Sports Leagues Notch Victory in New Kansas Sports Betting BillBy Brett Smiley | Published: March 23, 2018 at 2:22 pm
Listening to the Kansas sports betting hearing on March 13, it sounded like lawmakers had serious concerns about testimony supporting points in the MLB- and NBA-created “Model Legislation” for legal sports wagering legislation.
But the introduction of a new bill dubbed the “Kansas Sports Wagering Act” on Thursday by the Senate Federal and State Affairs Committee indicates that lawmakers have looked to yankees for some guidance in the formulation of a bill that is cause for some celebration by the leagues.
Senate Bill 455 (SB 455) is similar to the House Bill 2752 (HB 2752), which incorporates and grants the leagues the controversial off-the-top “integrity fee,” valuable data rights, as well as the right to restrict types of bets (such as prop bets) that sportsbooks may offer. However SB 455 is different and significant because: it creates a recalibrated royalty or “integrity fee”; it adopts a new New York-conceived data structure; it allows the states to submit for “restriction” of certain wager types, giving the Kansas Gaming Commission final say on that; and some particular language in the bill as well as timing.
Kansas Sports Betting Bill Gives Leagues Win With Bill Including Rejiggered Royalty Fee to Leagues and Data Nuance
First off, a representative at the office of Kansas Senate Federal and State Affairs Chairman Bud Estes was not immediately able to identify if there was a specific legislator sponsoring this bill. “They’ll be on the floor all next week” she told SportsHandle. “No committee meeting is currently scheduled.”
As for the bill, eight key points and takeaways:
(1) It formulates a new structure to pay leagues their desired “integrity fee” — 0.25% of total sports wagers (or handle) — capped at 5% of aggregate gross revenue:
It’s not the 1% (equivalent to 20-25% revenue) where the leagues started. And the bill would also allow operators to deduct from their gross revenue certain bonuses or prizes given to patrons. So, less for the leagues.
(2) Although 5% as a cap is about a quarter of what 1% off-the-top would amount to, it still may give casinos/operators pause about doing business in an environment where fees lower already low margins. From the March 13 hearing (Boyd owns Kansas casino properties):
Boyd gaming: "Doubtful if Kansas casinos would even put in sports books with that integrity fee."
— SportsHandle (@sports_handle) March 13, 2018
(3) Just like the House version of the bill, the act would “include a provision for the state to receive not less than 6.75% of the sports wagering revenues, which shall be paid to the expanded lottery act revenues fund established by K.S.A.”
Combined with the 5%, that’s 11.75% at a minimum. (Plus a federal excise tax of 0.25% off the top; this chart gives a good visual breakdown of how the money flows.) West Virginia’s bill will charge operators 10% but operators would not have to pony up any cash to the leagues. Iowa’s current bill would charge 7.66% for the state but nothing for the leagues.
(4) This whole silly “tier” structure for determining when and whether operators would have to use (read: buy) data and information from the leagues. New York came up with this idea, which classifies types of wagers. For a bet on a game’s outcome, operators can use whatever data they want to grade wagers (like watching the game on TV!).
But for prop bets and in-play wagers, the leagues want to monopolize the data for “integrity reasons” and to create “one single truth” about scores. It’s about money and control.
The leagues have hung their hats on the necessity of a single data source based on the “risk” of their games getting compromised, mainly from in-play wagering. The leagues have offered no cogent argument for how this would actually occur, and why the exclusive use of their data could detect any “fix” or suspicious betting activity, or prevent it from occurring.
Hypothetical: If a rookie batter earning about $535,000 has an understanding with a rookie pitcher earning $535,000 to throw him a meatball on the third pitch of a second inning at-bat, when there’s a the possible sportsbook prop bet for the batter swatting a home run on that pitch at about 20:1 odds, how and why are the leagues better suited to evaluate? At the most basic level, a private data company can’t judge whether it’s a homer or not? A private data company can’t communicate with a Kansas or Iowa sportsbook about the origin of any big wagers coming in? A private data company and the sportsbook can’t simply correspond with the leagues about it? Let’s hear the leagues explain this scenario.
Besides, the players are earning — at a minimum — over half a million dollars. Who wants to risk a potential multi-million dollar career, and his lifelong reputation, over a comparatively small potential payout?
Boyd gaming: The prop bets already being played now in Nevada sports books and MLB has raised no objection. "During theSuper Bowl too" which stirs interest in games. And there's regulation. "I don't see any problem with that."
— SportsHandle (@sports_handle) March 13, 2018
In any event: The leagues have consistently maintained that a regulated market is better to protect the integrity of games. The absurdity of their new positions was explained nicely in Connecticut:
(5) Legal precedent also supports that results and data from games is public-domain information, and therefore not something that leagues can claim as theirs and theirs alone. But if they get lawmakers to agree to give them that right? Yeah. Then they could charge operators whatever the heck they want and put any other data or technology businesses out of business.
(6) The bill would allow mobile wagering. Pretty much every state bill will as mobile/app wagering is recognized as is it should be as an essential sportsbook offering. Consumers expect it and licensed books won’t move customers over from the black market without it.
(7) The timing: After Kansas lawmakers got “schooled” as we described it after the March 13 hearing, a senator opined that sports wagering is more complex than he was aware. That’s partially because MLB officials including Bryan Seeley, who testified, are intentionally obfuscating issues and telling half-truths in order to get legislators to cede to their requests (as called out in Connecticut) and just move along. But seeing this map light up, perhaps Kansas just wants to get in rather than fall behind, without examining or understanding the consequences of the legislation.
This is not to say the introduction of this bill in the Senate means it will move through committee and get time on the floor. But its introduction came as a surprise to this author.
(8) Going back to the 0.25% fee capped at 5% of revenue. This bill plucks the language, as the House bill does, from the Model Legislation. It refers to the fee as “betting right and integrity fee.” This is semantics, but does have significance.
Calling it a “betting right” somewhat validates or at least codifies the idea that the leagues indeed have a right to take this money out of the pockets of states and operators. It doesn’t happen now in Nevada. It won’t in West Virginia. Probably not in Connecticut or Iowa (although who knows at this point).
It appears here that Kansas lawmakers are relenting to MLB and NBA lobbying. Or not understanding how the industry works. Or not looking to legal precedent. And are willing to send less revenue to the states, for the benefit of multi-billion dollar private entities, which have built stadiums paid for in part by state taxpayers, which was noted during a hearing. In Kansas.
“Do you guys still use tax dollars to build stadiums?” one senator asked.
“I think the answer to that is yes,” replied Seeley.