Sports leagues have come out flying the flag for regulated betting, as long they get the first cut of the action. But their demand for one percent of wagers, which equates to at least 20 percent of revenues, has been derided by experts for undermining the whole point of regulation.
Experts have accused the US sports leagues of overreaching in their demands for a one percent “integrity fee”, saying it undermines the premise of regulation.
Designed to give leagues funding to protect the “integrity of the underlying competitions”, the proposal for a one percent levy on all wagers was first drafted in an Indiana gaming bill after meetings with powerbrokers from the MLB and NBA – but is now being promulgated as a “50-state solution” to sports betting regulation across the US.
Testifying before a New York state committee, the NBA’s attorney Dan Spillane said: “To compensate leagues for the risk and expense created by betting and the commercial value our product creates for betting operators, we believe it is reasonable.”
However, the suffocating fee, which could see leagues benefit by as much as $2bn each year, is widely seen by industry insiders and outside experts as undermining the merits and mechanisms of effective regulation.
Joe Asher, CEO of William Hill US, highlighted to the committee that a one percent tax on handle, is really a 20 percent tax on revenue – and far too high for licensed firms to compete with black market providers.
Asher’s 20 percent is conservative. Given that, after payout, legal sportsbooks in Nevada take between 3.5 and five percent of bets in revenues, one percent of wagers could easily equate 28 percent of yield.
Integrity experts, Sportradar conceded that investing in the integrity “of any and every sport is critical.
Of that there is no doubt. And frankly, to do it properly and credibly does require spend.”
However, where that money comes from is a “tricky proposition”, the firm said.
“If that cost becomes prohibitive or uncompetitive as against offshore markets or black markets, the hope that a post PASPA US will see all sports betting come back on shore will founder. That will not help integrity at all.”
Renowned gaming professor I. Nelson Rose, and author of Gambling and the Law, crunched some numbers to see how such a fee would affect licensed operators.
By adding the one percent levy on wagers, on top of the 0.25 percent federal excise tax (also on wagers), as well as a hypothetical (and modest) 9.25 percent state gaming tax on revenues, “operators would be paying the equivalent of 39.3 percent of gross gaming revenue,” said Rose.
“In other words, the bookie takes in $10m in bets, pays the leagues $100,000, the feds $25,000 and the state about $38,000. This leaves the operator with about $250,000 to pay all of its expenses. Whatever is left, if any, is profit.
“I personally would never invest a cent into a business like this.”
Jeremy Kleiman, gaming lawyer and NJ-based Saiber, said the NBA’s approach “is very shortsighted,” who will already “benefit exponentially” from regulation, through advertising attendance and engagement.
“To demand a piece of tax revenue is plain greedy,” he added. From a practical point of view, however, Kleiman suggests that as states would also lose out from such a scheme, widespread approval is highly unlikely.
“It is possible some states will find a way to allow the leagues to directly benefit, but I am not confident a revenue share per league will be a part of final legislation. Assuming the other professional sports leagues are aligned – and that is a big if, everyone will want one percent, and that won’t leave anything for the states.”