MLB and Casino Interests Spar Over Kansas Sports Betting Bill

Kansas lawmakers held an informational hearing on Tuesday regarding a bill proposing to legalize sports betting in the state if and when the federal prohibition on sports betting is ended. Representatives from the MLB and Kansas casino interests were in attendance, and both expressed very different visions of the future.

HB 2752 seeks to legalize sports betting in Kansas ahead of a highly anticipated Supreme Court ruling in the New Jersey sports betting case. If passed, HB 2752 would allow sports betting to be conducted by the Kansas Lottery at facilities owned by the lottery. The bill also permits online wagering at licensed sports betting websites and through mobile apps.

The most controversial aspect of HB 2752 is the inclusion of an “integrity fee” to be paid to the major professional sports leagues as a sort of royalty for using their content and to offset the costs of ensuring the integrity of their leagues in a world where the USA has widespread sports betting.

The NBA and MLB have been clamoring for a so-called integrity fee of late, and lawmakers in various states have not been so receptive. The leagues purposely describe the integrity fee to make it sound like a minor thing (“we just want 1%”), when in reality what they’re asking for is a major tax on sports betting operators.

The proposed integrity fee in Kansas and elsewhere calls for 1% of the total betting handle to be given to the leagues even though sportsbooks already give back at least 95% of betting handle to customers in the form of payouts. Even without a 1% integrity fee, sportsbooks are lucky to keep 5% of the total betting handle as revenue.

Taking an additional 1% out of the total betting handle is akin to taking a 20% (or more) tax out of net revenue. The amounts paid to the leagues under such a system would be significant, to say the least.

MLB Wants Integrity Fee and Control

The MLB sent deputy counsel Bryan Seeley to Topeka on Tuesday to provide input on the bill, which currently sits in the House Federal and State Affairs Committee. Seeley told lawmakers the Supreme Court should issue an opinion no later than June and said Kansas will likely be positioned to legalize sports betting if the decision favors New Jersey.

Bryan Seeley also testified in support of keeping the sports integrity fee that is currently a part of the bill being debated. Seeley said the league has no position on the bill itself but did argue in favor of giving the MLB certain regulatory powers as well as the inclusion of a 1% integrity fee.

“The outcome of the game is certainly hard to manipulate, but the outcome of what will the first pitch be of the fourth inning is much more easy to manipulate by an umpire, by a pitcher, and those are the kind of bets we worry about,” Seeley told lawmakers on Tuesday. That is why the league wants the ability to control what types of bets may be offered by sportsbooks if betting is legalized in Kansas.

“Anything that gives players an incentive to not perform at their absolute peak is a hug danger to our business and can cost us tens, if not hundreds, of millions of dollars,” he said.

Seeley also argued in favor of the sports integrity fee, saying, “For us, it’s not simply about whether we get a share of the profits, although we think that is appropriate given the billions of dollars we spend to put on the games.”

Kansas Casino Representatives Slam MLB Over Integrity Fee

Casino representatives for Boyd Gaming (owner of Kansas Star Casino in Mulvane) and Kansas Entertainment (owner of Hollywood Casino in Kansas City) attended the hearing as well and provided their input. Not surprisingly, neither of the casino representatives was impressed with the MLB’s demands.

Richard Klemp, director of governmental affairs for Boyd Gaming, told legislators his firm is strongly opposed to the integrity fee. He also explained that Nevada casinos have been offering sports betting for decades without integrity fees.

Whitney Damron, representing Kansas Entertainment, held nothing back in criticizing both the MLB and HB 2752. While Kansas Entertainment supports legalization, the firm wants betting to only take place in-person at casinos, with no integrity fee, and less interference in general from the sports leagues.

Written testimony submitted by Damron is full of criticism. Regarding the 1% integrity fee, Damron’s statement explains that sportsbooks already give back 95% or more of all wagering handle to customers in the form of payouts and that a typical sportsbook operates on a margin of 2-5% of the total betting handle.

Therefore, Damron’s testimony explains, a 1% integrity fee on the betting handle is more like a 20-25% tax on net revenue. This would make “that already thin margin even thinner…” which would force “sportsbooks to require players to risk $12 or $13 to win $10. As a result, the ‘integrity fee or royalty’ in HB 2752 would cause legal sportsbooks in the United States to have less favorable betting odds than the illegal sites and place potential legal sports wagering in Kansas at a distinct competitive disadvantage.”

One of the other issues Damron has with the MLB and HB 2752 is a requirement that sports betting operators only use data supplied to by the leagues specifically for sports betting – presumably to grant the leagues yet another potential revenue stream.