One Size Sports Betting Doesn’t Fit All
Awaiting a decision from the U.S. Supreme Court on U.S. vs. Murphy (formerly U.S. vs. Christie), states are drafting sports betting legislation in different ways. Some proposals include the 1 percent integrity fee sought by Major League Baseball and the National Basketball Association, or a lower percentage, and some don’t include it at all. Some state’s bills prohibit wagering on college games, others don’t.
In Kansas, the Senate Federal and State Affairs Committee took up a sports betting bill and heard testimony from Jeremy Kudon, an attorney representing MLB and the NBA. The measure carves out an integrity fee of one-quarter percent. Kudon said major league sports invest billions of dollars in their products and would use the revenue for public relations and for detecting illegal activity. Leagues also would make money as the exclusive provider of the data used for second-tier bets, such as who gets the first foul of a game.
Sports betting is estimated to bring in $75 million in annual revenue for Kansas through a 6.75 percent tax. Kudon said the NBA would receive less than $1 million. “The bets would be made on our products and the risks are all our risks,” he said.
In response, state Senator Richard Hilderbrand said he would have “heartburn” over payments made to an entity without a presence in Kansas.
Topeka attorney Kevin Fowler, representing casino managers, noted the measure does not prohibit gambling on high school sports or younger athletes. “That is shocking. It’s because the bill is not well thought through. It authorizes things in Kansas I’m pretty confident everybody will recognize are unacceptable,” Fowler said.
He added pro sports already have to protect their integrity from a massive illegal gambling market, and the games will continue to be played. “What do we get in return? What are they required to do for Kansas in exchange for that fee? The answer is nothing.”
Committee Chairman State Senator Bud Estes said the measure is likely to be bundled with other gambling bills, and he won’t bring them up for final action. “It’s too early, too premature. We’ll have hearings on these bills, and they will sit, even if they have to go to next session, which most likely they will at this time. There’s no way to work this stuff out and hear it on the floor.”
In Louisiana, sports betting bills have advanced in both houses, with legislators stating the measures would raise revenue without raising taxes. State Senator Danny Martiny, sponsor of one of the bills, said, “This isn’t my life’s passion. I’m just telling you we’re broke.” Louisiana faces a budget deficit of around $648 million that affects universities and hospitals.
Martiny’s legislation, Senate Bill 266, would allow legal sports betting at Harrah’s New Orleans casino, the 15 floating casinos, the four racetrack casinos, the 200 video poker truck stop casinos and the more than 1,000 bars and restaurants with video poker machines. The bill states, “License holders shall remain subject to the licensing and regulatory authority of the Louisiana Gaming Control Board and the Louisiana Gaming Control Law.”
Every casino, racetrack, truck stop, restaurant and bar with a video poker machine, as long as voters in those parishes approve. Originally, Martiny proposed to allow sports betting only at Harrah’s New Orleans, racetracks and riverboat casinos. However, an amendment was added to include all locations where video poker machines are offered. Without those additions, the powerful video poker industry said it would oppose the bill.
Martiny said Louisiana needs to approve sports betting before the Supreme Court rules on the issue. He pointed out Mississippi already legalized sports betting at its casinos, adding, “I’m telling you the state budget cliff gets a little steeper if they have it and we don’t.”
The legislation does not include any information on how sports betting would be taxed or regulated if it becomes legal. Also, there’s no estimate on how much revenue legalized sports betting could raise.
Another measure, HB 245, would “authorize additional games and sports betting at eligible live horseracing facilities.”
In Illinois, lawmakers at a Senate hearing on legalizing sports betting examined what platforms might be used, what state regulations would be put in place and a potential taxation rate of 10 percent on sports wagering revenue. Gaming analysts Eilers and Krejcik Gaming LLC estimated $680 million potentially could be wagered annually in Illinois through land and mobile sites.
Illinois Casino Gaming Association Executive Director Tom Swoik said his organization supports allowing sports betting to make up for business lost to video gambling in bars and restaurants. However, he said the proposed tax rates are too high.
“If the taxes and these fees that are paid to operate sports books are so high, then the payouts can’t be as high as sometimes what’s being paid out in illegal betting,” he says. “People are still going to continue to do the illegal betting because they can get a higher payout.”
The Illinois Church Action on Alcohol and Addiction Problems, which formally opposes sports betting, stated, “Nearly 10 percent of high school students are gambling online, and more than 40 percent are gambling in any form.”
In Minnesota, no sports betting legislation has been introduced, but state Rep. Pat Garofalo, chairman of the House Jobs and Energy Committee, said Minnesota must establish the legal precedent immediately to regulate and tax sports betting.
“If the Supreme Court removes the ban, and if we do nothing, the offshore sports books will flood social media and scoop up bettors who will decide who gets to take billions in sports wagers and make tens of millions of dollars,” Garofalo said.
He added, “I won’t submit a sports gambling bill the tribal casinos are opposed to. Nonnegotiable.”
In Missouri, the House Budget Committee heard from state Reps. Dean Plocher, Bart Korman and Justin Alferman, the respective sponsors of three different sports betting bills. Also testifying were casino operators and MLB Senior Vice President of Investigations and Deputy General Counsel Bryan Seeley.
Plocher’s bill, HB 2535, the “Comprehensive Missouri Sports Betting and Sports Protection Act,“ includes the 1 percent integrity fee on all wagers, which amounts to approximately 20-25 percent of sports book revenue. The bill also would give the leagues control over data that sports books could use to grade wagers, as well as the right to restrict the types of wagers sports books may offer to patrons. In addition, it calls for a 12 percent tax on sports wagering revenue.
