Connecticut lawmakers say they’ll work with leagues to ensure that legal sports betting doesn’t undermine the integrity of their game. Compensating them directly, however? That might be off the table.
“What I am not for, quite frankly, is legislation that in some way, shape, or form would line the pockets of… major league sports owners,” said Rep. Joe Verrengia.
Today in Hartford, Verrengia’s Public Safety and Security Committee held an informational hearing to explore the breadth of sports betting. The discussion included testimony from league representatives and hours of deep scrutiny from the committee.
The leagues maintain that ensuring integrity requires receiving one percent of the total money wagered — something seen in a number of US sports betting bills — and lawmakers are pressing them to explain why.
Leagues present conflicting arguments for integrity fees
In anticipation of widespread legalization, the NBA and MLB have drafted a proposed framework for sports betting bills. Two of their executives — Dan Spillane and Bryan Seeley — headed to Hartford to present and argue for their list today.
The leagues are asking for five inclusions in legislation, but four of them are essentially built to underpin the fifth: the integrity fee. They want to be paid one percent of all wagers placed in order to help them ensure betting is being conducted fairly. Or because they have a great product and a strong brand.
Depending on which way they’re pressed, they will fight for integrity fees from one of two stances.
Is it an ‘integrity’ fee?…
First, leagues will argue that these integrity fees will be used to offset the additional costs involved with widespread betting. “If there’s more betting, there’s more opportunities for something to happen,” Spillane said.
Leagues will have to invest resources to reinforce monitoring, investigation, and enforcement. They’ll need to beef up their data and analytics tools. They’ll need to keep a closer eye on a larger group of bettors and betting services.
This is the most noble cause but a hard one to argue.
Gambling on sports is an international pastime, and Nevada sports betting runs right alongside a growing list of pro teams who call Las Vegas home. Leagues already monitor betting in other markets, and if anything, a regulated industry provides them with more data and more transparency.
Or a ‘royalty’ fee?
Spillane argued that the Connecticut gaming industry as a whole would benefit from sports betting, creating additional revenue there. Bringing people into sportsbooks is great for casinos. Connecticut has a couple of them already, and more could potentially be on the way via an expansion package.
This, of course, works in both directions. Legal sports betting would likely spawn a big increase in interest (read: revenue) for the leagues, too. Sports betting drives fan engagement, and fan engagement drives TV ratings as well as ticket and merchandise sales. That’s where the leagues make their money.
Eventually, after much prodding, the lawyers were finally driven right to the point. Spillane referred to the collection of fees as an “intellectual property right.”
“It’s akin to a royalty,” he said, “for the value of the product that we deliver that is the backbone for betting on our games. To that extent, it’s not a reimbursement, it’s about compensating us for that value that we provide.”
The leagues feel entitled to compensation because they provide a great product that people want to bet on, they say. That argument isn’t too far-fetched, in fairness. But it’s poor form to disguise royalty under the veil of integrity.
“And that’s where it becomes sticky,” Verrengia said.
CT committee pushes back
So which is it, integrity or royalty?
Connecticut lawmakers have grown educated about sports betting in recent months, and they spent the better part of 90 minutes poking at the leagues’ arguments. Integrity fees were squarely in their sights.
Verrengia correctly noted that the one percent ask actually amounts to around 20 percent of revenue at a five percent hold, if applied in Nevada. Spillane concurred with the math, but argued that margins in Nevada are smaller than they’d be in other states — perhaps approaching double digits.
Under the numbers Verrengia is using, the leagues would be in line to receive as much as $2 billion in annual integrity fees, in a wide rollout of legal wagering
“I have no issues with that math,” Spillane said.
Verrengia also noted that a New York sports betting bill includes a reduced integrity fee of 0.25 percent of handle. Nevada sportsbooks pay no integrity fees at all (and likely never will). Markets with more manageable taxes, particularly in neighboring states, could serve to limit Connecticut sports betting.
Seeley countered that the federal Wire Act and geolocation preclude making electronic bets across state lines, so Connecticut wouldn’t be competing with its neighbors.
Subsequent questions from other lawmakers continued to prod at the fees. What do consumers receive in return for the fees? What are they actually going to be used for? Why would Connecticut sportsbooks pay fees that other states don’t?
Finally, Rep. Kurt Vail asked flat out: “If we were to exclude that one percent fee from this potential legislation, would you still be in favor of this?”
“No,” Seeley answered. Spillane concurred but indicated that the NBA was open to the discussion.
Leagues want a data monopoly?
In addition to the integrity fees, leagues are also asking for the ability to opt out of certain types of bets, as well as requiring sportsbooks to use their official data.
“We think it’s important to have very fast, official data,” Seeley said, particularly as it relates to in-game betting. The leagues wouldn’t want to see the same wager settled differently at two different sportsbooks, after all. “Its really important to have one true data, one truth to settle those bets.”
Rep. Craig Fishbein noted that this requirement would give the leagues exclusivity in the space. “Wouldn’t that be allowing the private monopoly of data?” he asked.
Seeley confirmed, though he tried to frame the request. “This is driven from consumer concerns, not money concerns,” he said. “But I understand.” He argued that illegal bookmakers have monopolies on their data, too.
Fishbein suggested letting the market dictate which stat providers are the best.