NBA Commissioner Adam Silver probably made it tougher for the leagues to get paid directly from the legalization and regulation of sports betting, thanks to comments he made on Saturday.
What Silver said on sports betting
Silver, speaking at the festivities surrounding the NBA’s All-Star Game, was asked about his league’s stance on sports wagering.
His league, along with Major League Baseball, is involved in lobbying in a variety of states considering sports betting legislation. States are getting ready for a world where the federal ban on single-game wagering could be struck down by the US Supreme Court in the New Jersey sports betting case.
Part of the NBA’s proposal is that sportsbook operators would have to pay an integrity fee — a tax of one percent on all wagers in any state — to the leagues on which wagering would occur.
To date, the leagues and their lobbyists have insisted the fee is correlated with monitoring related to sports wagering. The fee would also be used for ensuring game integrity, lobbyists have insisted, because of “increased costs” that go along with a wider sports betting market. (How true that is a matter for debate; more on that later.) The integrity fee, as proposed, does not put any strings on how it needs to be used by the leagues, however.
But on Saturday, Silver alternately called the proposed tax a “royalty to the league” and linked the fee to its position as “intellectual property creators.”
Here is the full transcript of the question and answer:
Wait, is the fee for integrity or not?
In diverging from the leagues’ talking points on sports wagering over the first two months of 2018, Silver put the NBA and its lobbyists in a more precarious position.
Silver more or less said it doesn’t matter what you call the fee, but that his league deserves it. And he also intimated that integrity isn’t the only purpose for the integrity fee.
From that standpoint, Silver is being a lot more forthright than his league has been to date. The NBA wants a cut of sports wagering activity, which is a fine thing to want. But to date it’s been almost entirely cloaked behind the guise of “integrity.”
What Silver said is not a huge divergence in substance from what the league has advanced recently. In West Virginia, an NBA executive talked about the league spending a lot of money on putting on games. A lobbyist rolled out similar talking points in a committee hearing there.
But the framing from Silver is drastically different here. State lawmakers might be able to stomach a transfer of money to leagues in crafting sports betting laws, if they really believe most of the money is going to integrity.
But are states interested in just paying the leagues a “royalty,” as Silver painted it? That seems a lot less likely.
The NBA crafted the “integrity fee” because it was the nicest sounding way of saying “We want money.” Cutting the leagues in for creating content is a much tougher sell in states around the country that are hoping to make money for their own coffers.
Pushing back on other things Silver said
Let’s unpack more of what Silver said:
The NBA spends a lot of money
Can we stop hearing that the NBA spends a lot of money to put on games for any other reason to make money for itself? Silver said the NBA will “spend this year roughly $7.5 billion creating this content.”
Great. The NBA, however, makes way more money than that. It remains a fairly bizarre talking point. The NBA coming at it from an intellectual property standpoint is fine, but the amount of money tied to putting on games is meaningless.
The tax is ‘fair’
More from Silver: “So this notion… that we should receive a one percent fee seems very fair to me.” Who is it fair to, other than the NBA?
Certainly not the states, who would likely have to take far less money than the NBA in order to pay them this tax. One percent of handle roughly translates to 20 percent of revenue, using the Nevada sports betting model as a reference point.
Silver has also insisted for several years that his league’s goal is a transparent and regulated market for sports betting. Increasing the cost of doing business for regulated sportsbooks is antithetical to that goal. Higher costs for regulated books will make it harder for them to compete with offshore books operating illegally in the US, who have no such tax burden.
‘Enormous additional expenses?’
Silver said that a rollout of legal sports betting in the US would come with “enormous additional expenses.” Interestingly, he said nothing about increased costs when he wrote his infamous New York Times op-ed in 2014.
The NBA already spends money to monitor integrity as it relates to existing regulated markets (in Europe and beyond), as well as the black market. While I don’t have direct insight into how much the NBA pays for these efforts, the fact that they exist already points to the fact that increased wagering will likely only generate incrementally higher costs, not wholesale new expenses.
Like Silver said in his op-ed, a regulated market is better for his league. So why are he and his proxies now crying that it will be expensive?
The NBA stands to benefit greatly from sports betting as well. The potential need for data rights and increased TV ratings and fan engagement will already help the NBA’s bottom line. There is no world in which sports betting is a net negative for the NBA in terms of dollars in and dollars out.
Who is going to buy what the NBA is selling?
Versions of the NBA’s preferred language for sports betting bills have cropped up so far in Missouri, Indiana and Illinois. More or likely to come, although their ability to advance will vary by state.
Now that the integrity fee is being called a “royalty,” will states agree to give money to the NBA and other leagues simply for existing? That’s the question states will be answering as they prepare for a world where they can legalize sports betting.
If states take less money from licensing and taxation simply to cut the NBA and other leagues in, I think that’s a preposterous policy choice. But it certainly wouldn’t be the first time that state lawmakers have done something dumb.