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By Alex Ebert
The National Football League Players Association isn’t publicly supporting league demands for a percentage of sports betting cash because the union, like many industry insiders, believes the fees could undercut legal sports betting.
While the NFL is calling for state betting laws to include integrity fees—usually a small percentage of all bets wagered on a sport that is given to its league—the union is remaining neutral and focusing on protection of player privacy and game integrity. The short-term revenue on the fees could be small, and the long-term impacts on the industry could be detrimental, Casey Schwab, NFLPA vice president of business and legal affairs, told Bloomberg Tax July 13.
The NFLPA doesn’t publicly support integrity fees “because we realize how that could undercut the entire industry,” Schwab said following a keynote address he gave at a National Council of Legislators from Gaming States conference in Cleveland. “Because the margins are slim and if you start undercutting the entire industry then now you’ve just given up this opportunity to do this thing, do it right, and to get all the underground bettors and hopefully get them to come above ground.”
Schwab’s comments reflect broad concerns from legislators, casino owners, economists, and consultants at the conference who mostly agreed that integrity fees would either make legal sports betting noncompetitive with existing underground options or would be unpalatable to voters that would see the fees as handouts to the leagues. Leagues, meanwhile, have argued they should be reimbursed for the new economic activity created by their intellectual property and paid for having to increase investigations to ensure games aren’t getting rigged.
“The idea that an integrity fee would bankrupt a casino is a myth based on the amount of compensation leagues are requesting,” Daniel Wallach, shareholder at Becker & Poliakoff, said at the conference July 14. “This is not the same environment they’re operating in previously. As a matter of sound public policy and intellectual property rights, some recognition of those rights coupled with the massive undertaking that the leagues bring to bear here warrants some reasonable integrity fee that in my view should be negotiated.”
A flurry of legislation blustered across the country following the U.S. Supreme Court’s May ruling in Murphy v. NCAA that opened the door for states to legalize sports betting.
At the peak of activity, there were 46 bills introduced across the U.S. Some, including bills in New York and Indiana, would have imposed an integrity fee. But so far, no legislature has passed a bill with the league-friendly measure.
The main reason against the fee, regulators and casino representatives say, is to allow legal gambling to compete with the estimated $150 billion to $300 billion black market illegal sports books. Since integrity fees generally seek a percentage of the handle, the total amount bet, they could drastically reduce casinos’ gross revenue and states’ tax revenue.
“Small additional fees can add up,” Becky Harris, chairwoman of the Nevada Gaming Control Board, said July 13 at the conference. Based on her estimates of Nevada sports book revenue in 2017, she said a 1 percent fee for the NFL would decrease casino revenue by 22 percent, or about $17 million.
Harris said, and casino managers agreed, that Las Vegas sports book operations pay out about 95 percent of the handle. That means their gross revenue, before expenses, is 5 percent of the total bets. And the casinos don’t want to reduce that amount by a further 20 percent when they don’t necessarily trust the leagues’ dedication to integrity.
“The NBA finals were a month ago,” Art Manteris, vice presidents of race and sport operations at Station Casinos,said July 13. “Can somebody shed light on for me personally, did LeBron James play the final three games of the NBA finals with a broken hand? I’m still trying to figure that out, and tell me again what the leagues are going to sell us for that one percent?”
In addition to creating the products that people bet on, the leagues bring something the states can’t: multi-jurisdictional investigatory power.
Unlike states with police power ending at their borders, leagues can pursue cheating players across the country, and do so at great expense, Wallach said. “Leagues are a necessary and essential partner to that undertaking, but this is going to cost money.”
He also added that in some circumstances, sports books appear to be doing better than the reported 5 percent gross revenue claims of Las Vegas casinos. For example, in the first two weeks of legalized sports betting in New Jersey, the casinos reported gross revenue of 7.8 percent.
Wallach said the leagues are hesitant to leave the issue of fees up to commercial deals with the casinos because those deals never materialized between the leagues and Las Vegas over decades of sports gambling.
“To get 30 states in 3 years and eradicate the black market, we need all hands on deck,” he said.
From a political perspective, the fees strike some legislators as unfair, and are complete “non-starters” for others.
“If you do it for sports then what’s next? I’ve got to do it for automobile industry, I’ve got to do it for aerospace, I’ve got to do it for all these other industries that are also going to say the state is benefiting x, y and z, so whatever money you make off our products, you’re paying state taxes and we also want a fee off of it,” Georgia Rep. Derrick Jackson (D) told Bloomberg Tax July 14. “I think we do our part by incentivizing them, being good financial stewards, helping with their stadiums, and providing security.”
Jackson said he would be working on the issue of possibly bringing sports betting to Georgia, a state that has no casinos. But in Iowa, a state with 19 casinos, integrity fees are a non-starter, Rep. Jake Highfill (R), told Bloomberg Tax July 13.
“They want to have us tax and funnel for them? I don’t know of another industry where we tax for a private company,” said Highfill, who is working on a bill to bring sports betting to Iowa. “I shot that in the head before it started. We’re never doing an integrity fee, period.”
The NFL didn’t immediately respond to a request for comment.
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