Making Sense Of Pro Sports Leagues’ Search For Sports Betting Data Fees: Case Study No. 2

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Stock case and sports betting

In this series we will explore some of the important case law that is relevant to the sports leagues’ argument that they should be compensated for “data,” “intellectual property,” or whatever other term du jour the sports league executives choose to use.

The quest for data rights and fees has been one that has evolved since it first emerged in Indiana in January of 2018. The early wave of requests for one percent integrity fees has died down, with the leagues seeking .25 percent in New York.

The question that many are asking is why should the leagues get paid? What is the foundation of their argument? The short answer is that their argument’s foundation is built on sand in a typhoon zone. What follows is an overview of one of the cases that is the basis for the long answer.

The case: Board of Trade of the City of Chicago v. Christie Grain and Stock Company. L.A. Kinsey Company

A case from Chicago

Over three days in April 1905, the Chicago Board of Trade argued before the Supreme Court over the proprietary nature of the information on stock tickers printing continuous price quotes for the sale of grain and other items for future delivery.  The CBT is a financial exchange for options and futures contracts — the Chicago Board of Trade merged with the Chicago Mercantile Exchange in 2007. (Famously, the CME was the setting for one of the final scenes in the 1983 film, Trading Places, where Louis Winthrope III and Billy Ray Valentine take down the Duke brothers’ vast fortune.)

According to the Court’s recitation of the Board of Trade’s argument, the only way for Christie Grain and Stock Co. to obtain the prices, and then republish them, listed on the ticker tape was by breaching a confidentiality agreement with the Board of Trade, which the Christie Grain and Stock had agreed to.

The Chicago Board of Trade featured three different trading “pits:” one for wheat, one for corn and one for other provisions. In the pits, commodities traders would contract for future delivery of the traded items. Employees of the Chicago Board of Trade would continuously collect and transmit the prices throughout the day and then deliver prices in a near constant stream to telegraph operators, who would then use handheld devices to transmit the most current information to their offices across the country. In exchange for being permitted to transmit this information, “[t]he telegraph companies all receive the quotations under a contract not to furnish them to any bucket shop or place where they are used as a basis for bets or illegal contracts.”

Where did the quotes come from?

Christie Grain and Stock Company did not sign a contract with the Chicago Board of Trade. The Supreme Court noted that it was not disclosed how the Grain and Stock Company obtained quotations, only that they did and they were not parties to an agreement with either the Board of Trade or the telegraph companies.

The Board of Trade argued that Christie Grain and Stock operated illegal bucket shops, the Board offered no proof, only that they asserted that because Christie Grain and Stock refused to sign the agreement, the implication was that they were engaged in nefarious activity.

Justice Oliver Wendell Holmes stated:

“In the first place, apart from special objections, the plaintiff’s [Chicago Board of Trade’s] collection of quotations is entitled to the protection of the law. It stands like a trade secret. The plaintiff has the right to keep the work which it has done, or paid for doing, to itself. The fact that others might do similar work, if they might, does not authorize them to steal the plaintiff’s.”

The key for the Court was that the Chicago Board of Trade “does not lose its rights by communicating the result to persons, even if many, in confidential relations to itself, under a contract not to make it public, and strangers to the trust will be restrained from getting at the knowledge by inducing a breach of trust and using knowledge obtained by such a breach.”

The Court also prophetically discussed the issue of time-sensitive data more than a hundred years before a similar analysis will likely be applied to sports betting, in saying: “Time is of the essence in matters like this, and it fairly may be said that, if the contracts with the plaintiff are kept, the information will not become public property until the plaintiff has gained its reward. A priority of a few minutes probably is enough.”

As a result of the Court’s determination, the majority ruled in favor of the injunction that the Chicago Board of Trade sought to exclude Christie Grain & Stock Company from redistributing the information, whether in privity of contract or not. Much of the commentary surrounding Chicago Board of Trade has centered on other issues involving Justice Holmes’ commentary on the legality of certain contracts. But for the purposes of analyzing the sports leagues’ quest for integrity / royalty fees, Holmes’ commentary on proprietary data is especially prescient 103 years later.

How does this apply to legalized sports betting?

The Chicago Board of Trade case was one of several stock ticker cases in the early 1900s to advance through the federal court system. The treatment of the issue of ownership of data by Justice Holmes remains relevant today. The Court in Chicago Board of Trade found that because the defendants, Christie Grain and Stock Company, were using data that was otherwise only available by a contract with the Board of Trade, the Grain and Stock Company could not obtain the data anywhere except through infringing on the rights of the Board of Trade.

In stark contrast to the more than 100-year-old case, Major League Baseball, the National Hockey League, the National Football League, and the National Basketball Association do not possess an exclusive right to distribute data. They make very little effort to keep most game statistics secret. In fact, go to any ballpark in the country and take a look around; you do not need to look more than a couple of rows in any direction to see someone collecting data on their own in a scorebook. Sports data is abundant: sports leagues broadcast it through data partnerships, but those partnerships do not foreclose on the near simultaneous independent collection of data by competitors.

The professional sports leagues likely lack the data monopoly that the Chicago Board of Trade possessed. Even sports, like tennis, which has had a problem with “courtsiding,” will struggle to control the dissemination of data from inside stadiums. The practicality of restricting real-time transmission of data from a stadium that holds upwards 50,000 people is something that even the most sophisticated security agencies would struggle with, let alone moderately paid event security staffers who work game-days.

The precedential value of Chicago Board of Trade for advancing the sports leagues’ argument is likely questionable given that the sports leagues do not seek to maintain secrecy over much of their data: scores, wins, and losses are all readily available from dozens of different sources. Leagues may have data that is proprietary, some which sportsbooks may even be interested in, but as long as leagues continue to seek broad distribution across television and internet platforms, most of their data is likely non-compensable by virtue of it being so widely accessible.

From a practical perspective, the cost of policing contractual agreements like those in Chicago Board of Trade would be astronomical. As the leagues will likely see, with legalized gambling, there will be some money for state coffers, some money in broadcast deals for the leagues, and perhaps even some sponsorship money for leagues who are willing to not shoot themselves in the foot.

But legalized betting is not a panacea, and those looking to get more than their share risk costing everyone their piece of the pie.