DC Sports Betting Bill Advances As Committee Removes Proposed ‘Royalty Fee’

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DC sports betting

Professional sports leagues have met another roadblock in their quest to collect US sports betting profits under legislative mandate.

During a Wednesday hearing in the District of Columbia Council, language trading a “royalty fee” for the use of official league data was taken out of an active sports betting bill. The Committee on Finance and Revenue rejected the proposed amendment from sponsor and Chairman Jack Evans by a unanimous verbal vote.

Curiously, it seems the leagues themselves provided the spark for removal.

DC sports betting bill up for hearing

Evans’ suddenly controversial bill (B 22-944) was filed in September and considered in a public forum the following month. Wednesday’s hearing marked its first real movement within the council.

There appears to be strong support for sports betting among DC stakeholders, including local mogul Ted Leonsis. The owner of the Washington Wizards and Capitals franchises would love to see folks gambling on NBA and NHL games inside the arenas.

Leonsis may get his wish.

The District does not have anything like a casino, so the Office of Lottery would be in charge of administering the industry. Among the amendments up for consideration was a provision for Capital One Arena and three others to operate sportsbooks on site. Each would be granted a two-block exclusivity zone to discourage competition.

“And then finally,” Evans said in his introduction, “language was removed from the committee print that would entitle the District lottery to use official sports leagues’ data, copyrights, and player images and likenesses. But also what has been added to this is the royalty fee. And I want to talk about that very quickly.”

A new section regarding this royalty fee first appeared in a draft version of the bill LSR obtained on Tuesday.

Chairman Evans pitches royalty fee

Evans ran through the timeline of league efforts to lobby for compensation, originally presented to him as an integrity fee. The NBA and MLB have done most of the legwork here, traveling from state to state seeking fees by one name or another.

Something they said resonated with Evans. The chairman went on to describe a utopian understanding of the relationship between leagues and operators:

“I guess it was to — in return for this integrity fee or royalty fee, the league would provide data that was their data. And consequently had integrity. So I presume that’s where the name came from.”

As he noted, this idea has been “very controversial” among stakeholders and lawmakers in other states. “People feel very strongly on both sides of this issue,” Evans said. “There is not one anywhere else in the country… Nobody has it.”

Under the understanding that it might please all involved, the chairman moved to include relevant language in his bill:

“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.”

His understanding, however, was not correct based on messaging from league lobbyists and lawyers.

Leagues push back against data inclusion

Movement behind the scenes between Tuesday and Wednesday caused the sponsor to reconsider the inclusion of this data mandate. During his pitch to the committee, Evans indicated the source of that movement:

“The leagues felt that that was unfair. This data they have is very valuable and certainly worth more than a quarter of a percent of everything left over.”

In a curious but not-terribly-surprising turn of events, the leagues themselves pushed back over a provision that would have guaranteed them a cut of revenue. While they may have forfeited a chance to lock up a payment for the first time, a quarter of a percent of revenue was simply not the precedent they were willing to set — especially in exchange for data.

Time will tell whether or not official league data becomes a keystone for the US sports betting industry, but the leagues certainly think it will. And some operators do, too. MGM has entered into league-level partnerships with the NBA, NHL and MLB — all of which include the use of such data.

“I would like to help the leagues,” Evans continued. “I think they do provide an enormous amount for sports gambling to succeed. But I can not provide what they want.”

The sponsor had misunderstood the separation between league requests for compensation and the mandated use of official data. They want both, but not linked to each other. While a fee based on the total amount wagered — or “handle” — might be off the table, the chairman did indicate a willingness to negotiate.

“I have pared down what they will give us,” he said.

The royalty fee stuck in Evans’ proposal, but the primary form of reverse compensation — official league data — was amended out in what he called a “balancing act.”

Committee rejects royalty fee

Whether tied to royalty or integrity, fees like these have garnered little support from lawmakers in any US jurisdiction. That list now includes at least one committee in the DC Council.

Councilmember Kenyan McDuffie confessed that the case for royalty fee was “not very persuasive” in his mind. “The arguments that I’ve heard, I’ve appreciated them,” he said. “I can understand why they might want it, but I’m not convinced that we need to have it in this bill.”

Then Councilmember Vincent Gray took the mic:

“I actually want to see the removal of this royalty fee. It’s called — depending upon who you talk to — an integrity fee, which seems to me ought to be inherent in these sports leagues’ operations anyway. And I’m assuming it is. So I just don’t understand why we have to invest another quarter percent of the revenue from this which, as you’ve indicated Mister Chairman, is not done anywhere else in America… This is not something I want to find a compromise on. I believe these sports leagues are very well-heeled. They do very well.”

Couched with commendations, Gray moved to strike the section related to a royalty fee. The committee voted to advance the bill as amended, minus that section.

“I can’t say we will get this right on the first time,” Evans spoke candidly. “I hope we do. But I can’t say we will.”

While it was a decent thought, the chairman’s efforts to craft a compromise left everyone unhappy. The committee’s intervention represents a step to correct the legislative direction.

Wait… what is this about MGM?

The main questions left for DC sports betting concern the specifics of implementation. To what extent will the Office of Lottery be involved, and how much competition will be permitted?

Evans’ bill doesn’t take a clear stance. While it does seem to push a lotto-operated platform to the forefront, it would also allow third parties to partner with local venues. And according to Evans, these partnerships are already starting to fall into place.

In a possible case of saying too much, he continued:

“MGM has gotten into an arrangement with Nats Park. That’s my understanding today. So when you go into the baseball field, the only app that will work on your phone is MGM’s. You have to use theirs when you’re in the baseball field.”

If true, this would be the first arrangement of its kind in the US — and one with some potential legal concerns.

It seems likely Evans is misunderstanding something, but modern geolocation and IP blocking would make it possible, at least. He also indicated MGM is tied up in similar negotiations with Capital One Arena. And other deals could follow.

“If they go to Cafe Milano in Georgetown and make a deal with them, when you’re in Cafe Milano,” he let out a big chuckle, “you’ll have to use their app in Cafe Milano… Or Stoney’s Bar up the street… But, if you’re walking down the street in the city, or in your house, you gotta use our app.”