Analysis: no good definition of commercially reasonable pricing
Legal Sports Report

What Exactly Is ‘Commercially Reasonable’ Pricing For Official League Data?

Commercially reasonable terms

The phrase “commercially reasonable terms” has been popping up in sports betting bills across the country as debate rages over mandated official league data usage.

We first saw it in Tennessee, then soon after in Illinois with respect to offering in-play wagers through the use of official league data. Preceding the introduction of the phrase in those states, Michigan followed suit requiring operators accepting in-play bets to purchase official league data if it is made available under “commercially reasonable terms.”

Well, we at Legal Sports Report elected to take a deep dive into just what “commercially reasonable terms” means because the phrase is not an uncommon legal term.

But at present, the lack of uniform definition poses a problem for companies looking to enter the US sports betting market, as there exists a great deal of uncertainty.

Michigan’s efforts to provide some clarity

Michigan lawmakers attempted to provide guidance to their inclusion that sports betting operators be required to utilize official league data, provided it is made available on commercially reasonable terms.

Michigan lists four factors that are considerations:

  • The availability of official data to sports betting operators from more than one source.
  • “Market information regarding the purchase by operators of data from any authorized source including sports governing bodies or their designees for the purpose of settling sports wagers, for use in this state or other jurisdictions.”
  • The quantity, quality and complexity of the process that is used for collecting the data.
  • “The extent to which sports governing bodies or their designees have made data used to settle tier 2 sports bets available to operators.”

What Michigan failed to provide is any guidance regarding whether all these factors must be present or if they have different weightings accorded to them. It also does not specify whether one source that has a dominant market position would still satisfy factor one.

Illinois slightly different, but more of the same

Illinois’ sports betting law requires operators to purchase and use official league data for Tier 2 bets, which it defines as any in-play wager or bet that does not involve the final score of a game.

In a slight departure from what Michigan has done, official data must be used in Illinois for Tier 2 bets unless the sports league cannot provide the data on “commercially reasonable terms.”

Furthermore, an operator can petition the board if the sports league cannot provide the data on “commercially reasonable terms.”

Tennessee follows in the shadows

Tennessee’s law calls for operators to use official league data if it is made available on commercially reasonable terms for in-play wagering as well.

Unlike Michigan, which provides some contours, or Illinois, which leaves it up in the air presumably for some adjudicative body to decide at some point, Tennessee’s draft rules leave it up to the Sports Betting Board of the Tennessee Education Lottery.

The problem with leaving these terms undefined — or in the case of Michigan setting the bar so low by requiring only two market participants — is that it threatens to stifle market competition. That will seemingly result in pricing that is  not competitive with the illegal market.

What ‘commercially reasonable terms’ means

There is a great deal of legal history surrounding the phrases “commercially reasonable” and “commercially reasonable terms.” Despite this, there isn’t a universally accepted answer as to what the phrase means.

The phrase commercially reasonable is defined by Merriam-Webster as: “Fair, done in good faith, and corresponding to commonly accepted commercial practices.”

Others expanded on this to argue that the phrase “commercially reasonable” means using a cost-effective means for production. In the mind of a reasonable businessperson, the deal would be viewed as fair and competitive compared to the alternative.

How is ‘commercially reasonable’ determined?

There is some evidence that “commercially reasonable” would imply pricing within 10% of an alternative, or another reference suggests in some sales to establish commercially reasonable pricing if there are five or more bidders.

Thomas Baker III, an associate professor at the University of Georgia and former commercial litigator, explained to LSR that the phrase “commercially reasonable” usually refers to acting in “good faith.” For that, “we would look to industry norms.”

Baker said that in order to determined what is commercially reasonable, we would need to “look at the market value of the information.” The inclusion of phrases like this is generally to encourage the parties to “play nice.”

Still, a big reason that there is not a clear answer to what the phrase means is, according to Baker, it is “very industry-specific,” and each states’ courts are going to have their history of interpreting this type of language.

What should we take away?

The big takeaway from the inclusion of the phrase “commercially reasonable terms” is that it is effectively kicking the can down the road. The legislatures are leaving it to someone else to translate.

What we do know is that official league data mandates threaten the competitiveness of the legal market for a seemingly questionable benefit. States are doing a disservice to consumers by leaving the phrase “commercially reasonable” undefined, or in the case of Michigan setting the bar so adequately low that a marketplace with only two competitors could conceivably satisfy the state’s conditions.

States can avoid this if they decide to impose commercially reasonable terms such as requiring a minimum of five market competitors and that official data be within 10% of the price of an unofficial alternative source. Even more in the spirit of providing a product that benefits consumers, this eliminates mandates for official data.

John Holden
- John Holden J.D. / Ph.D. is an academic. His research focuses on policy issues surrounding sports corruption.
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