proceeds
WHY YOU SHOULD CARE
MLB and the NBA are eyeing earnings from the very sports betting laws they’re officially opposing.
By Derek Helling
As New Jersey’s legislature considered a bill legalizing sports betting last June, Bryan Seeley, the current deputy general counsel for Major League Baseball issued a written statement opposing the proposed law. His first three arguments involved inadequate oversight for professional sports leagues like MLB over the data used by sportsbooks and the types of bets placed. But it was the fourth argument that has since emerged as a lightning rod in the debate over sports betting laws.
MLB asked legislators for the inclusion of an “integrity fee,” insisting that it will now have to devote more resources to ensuring games remain untainted, and so, should be compensated with between 0.25 percent and 1 percent of all handle — the amount of money accepted in wagers — from the state’s sportsbooks, where gamblers place bets.
It was only the first of a series of such lobbying efforts undertaken by MLB and fellow league NBA in at least nine states and Washington, D.C., since the Supreme Court allowed states to legalize sports betting. On the surface, these initiatives oppose sports gambling legalization bills, citing concerns that the sport’s integrity could be tarnished. But in state after state, MLB and the NBA are also demonstrating a keenness to make money off the very sports betting they want to see regulated.
They [MLB and NBA] do not want to leave the sports betting discussion empty-handed.
John Holden, sports betting law expert, Oklahoma State University
In Washington, D.C., MLB lobbyists have distributed a memo among council members calling for sportsbooks to pay 0.25 percent of handle to leagues and purchase official data from the leagues. In Connecticut, a lobbyist for MLB has given testimony on Senate Bill 540, objecting to it because it did not require books to buy official data or pay a percentage of handle to the leagues. The Kansas City Royals have filed a statement with the Kansas legislature supporting House Bill 2752, which includes language that requires sportsbooks to purchase official data and pay a percentage of handle. MLB lobbyists have distributed similar documents in Delaware, Mississippi, New Mexico, Pennsylvania, Rhode Island and West Virginia.
The NBA isn’t far behind. In Connecticut, Dan Spillane, the NBA’s senior vice president of league governance and policy, testified that if an integrity fee provision were removed from the current bill, the NBA would withdraw its support for the bill. In testimony before the New York state legislature, Spillane argued that the NBA and other professional leagues deserve the integrity fee because of the increased cost of keeping their games free from corruption.
So far, the leagues seem to be on a bigger streak of coming up empty than Chris Davis was during his record-breaking 0-for-46 streak at the plate. None of the eight states that have enacted sports gambling legislation since the Supreme Court decision have acquiesced to league demands. But the leagues have other avenues to earn off sports betting. DraftKings, which MLB owns a significant stake in, has begun operating an online sportsbook in Nevada and New Jersey, the two states where online wagering untethered to a physical sportsbook is currently legal. Any profit that DraftKings rakes in from wagers placed on MLB games will be partially shared by MLB and its franchises.
“I think this is a cash grab,” says John Holden, an assistant law professor at Oklahoma State University who researches on sports betting law. “They [MLB and NBA] do not want to leave the sports betting discussion empty-handed.”
To get an idea of how much money the two leagues are looking to receive, consider New Jersey. There, sportsbooks have done $1.95 billion in handle since June of 2018. Even if MLB and NBA were to each receive the lower quarter of a percentage, that would mean they would get a share of nearly $5 million from those books in that period. That makes it worthwhile to hire lobbyists. MLB paid its in-house lobbyist $1.32 million in 2018-19 to lobby Congress and federal agencies on, among other things, sports gambling.
But a quarter of a percentage is a pittance compared to the 4 percent integrity fee sports leagues earn from bookmakers in Australia. In the U.K., bookmakers aren’t required to pay leagues an integrity fee. But the English Premier League earns revenue from sportsbooks for the use of its data — much as the American leagues are now demanding.
For sure, the two leagues are arguing that their lobbying is aimed at ensuring that the sports they govern remain uncorrupted. “If Missouri is going to legalize sports betting, the law has to include rigorous protections to insulate our game from potential corruption,” Josh Alkin, MLB’s vice president of governmental relations said when the state’s legislature introduced a bill earlier this year to pay leagues a 0.25 percent integrity fee. “Nothing is more important to baseball than the trust of our fans.”
But if MLB and NBA are really convinced that legal sports betting is such an ominous threat to their business interests, they have an odd way of showing it.
Later this season, the Boston Red Sox and New York Yankees will play a series in the U.K., where robust legalized sports betting exists, without any of the rules MLB has insisted upon at home. MLB has also made MGM Resorts International its first-ever official gaming partner, complete with a uniform patch on the Oakland Athletics’ jerseys during the season-opening series in Japan earlier this year. The NBA has also signed a sponsorship deal with MGM and has held games in London since the start of the debate over sports gambling legalization.
But why haven’t their lobbying efforts paid off so far? Holden believes their poor pitches are to blame. They’ve failed to lay out specifically how much the increased costs of monitoring the sports would be or explain how exactly the leagues would use the proposed integrity fee. Without that clear picture, Holden says, it’s been difficult to get legislators to either give up a percentage of the taxes the state would take in or require books to give up a percentage of their revenue.
MLB and NBA are also demanding that sportsbooks use their data to set bets and pay the leagues for it. There too, Holden says there’s no proof that unofficial data is in any way inferior to official data and that books naturally will seek out the best source of data on their own. He ventures the opinion that lawmakers have been content to let the market sort itself out in that regard.
Iowa State Sen. Rich Taylor (D-42), who recently helped pass a sports betting bill onto the state House, agrees with Holden. Taylor explains that requiring sportsbooks to buy official data or pay a percentage of their revenue to the leagues is a “hard sell” for him. Taylor sees the financial state of the leagues as already highly profitable and hasn’t seen a need for Iowa or its potential legal sportsbooks to increase that profitability.
Still, it makes sense for the leagues to keep trying, says Holden. “It cannot hurt to keep asking, even if no state has done it yet,” he says, adding that there’s been “minimal” backlash against them so far. “They would almost be foolish not to ask for free money.”
Holden believes that the leagues stand their best chance at the federal level. MLB, for instance, successfully lobbied for an exemption to federal minimum wage and overtime laws for its minor-league players last year. U.S. Sen. Chuck Schumer (D-NY) and former U.S. Sen. Orrin Hatch introduced a bill last December that included language requiring sportsbooks to only use official data. If such legislation were to be enacted by the federal government, it’s unlikely leagues like MLB or NBA would dispense that data for free.
Therein lies the crux of the matter. The leagues are for-profit businesses with tremendous connections and resources they can use to try to affect legislation in ways that could increase that profitability. But their success will depend on whether they can improve its pitches. Otherwise, they’ll keep striking out.
- Derek Helling, OZY Author Contact Derek Helling