MLB, NBA Get Rewarded With Sports Betting Royalty Fee Added To DC Bill

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Leagues rewarded with royalty fee

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The efforts of US professional leagues to collect fees tied to sports betting seem to be taking another hard pivot.

Lawmakers in the District of Columbia have amended an active sports betting bill, which Councilmember Jack Evans filed in September. Among the changes to his initial framework is this new definition:

“Royalty fee” means a fee of one-quarter of one percent (0.25%) of the gross sports wagering revenue (as defined in (3) above) on sporting events conducted by registered sports governing bodies.

The original term integrity fee popped up in several states dating back to the first of the year. More recently, a New York sports betting bill that didn’t reach the finish line this year would have directed a “royalty” to the leagues simply for existing. Now, there is a DC bill establishing the value of a royalty fee.

In exchange for payment, the amendments would entitle District-operated sportsbooks to use league assets, including official league data for settling bets.

DC moves to legislate data

The measure under consideration is Bill 22-944, entitled the Sports Wagering Lottery Amendment Act of 2018.

In short, it would legalize and regulate sports betting under the administration of the lottery, a structure similar to nearby Delaware. Read more about the original version as filed here.

Evans’ proposal is scheduled for a mark-up hearing on Wednesday in the Committee on Finance and Revenue, which he chairs. The draft version of the amended bill LSR obtained on Tuesday includes a full section on these new royalty fees.

Here’s how it would work:

Those royalty fees would amount to 0.25 percent of revenue. In return? Here’s the excerpt from the draft:

“In exchange for payments of royalty fees described in subsection (g), the Office shall be entitled to access and use of registered sports leagues’ official league data, including in-game data, copyrights, trademarks, logos, game content, and player images and likenesses (“Data and Intellectual Property”) that may be used in association with District operated sports wagering.  If a registered sports league withholds Data and Intellectual Property from the Office, or otherwise denies the Office access to Data and Intellectual Property, the Office shall withhold payment of the royalty fees described in subsection (g) to that registered sports league.”

Royalty fee tied to revenue, data

As some sharps predicted early on, data has become the new battleground for leagues as they seek compensation from the expanding sports betting industry.

There are a few reasons for the pivot, not the least of which is the lack of traction for the integrity fee by that name. In their initial lobbying efforts, league representatives sought one percent of the total amount wagered in order to enhance their integrity monitoring and enforcement.

As you might expect, this did not play well with lawmakers, who questioned why the leagues weren’t already protecting their games and athletes to the extent possible. Sports betting, after all, has been occurring in Nevada and elsewhere for decades.

You can pinpoint Connecticut as the place where the conversation officially took a turn in public.

Pivoting from integrity to royalty

Backed into a corner by lawmakers during a hearing in March, NBA Assistant General Counsel Dan Spillane first tried to defend the inclusion of an integrity fee as a way to offset additional costs. When that argument fell short, he tried to sell it as an “intellectual property right.”

With the chamber still unconvinced, Spillane finally called a spade a spade:

“It’s akin to a royalty 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.”

Connecticut lawmakers weren’t interested in a royalty either, but Spillane’s words may have resonated elsewhere.

In Illinois, for example, Rep. Lou Lang expressed conditional support for such fees, provided the state receives something of value in return. Now, lawmakers in the District may have found that “something of value” in the form of official league data.

Needless to say, passage of this bill as amended would represent a victory for the leagues — though not the one they had originally envisioned.

Double dipping for sports betting money?

The integrity fee/royalty arguments have been going on even as leagues have been signing agreements left and right with sports betting operators that are paying for data as a part of the deal. See MGM Resorts’ deal today with Major League Baseball, or previous deals with the NBA and NHL.

The idea that there could be both privately negotiated and publicly mandated money paid to the leagues certainly seems strange on first glance.

But it’s what the leagues are going to continue to ask for:

If the DC bill is enacted as law, the NBA and MLB will finally have a victory to point to as they lobby in other states.