SBTech is going to great lengths to keep its arrangement with the state of Oregon under wraps.
The European gaming supplier is suing multiple entities to keep private the financial details of its monopoly online Oregon sports betting operation.
Earlier this month, the Oregon Department of Justice approved a public records petition granting Legal Sports Report the right to inspect the contract between SBTech and the Oregon Lottery. It is that partnership that powers the new Scoreboard app, which launched in October.
SBTech refuses to follow Oregon AG order
Rather than disclosing the terms of the contract as ordered, though, SBTech filed suit against everyone involved.
Listed as defendants alongside LSR are the state DOJ, the lottery, and The Oregonian, which submitted its own petition separately. That means SBTech is suing both media outlets, and its partner and regulator for Oregon sports betting, too.
The company, based in Malta, has made regular appearances in the recent headlines thanks to its pending public merger with online gaming heavyweight DraftKings.
How much is SBTech making in Oregon?
In an April 2019 procurement memo (which has since been removed from its website), the lottery indicated that SBTech would receive 9%-11% of its revenue from sports betting.
That is, so far, the only public insight into the revenue-sharing agreement between the parties. And being smaller than the vendor share in the two most-comparable markets — Rhode Island and Delaware — it piqued interest.
The financial reports, however, appear to tell a different story.
For November, records show that the Scoreboard app generated $943,687 in revenue. After $650,000 in direct expenses and another $600,000 indirect, however, the state lost $307,000 for the month.
In fact, total losses since launch exceed $2.2 million despite more than $1.1 million in gross revenue from the Scoreboard product.
A petition for transparency
LSR began seeking transparency in November, initially via informal requests with the agency.
The lottery did provide portions of the unredacted contract, though it withheld nearly six full pages related to fees and payments as trade secrets. Along with the revenue-sharing structure, the redacted portions curiously include definitions for common industry terms.
The appeal ended up in the hands of Deputy Attorney General Frederick M. Boss, who ordered full disclosure on Jan. 3. The lottery subsequently dropped its claims, leaving SBTech alone in opposition. The vendor asked the court to intervene seven days later, seeking a preliminary injunction preventing disclosure.
Judge David Leith issued a temporary restraining order (TRO) on Jan. 10, the day the contract was due to be released.
SBTech claims contract includes ‘trade secrets’
The crux of SBTech’s argument is that disclosing the terms of its agreement with the Oregon Lottery would put it at a competitive disadvantage in the young US sports betting market. In fact, it goes so far as to claim “irreparable economic harm.”
The company further argues that it bid for a public contract under the assumption of confidentiality. And, according to SBTech, disclosure would actually “cause public harm” by disincentivizing other vendors from offering favorable prices to state agencies.
From the motion:
SBTech provided the Proprietary Information to the Oregon State Lottery as part of a confidential bidding process. If a party cannot trust that its secrets will be protected when that party attempts to do business with Oregon state agencies, then the willingness of future companies to provide such information will be suppressed. Oregon taxpayers will suffer.
The company’s refusal to comply with the Attorney General’s order for disclosure will bring the parties together in court in Salem. The hearing has not yet been scheduled, as SBTech appears intent on sending CEO Richard Carter to testify in person.
Public contracts subject to disclosure
LSR based its arguments on a plain-language reading of the Oregon Public Records Law and the Uniform Trade Secrets Act.
The former, most notably, provides that “every person has a right to inspect any public record” in Oregon. The state considers such requests for disclosure under a statutory presumption of transparency, putting the burden to prove an exemption on the record holder(s).
There are, of course, valid exemptions to protect legitimate trade secrets like proprietary formulas and procedures. Pepsi, for instance, shouldn’t have to reveal its recipe just because it enters into a public contract. Neither should the law compel companies to divulge trade secrets contained in private contracts.
But this ain’t Pepsi …
As LSR argued, though, basic terms like “gross gaming revenues” do not meet any reasonable definition of a trade secret. And even granting inclusion, such a categorization would not automatically guarantee privacy. Agencies like the lottery are directly accountable to the public interest and subject to near-full transparency.
From our petition:
State agencies should rightly be held to a high standard when it comes to procurements; contractual agreements with third-party vendors directly impact the allocation of taxpayer dollars. It is particularly important for the Lottery to operate with full transparency, as it is responsible for operating publicly owned games that generate large sums of revenue used to fund critical State programs.
Put simply, it should not matter whether or not SBTech wants the financials withheld — or even if they qualify as trade secrets. Once its bid becomes an active contract with a state agency, it is subject to public scrutiny.
The DOJ, which will argue the matter in court, makes a similar case in its own response filed last week.