The attempt by the NBA and MLB to insert a so-called “integrity fee” into state-level sports betting legislation has generated predictable pushback from the gambling industry and lawmakers in several states.
Despite that pushback, the two leagues have made it clear that they have no plans to abandon their integrity fee initiative, and that they intend to actively oppose bills that don’t include the fee.
That’s obviously a net negative for all advocates of regulated sports betting. The NBA and MLB can’t stop sports betting from moving forward in every state, but they can stop it in some and slow it in others.
And it’s axiomatic that regulated sports betting would move along faster if professional sports leagues and the commercial gambling industry were speaking with one voice.
So how does the dilemma get resolved?
The leagues need to lower their ask
Right now, the leagues are asking for a one percent fee based on handle (i.e., total amount wagered).
That is, of course, insane.
A one percent fee on handle equates to about a 20 percent tax on revenue:
- Sportsbooks hold about five percent (in a solid year) of the total amount wagered.
- So for every $100 wagered, sportsbooks can expect to realize $5.
- A one percent integrity fee would cost sportsbooks $1 on every $100 wagered.
- That $1 represents 20 percent of the $5 sportsbooks can expect in revenue.
That tax alone would arguably be enough to make sports betting economically unviable. But in addition to that tax, sportsbooks would also have to pay:
- Whatever tax rate the state applies (Nevada is 6.75 percent on revenue, most other states are floating rates between nine and 20 percent).
- The existing federal excise tax (.25 percent of handle, or roughly 5 percent of revenue).
There is simply no way that regulated sports betting can survive under that kind of tax burden. Not only is sports betting a low-margin business to begin with, but regulated sportsbooks have to compete with black-market operators who aren’t saddled with significant tax and regulatory costs.
The leagues need do the math and either tie their request to revenue (which they are unlikely to do) or anchor at a handle tax that isn’t a complete non-starter.
Think closer to .1 percent than one percent.
The leagues need to fully articulate their integrity plans
Stakeholders on the industry and political side have a hard time taking the request for an integrity fee seriously for two reasons:
- The leagues should, in theory, already be doing this work to combat threats to integrity arising from the black market for sports betting, and regulated markets in Europe and beyond.
- The leagues have yet to offer any concrete detail about where the money for the integrity fee would go.
The NBA and MLB should detail what they’re already doing to ensure integrity in the face of a substantial black market for sports betting, and explain how regulated sports betting would require them to expand those efforts.
Offering a clear rationale for integrity fee funding will help move negotiations around the issue in a productive direction, and dispel the notion that the leagues are simply trying to secure a new revenue stream.
The leagues need to make operators partners in integrity
The idea that leagues can monitor and ensure integrity on their own is almost as goofy as the one percent integrity fee itself.
Operators — including stakeholders such as casinos, platform providers, and data providers — have a vital role to play in the integrity process. But nothing about the leagues’ approach recognizes that role, or seeks to actively integrate gambling stakeholders.
When the leagues start talking about integrity as a holistic effort, and show how an integrity fee will allow them to participate collaboratively and constructively in that effort, they may see the tone of the conversation around the integrity fee change dramatically.
The leagues need to lobby for removal of the federal excise tax on sports wagers
The federal excise tax on sports betting was never intended to be a tax on regulated operators.
The tax is a relic, one that inhibits the ability of states to realize the maximum tax potential of regulated sports betting and likewise inhibits the ability of regulated sports betting operators to compete effectively with the black market.
With the federal excise tax in place, the leagues are last in line behind the states, the federal government, and the need of operators to make enough revenue for sports betting to be a sustainable product.
Collaborating on the removal of the tax will build a useful bridge between leagues and sports betting operators and expand the pool of available revenue to the point where there’s enough for the leagues to receive a fee to support integrity efforts.
