There’s a curious new clause in the latest Massachusetts sports betting bill concerning relationships between sports leagues and to-be-licensed sportsbooks. Based on our knowledge of sports wagering legislation across the country, if passed, this clause and the type of commercial relationship it would expressly permit, would be a first.
(g) A sports governing body may enter into commercial agreements with a sports wagering operator or other entity in which such sports governing body may share in the amount bet or revenues derived from sports wagering on sporting events of such sports governing body. A sports governing body shall not be required to obtain a license or any other approval from the commission to lawfully accept such amounts or revenues.
At present, no state has sanctioned the kind of agreement contemplated, where a sports league contracts with a sportsbook to receive a cut of revenue from wagers placed on that league’s games. Or alternatively, contracts to receive an off-the-top slice of wagers on bets placed on a league’s contests, which the league would collect irrespective of the game’s outcome or the sportsbook’s revenue.
Indeed, the leagues have come a long way from their early 1990s testimony supporting the federal sports betting ban, to similar positions in the Supreme Court sports betting case (Murphy v NCAA), to present day. The evolution has taken the leagues from a position, roughly, that sports betting threatens to ruin the sanctity of sports — to negotiating for a percentage of sports wagers/revenue.
But there’s a bit more going on here than what’s immediately apparent.
Degrees of separation
It is widely believed (others might say “known”) throughout the industry that certain sports leagues, most likely the NBA and Major League Baseball, may already indirectly receive the kind of revenue that Section 11(g) would allow — only through a middleman. The middleman being the entity distributing the league’s data and corresponding betting markets to sportsbooks.
Sportsbooks and sports betting data suppliers, including prominent Switzerland-based company Sportradar, are believed to have agreements providing a supplier, such as Sportradar, a certain cut of the sportsbook’s revenue. That cut may be a percentage of all wagers, or for only in-game betting markets. And from those proceeds, some sports leagues, according to industry sources, are believed to be collecting a portion of the revenue.
Basically, the clause in the Massachusetts bill would cut out the middleman. And as a bonus, the leagues could accomplish that without also having to obtain or pay for their own licenses, which in Massachusetts may cost $250,000.
Do the leagues really care about the appearance of this? Coming as close to being an actual sportsbook without operating the sportsbook itself. Maybe a bit, probably not.
What do the legal sportsbooks gain from this relationship? Access to the league’s “official league data,” the purchase of which may be mandated by state law as well, anyway. Use of the league’s logos and marks, the imprimatur of being official or legitimate. Of course, these commercial relationships have formed between most major national sportsbook operators and leagues, even absent a state mandate. Just today the PGA and DraftKings announced that DraftKings has become the first “Official Betting Operator of the PGA TOUR.”
BREAKING: Today, @DraftKings and @PGATOUR team up to announce a new sports betting deal, designating DraftKings as the first-ever “Official Betting Operator of the PGA TOUR”. Full release here: https://t.co/yp9Arv71Pd pic.twitter.com/QarNZQeNKB
— DraftKings News (@DraftKingsNews) July 28, 2020
Origin of the clause
The sports leagues and state legislatures have (in)famously traveled down the cut-of-sports-bets road before via the “integrity fee,” which in its initial form would have legal sportsbooks paying leagues 1% off the top of all bets — ostensibly to help leagues bolster the integrity of sports. That conversation and the labels evolved, but no state has yet to mandate payment of the fee, by whatever name.
So, this clause in Massachusetts would be a kind of commercial version of that.
The most logical explanation for the origin and inclusion of the novel clause? Lobbying by the sports leagues, of course. The NBA, MLB, and PGA had (or have) most eagerly sought the integrity fee or a cut of sports bets, while the NFL and NHL have mostly stayed neutral on it or even disclaimed a desire to obtain it.
It seems unlikely that a state lawmaker would take the initiative to write in this clause. As for the sportsbooks, conversations around new revenue-sharing agreements have probably already occurred, if they are not already tentatively in place.
Note that sports leagues in both Australia and France have had revenue sharing agreements with sportsbook operators and the leagues. Pro leagues in Australia and France receive a small percentage of bets made on their sports. The NBA has studied Australia’s laws closely in forming a position on the matter. France just designated a new national regulator for sports betting, but did have a fee structure in place in the past.
Another twist in the proposed law
Now wait: There’s more excitement in this Bay State bill. If passed in its current form, the state would issue the first edict regarding payment of a percentage of bets to a non-governmental entity. Previously we wrote about Section 13. (a)(2) when the bill became available:
Another twist in the bill is a 1% tax that would be levied on sportsbook gross revenue above the 15% state tax. The second tax requires each operator to:
Submit to the commission the number of sports events or other events that took place at sports stadiums or other sports facilities located in the commonwealth, and the adjusted gross wagering receipts collected from each event. The commission shall impose and collect an excise equal to 1 percent of the operator’s adjusted gross sports wagering receipts from each event.
But these funds would not go to a league’s governing body. Rather, the sportsbooks would be required to pay 1% of its revenue “to each sports facility based on the amount collected at each such facility during the previous calendar year” to be used “only for the purpose of sports wagering security and integrity…”
That’s something we haven’t seen before, either.
Now quickly, back to the dawn of (widely expanded) legal sports betting in the U.S.: West Virginia, where officials resoundingly rejected MLB’s bid for an integrity fee, an off-the-top cut of wagers.
A lobbyist for MLB from the law firm Orrick, Herrington & Sutcliffe told West Virginia lawmakers that it would be untenable for a league to get a cut of a sportsbook’s revenue, as opposed to an off-the-top cut of all wagers made, because, “We don’t want to be in the business of making money when people lose bets.”
HB 4879 is expected to move through the House fairly easily, with fireworks expected in the Senate. The clock is ticking and the “formal” session runs out on Friday. Sharp money is on Massachusetts coalescing around its legalization vehicle in the fall, when the legislature returns from “informal” session. Stay tuned.
Correction: An earlier version of this story stated that per section 13(a)(2), sportsbooks would be required to pay 1% of GGR to leagues in connection with in-state contests. In fact, the 1% would be allocated to the in-state sports venue where the event(s) took place, not a league. We regret the error.