Arguments Already Heating Up Regarding Sports Betting Integrity Fee

It’s almost as if legal sports betting in the United States is a foregone conclusion. Although the issue of sports betting is still very much up in the air, debate is heating up regarding a proposed “sports integrity fee” that would divert 1% of all betting handle to the major sports leagues.

The idea for an integrity fee first popped up earlier this month when it was added to a piece of legislation introduced by Representative Alan Morrison in Indiana. House Bill 1325 wants to legalize sports betting at certain locations in Indiana if the federal sports betting ban is overturned. That bill is just one of many like it that are now being considered across the nation as the Supreme Court prepares to issue a ruling in the New Jersey sports betting case.

What makes Indiana’s bill unique is the inclusion of the so-called integrity fee. Rep Morrison told ESPN that he received input on the bill from the NBA and MLB, who urged him to include a provision diverting 1% of the value of all wagers placed on sports to the leagues. Rep Morrison did as they asked and that kicked off the current debate.

The American Gaming Association responded immediately with a statement calling the idea “short-sighted” and “misinformed.” That was the first salvo in what has quickly become a heated debate.

Undeterred, the NBA has doubled down on its position. Lawyers representing the NBA made an appearance in New York recently as the Senate Racing, Gaming and Wagering Committee held a public hearing to discuss the potential of sports betting in the state.

NBA General Council Dan Spillane submitted written testimony to the hearing explaining that although the NBA would rather see sports betting regulated at the federal level, the league is not opposed to a state by state approach – IF certain provisions are included in state-level legislation.

Among those provisions is – wait for it – the inclusion of a 1% integrity fee. If the NBA can convince New York to bend the knee and include certain provisions in any legislation it passes, the league would support New York’s legislation as a nationwide model that other states could emulate.

Sports Integrity Fee is Bigger Than It Seems

A 1% fee doesn’t sound like such a big deal until we look a little closer and see it is applied to betting handle, not to gross revenues or net profits. This means the fee would be taken from the total sum of all wagers that are placed.

Sportsbooks do not operate on a very large profit margin compared to the total amount of wagers they take in. For instance, Nevada sportsbooks generate revenue of less than 5% on all betting handle. In one ten-year period, Nevada took in $22.5 billion in bets and reported revenue of about $938 million. That’s just 4.16%.

When we consider the small profit margins on which sportsbooks operate, a 1% fee on betting handle is roughly equivalent to placing a 20-24% tax on gross revenues. You can see this post for more details on where those numbers originate.

The Two Sides to the Debate

There are two clearly defined sides to this debate: those in favor of the integrity fee and those against. From what I’ve been able to tell so far, the NBA and a few lawmakers drawing up legislation are the only major players supporting the integrity fee. Every news article I’ve found discussing the sports integrity fee has either taken a “just the facts” approach or has expressed skepticism.

For instance, this post published on Fansided gives the NBA tongue-in-cheek credit for at least being honest about what it wants. That post starts with a basic introduction to the sports betting case and integrity fee, then goes on to make several points regarding the NBA’s position.

Here is just one excerpt from that post:

“The NBA’s suggestion contained no tenants about making sure that the legislation contains resources for treatment for problem gamblers. It makes no mention of establishing a framework to ensure that the integrity of its games aren’t compromised. The NBA simply wants one percent of the handle in New York (see here for the difference between handle and revenue) in the state, and wants access to wagering to be as expansive as possible. Previous similar pieces of legislation in states like New Jersey and Pennsylvania have limited betting sites to established casinos and race tracks.“

Consumer Action for a Strong Economy (CASE) offers a more straightforward argument against the integrity fee in a post titled NBA Makes Fast Break for Taxpayer Money, Undermining State Wagering Laws. That title leaves little doubt as to which side of the argument CASE stands.

CASE argues that the already-rich sports leagues and their billionaire owners have no legitimate need to take such a huge chunk of the profits from private operators around the nation. Not only is the amount of money requested huge, CASE argues, but it will also likely make US-legal operators uncompetitive against illegal underground and offshore bookmakers.

The NBA has responded to some of the criticism and does make points of its own. NBA spokesman Mike Bass recently said the fee the leagues are asking for is comparable to what other countries have done in regulating sports betting.

In a statement, Bass said this:

“Sports leagues provide the foundation for sports betting while bearing the risks it imposes, even when regulated. If sports betting is legalized federally or state by state, we will need to invest more in compliance and enforcement, and believe it is reasonable for operators to pay each league 1 percent of the total amount bet on its games to help compensate for the risk and expense created and the commercial value our product provides them.”

The sports leagues have an uphill battle ahead of them because the integrity fee does not look too popular at the moment. However, the leagues also hold considerable sway. The NBA is one of the main parties named in the New Jersey Supreme Court case currently underway and has been able to keep New Jersey tied up in court for years.

It may turn out the NBA can win on this issue with brute force alone. Lawmakers, policymakers and industry stakeholders may eventually find it easier to just concede the issue and move on. Only time will tell, and we will be watching developments closely. Of course, it’s all moot if the sports betting prohibition is not repealed one way or another.