What We Learned About Sports Betting In Congress, Part One: The NFL

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We’ll take a look back at the recent Congressional sports betting hearing in this short series.

In part one, we look at the opening remarks and the verbal and written testimony of the National Football League.

On Sept. 27, I was one of the people who watched the ‘other’ hearing on Capitol Hill.

While the Brett Kavanaugh hearing attracted most of the attention, the House Judiciary Subcommittee on Crime was holding a hearing on sports betting.

What follows are my thoughts on the hearing, some of these were part of my Twitter feed (hopefully, with fewer typos), others were compiled as I read various statements filed with the committee.

As a disclaimer, I would note that these are my observations only, they do not necessarily reflect the opinions of the other Legal Sports Report writers, and do not reflect the views of my academic employer.

In an effort to make my position clear, I believe that there is room for some federal regulation, in particular, in the area of modernizing federal match-fixing statutes and ensuring that manipulators are not able to play jurisdictional arbitrage and evade prosecution. I believe that are some federal regulatory models that support shared governance with the states, whereby the federal government acts in a support role to state regulators.

I filed a Supreme Court Brief in support of New Jersey in the Murphy vs NCAA case and believe that the federal government can intervene in a way that complies with the Tenth Amendment should it choose to do so. In my opinion, integrity fees or mandating official data do not pass muster.

Opening remarks

Congressman Jim Sensenbrenner opened the hearing, making what I believe was a joke, noting that he viewed the topic as important as the hearing regarding Brett Kavanaugh’s fitness for a Supreme Court appointment.

The joke largely fell flat as it was difficult to tell if it was actually a joke. Certainly, Sensenbrenner’s next statements were not jokes when he outlined the options for Congress moving forward with sports betting.

A turn for the worse for the NBA

At this point, the comments from the chair took a bad turn for the reputation of the NBA as Sensenbrenner expressed a belief that former NBA referee Tim Donaghy fixed games, and was not merely betting on games he officiated, which is the official line that the NBA stands behind.

I can only imagine the expressions on the faces of NBA executives at 645 Fifth Avenue when Sensenbrenner, made the most contemporary betting scandal in American professional sports worse than the official position of the NBA.

Congressman Bob Goodlatte expressed several positions about sports wagering, first was a connection between illegal wagering, money laundering and terrorism. This position has been floating around for the better part of two decades.

There is anecdotal evidence that some terror suspects may have used online poker sites to turn stolen card numbers into cash, but there is no evidence, which I am aware of, that this practice is widespread in legal markets, or even exists in legal regulated betting markets.

Goodlatte made clear that he hates online gambling. This should come as no surprise to fans of gambling related-legislative hearings. That is fine, no one should be forced to wager online, but elected representatives should recognize that a practice that is happening anyway and is “unstoppable” should be regulated as opposed to being left in regulatory abyss.

Misunderstanding online gambling

Goodlatte concluded his trifecta of opinions by demonstrating that he did not understand that it is possible to exclude users based on their geographic locations. The precision of top-level geo-blocking technology, employed by many in the online gaming industry, is precise down to several meters, meaning that gaming companies are able to tightly control who is accessing their product based on their geographic coordinates.

The disconnect between what Goodlatte understands the technology to be and what it is in practice, was one of the most concerning features of the hearing. There has been a breakdown in educating Congress about what the regulated industry can do and the consequence of this failure could have huge ramifications. Companies are literally capable of putting a geo-fence around Goodlatte’s house so that neither he, nor his guests, can access any online gambling sites. For the rest of us, I would suggest we let our states decide.

Congressman Jerrold Nadler of New York spoke after Goodlatte, and underestimated the size of the illegal market by about 90 percent when he articulated that it was between $50 and $200 million.

The sports betting witnesses

The witnesses were sworn in by Sensenbrenner, meaning that they were all under oath and required by law to tell the truth. Each of the five speakers was allotted 5 minutes to speak.

The first witness to speak was Jocelyn Moore, Executive Vice President, Communications and Public Affairs for the NFL.

In Moore’s verbal statement to the committee, she cited a lack of clear sports betting standards as a reason for needing federal intervention. The NFL may not like the standards, and in some places, I concur the standards are designed to protect profit for the state as opposed to protect integrity or convert black market bettors. But there are standards.