State Rep. Korman’s HB 2320 would give the Missouri Gaming Commission the authority to establish rules and regulations on sports wagering and allow “flexibility in the regulations to come.” The measure does not include a tax rate.
HB 2406, introduced by state Rep. Alferman, would alter the definition of a “gambling game” so “sports wagering is considered a game of skill.” The bill also would allow currently licensed casinos to apply for sports betting certificates, outlines application fees and calls for a 6.25 percent tax on sports wagering revenue.
He added, “We have an example in our country of Nevada, which has been doing sports gaming for over 50 years. What I have done with 2406 is take most of the regulations that the state of Nevada has and try to parse them up and apply them to Missouri statutes. Setting a framework of how it shall be operated, setting a comparable tax rate and also making sure we give the authority to regulate to Missouri Gaming Commission, which has been operating pretty flawlessly since 1992 when we first installed gaming. This bill is a framework for discussion. No bill that any of us have is set in stone.”
Alferman noted, “If we want to be competitive we need to have competitive rates. If federal law allows Illinois and Kansas are going to have sports betting. If we set a rate higher than them, our two main population centers will go across the border.”
In Arizona, where four U.S. professional leagues have franchises based in the Phoenix area, and the state is host to more than 20 Indian casinos, two racetracks, a lottery and a network of off-track betting sites—making it a ripe market for legal sports betting.
Arizona state Senator Sonny Borelli told AZFamily that the fact the state borders Nevada is part of the reason he plans to support legislation. “We’re sending all of our money to other states right now on sports betting,” he said. Borelli said he would allocate revenues to Arizona teachers.
Arizona lawmakers would need to negotiate with the gaming tribes to enact sports legislation, and with the current session due to end next week, movement on sports betting is not likely until the fall.
Elsewhere, Maryland lawmakers were unable to pass a bill to place sports betting on the ballot this November. Since lawmakers ended their session without sending a sports-betting bill to the governor, no bill can be considered until January 2019, and a constitutional amendment could not be voted on until 2020.
Meanwhile, the major professional sports leagues are continuing their lobbying efforts in state legislatures designed to capture a piece of any legal sports betting action—although the leagues have been offering talking points that are contradictory.
At a legislative hearing in Connecticut on April 4, Morgan Sword, senior vice president of league economics and operation for Major League Baseball, warned lawmakers to avoid allowing in-play bets—such as the next touchdown, the number of runs to be scored in an inning, etc.—because “the possibilities for real or perceived manipulation are innumerable, and would undermine the public trust in both sports betting and the sports themselves.”
Last week, National Basketball Association Commissioner Adam Silver embraced in-play betting as it is conducted in legal sports-betting markets—but made a pitch for the leagues to control the action.
“In Europe, for example, where sports betting is legal, people can watch streams of games and then bet as they’re watching them,” he said. “That could conceivably be another form of a micro-transaction, and much of the sports betting has moved to in-play, which is one of the reasons why people want to watch the live feeds… Those are all potential additional forms of engagement for viewers.”
Silver proposes that the leagues should be the exclusive provider of in-game data to sports books in the U.S.
In the state where the lawsuit began, New Jersey’s legal bills in its fight to overturn a federal ban on sports betting have risen to more than $8.6 million according to information obtained through a public records request by the state’s Observer newspaper.
The state has been battling to allow sports betting since 2012 and has challenged the constitutionality of the federal Professional and Amateur Sports Protection Act, which ban sports betting in all but four states. The battle has gone to the U.S. Supreme Court, which is expected to make a ruling on the challenge in the coming weeks.
According to the Observer, two private law firms with connections to former Governor Chris Christie combined to bill $8.66 million since 2012. The paper cited invoices and information obtained through the state Division of Law.
Gibson Dunn & Crutcher has billed more than $7 million to represent Christie from October 2012 to November 2017. Christie, as governor, was the applicant in the case. The firm is now representing Governor Phil Murphy as applicant.
Those charges don’t include the oral argument that took place before the high court in December.
The Division of Gaming Enforcement and the state Racing Commission pay Gibson Dunn’s legal bills with fees paid by the casino and horse racing industries, according to the Division of Law.
Gibson Dunn’s involvement is noteworthy as it is the law firm that billed New Jersey taxpayers millions of dollars to investigate the 2013 “Bridgegate” scandal. The law firm produced a widely criticized report that uncovered no wrongdoing and declared Christie innocent of involvement in the scandal.
Another law firm, Gibbons P.C., has also billed $1.5 million to represent the state legislature from December 2012 to February 2018, according to invoices from the Senate Majority Office.
The current case before the Supreme Court is actually New Jersey’s second attempt to get around PASPA. The state’s initial attempt started in 2012, but the court did not elect to hear the appeal of that case. The state then revamped its sports betting law after the first ruling and that case is now before the high court.
In other sports betting developments, brokerage Telsey Advisory Group LLC predicted that supplier Scientific Games will be one of the big beneficiaries of legal sports betting in the U.S., because of its recent acquisition of NYX Gaming, owner of the industry’s top sports-betting platform, OpenBet.
“The company would potentially benefit from sports betting due to its acquisition of (NYX Gaming Group Ltd). Basically, this would provide the systems for operators for sports betting,” said analyst Brian McGill in a note on Scientific Games issued last week.
“We think the general rule of thumb is that the company would get roughly 10 percent of any potential win for its services… It is too early to assign a value for the U.S. legalization to Scientific Games, but it does remain a long- term catalyst for growth.” The Telsey note also predicted that a decision by the U.S. Supreme Court on the matter “will come before the end of June of this year.”