Gaming Experts Agree: Leagues Can’t Explain Why They Need Integrity Fees

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Integrity fees

Representatives from professional sports leagues made their case for integrity fees in state-level sports betting laws at the summer meeting of the National Council of Legislators from Gaming States (NCLGS).

To say the audience — a diverse mix of lawmakers, regulators, and industry types — was skeptical is an understatement. With only a few exceptions, panelists and attendees scoffed at integrity fees, at least as presented by the leagues.

That doesn’t mean an integrity fee is a nonstarter. Rather, legal sports betting stakeholders and state lawmakers simply want to know one thing: what will you provide for that cut?

Even the most ardent opponent of integrity fees would admit that the leagues have something to offer. They could offer streaming rights, data, or other services to sports betting operators in exchange for some type of payment.

The problem is, the leagues currently are offering nothing new. They’re simply demanding a hefty fee (in some cases, as much as 1 percent of handle) from sportsbooks under the auspice of integrity.

What can the leagues bring to the table?

Commentators continually ask the leagues to elucidate what they will bring to the table. To this point, no one has provided a good answer.

The leagues’ argument that the fee will go toward covering an increased cost burden to ensure integrity it will bear from legalized sports betting is highly problematic.

“They’re saying pay us X-percent and we’ll provide integrity,” said Art Manteris, the VP of race and sport for Station Casinos said during a panel discussion. “So if they don’t get paid, will they not provide integrity?”

Which brings up another question …

Does that mean they’re not providing integrity now?

Given that sports betting is legal in Nevada and bettors in numerous countries across the globe legally bet on US professional sports, there already is a need for integrity.

That’s not even to mention that the robust black market that currently services US sports bettors creates more integrity issues than the legal market.

Dr. Kahlil Philander of Washington State University explained during his keynote address at the National Council on Problem Gambling (NCPG) Summit on Sports & Gaming this week that not all integrity issues in sports stem from betting. One example Philander pointed to is the rampant backroom dealing among sumo wrestlers in order to avoid demotion.

The perceived consensus at NCLGS was the professional sports leagues simply want money for nothing. At the end of the day, their ask could be more nefarious than just a cash grab.

What do the leagues really want?

Sometimes lost in the integrity fees debate is the leagues’ efforts to become the exclusive data provider to sportsbooks.

William Hill US CEO Joe Asher offered his theory, telling attendees that the leagues’ attempts to become the exclusive data provider is just an attempt to set up monopoly pricing.

“Oh, you want the results of the Super Bowl — that’s going to cost you 5 million bucks,” Asher quipped during a panel discussion.

Presently, sportsbooks buy data from multiple sources, including the leagues. As such, the data is competitively priced. If sportsbooks were mandated to purchase data from the leagues, they would have complete control over the price.

Where would integrity fees end?

Another aspect of the integrity fee debate that came up during the conference: if agreed to, what leagues/organizations would get a cut?

As one lawmaker mockingly asked, if my state allows betting on the weather, do we have to pay meteorologists an integrity fee?

While meant as a joke, it does beg a question: what leagues will receive a cut of integrity fees? The ones that are powerful enough to lobby for it? Any league that is wagered upon?

Would it extend to MLS and the WNBA? What about the Arena Football League? Or the National Lacrosse League?

Is there a precedent for a handle fee?

The strongest voice for the leagues at NCLGS came from gaming and sports attorney Daniel Wallach.

During a panel discussion, Wallach put forth a precedent for paying a fee based on handle, comparing it to a provision in the 1978 Interstate Horseracing Act. The requirement in the IHRA states that host horse racing tracks receive an agreed-upon percentage of handle from simulcast and OTB operators.

Wallach admitted it wasn’t a one-to-one comparison, and there are several differences between the IHRA provision and what the professional sports leagues want.

Negotiated vs. mandated fees

The leagues want a specific fee written into legislation, whereas the IHRA leaves the negotiation of the fee up to the host track and OTB operator:

“… as a condition precedent to such consent, said racing association … must have a written agreement with the horsemen’s group, under which said racing association may give such consent, setting forth the terms and conditions relating thereto;”

As such, the IHRA doesn’t mandate a specific fee. Additionally, in exchange for the fee, the OTB operator can broadcast the race, so the OTB operator gets something in return.

Parimutuel betting

The second key difference is horseracing is parimutuel betting, or fixed-odds betting.

Since the bets are pooled and odds finalized based on all wagers placed, the track operators have no vested interest in the outcome. They simply receive a percentage of the wagers. The prize pool won by bettors is determined after the “takeout.”

As such, a fee on handle simply reduces the amount the track receives. That means the racebook will never find itself in the red from the fee.

In the same way a poker room doesn’t lose money by dealing hands, racebooks don’t lose money on races.

That’s not the case with sportsbooks. Like a blackjack or roulette table, a sportsbook can lose money on any given event, since they routinely have more action on one side of a contest than the other.

As such, a fee on handle could quickly send the book into the red.

The race exists for only one reason

Perhaps the biggest difference between horse racing and professional sports is that a race exists solely to bet on. The purses are derived from the betting handle which, like the track’s cut, is another part of the takeout.

Sports, on the other hand, exist without betting. Athlete salaries aren’t determined by the amount wagered on the game, and teams aren’t reliant on betting handle to make a buck and draw people to their stadiums.