In her introductory remarks, MMoore stated we are in a race to the regulatory bottom. Many on Twitter took exception to that comment, but I maintain a different view of that issue, in particular with what we have seen with the sideshow in West Virginia, and tax rates in Pennsylvania.

This may not be a race to the bottom, but state regulation of sports betting outside of Nevada certainly does not appear to be in a race to the top. But, the NFL has not contributed one iota to proposing a regulatory model that protects integrity or consumers without the NFL receiving something in return.

Intellectual property and sports betting

Following her criticisms of state regulatory regimes, Ms. Moore called for federal protection of NFL intellectual property. This was a curious request because the federal intellectual property regime is quite robust and already protects NFL intellectual property, including team names, logos, broadcasts, and even the NFL shield.

The Copyright Act, the Lanham Act, and the US Patent and Trademark Office are all part of the federal regime that protects the NFL’s intellectual property. What I think the NFL is asking for, is for Congress to overturn existing judicial precedent and re-write our federal intellectual property laws so that the NFL owns pieces of information that exist in the public domain.

Enforcing the law

Moore transitioned to the key question overshadowing the hearing. Why pass a new law if the ones we have are not being enforced?

Moore and several other witnesses hit this nail on the head. There are powerful federal laws that enable the Justice Department to target illegal gambling operations, they are used infrequently. Until stopping illegal gambling becomes a federal priority, passing new laws is not going to be very effective, given the laws we do have are minimally enforced.

The DOJ has a budget, and with that budget they need to decide what types of investigations to pursue. There simply is not enough money, manpower, or time to pursue every criminal offense committed in or against America. Because of this, the DOJ is forced to prioritize what they target. That has meant, to date, sports betting is a lower priority than other crimes.

An imaginary sports betting staute?

Moore’s testimony was preceded by the NFL’s written statement, which on page two references a federal statute, which I have never heard of and have been unable to find a record of the existence of a statute titled: “federal barriers to state-sanctioned sports lotteries (1974).”

There were similar issues with the statement that UIGEA legislation was principally concerned with sports betting. Indeed, the first UIGEA related hearings were concerned with gambling generally, with sports betting following blackjack, craps and roulette according to Sen. Jon Kyl in 1997.

Official sports betting data

The NFL statement then drifted back into the commonly recited adage that sportsbooks should be required to use official league data. This, of course, has the opposite effect on integrity than their publicly stated objective of desiring to increase and protect “integrity” of the games.

Requiring use of official data creates a market of one, meaning that there is a need to only corrupt one segment, because there are no additional market participants capable of correcting the corrupted participant. In other words, having a million data providers provides better market security than having a single official data provider.

This argument for official league data is so self-defeating from an integrity perspective, it is absurd that it is still being mentioned as somehow correlated with increased security.

Other issues for the NFL

The NFL then recommended the ability to exclude some wagers. This is perhaps not a totally unreasonable request, indeed, Nevada already has a mechanism where leagues can petition for specific exclusions. There is, however, a risk that over-regulating the types of wagers allowed may create an opportunity for companies to exploit the intent of the rule, much like daily fantasy companies took advantage of UIGEA’s carve out to defeat the intent of the statute, or for the black market to continue to thrive.

Additional issues I saw with the NFL’s statement included, the league’s desire for an information-sharing agreement where books are required to inform law enforcement of irregularities. However, at least according to my reading of the NFL’s statement, this is a one-way street, meaning that the NFL does not view it as necessary for them to inform law enforcement or sportsbooks of irregularities.

Finally, the NFL appears to have a keen interest in helping the federal government prevent money laundering and tax evasion. It is not clear, however, why the NFL thinks the current federal statutes do not adequately encapsulate these activities such that it would be necessary to include them in a sports betting bill.

Nonetheless, I am sure that Uncle Sam is appreciative of the league’s efforts to stop tax cheats, especially now that the NFL has given up its preferred tax status after years of being a 501 (c)(6) entity—an exemption that specifically mentioned “professional football leagues.”

In part two of this series, we examine the testimony of the other witnesses before the house subcommittee.