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New Jersey Sports Betting Bill in Works With Novel ‘Integrity Fee’ Approach

By Brett Smiley | Published: May 1, 2018 at 2:48 pm

As expected, New Jersey lawmakers have produced a bill addressing sports wagering in New Jersey as the state and the gaming world anticipate a decision in the Supreme Court sports betting case, Murphy v NCAA.

At present New Jersey does not have regulations or an actual framework in place to manage sports betting. In a nutshell, that’s because the 2014 bill by former state senator Raymond Lesniak only (partially) repealed the state’s laws prohibiting sports betting. That bill was the impetus for the legal battle that’s now awaiting a decision from the high court.

The new bill under consideration is A3911, which “Authorizes wagering at casinos and racetracks on results of certain professional or collegiate sports or athletic events.”  The bill title appears on the state’s website but has not yet been uploaded; you can view the bill in draft form here, published by Legal Sports Report.  There’s a good amount to unpack here, so let’s get to it. (Update: Here is the bill as introduced on May 7, with updated sponsorship.)

New Jersey Sports Betting Bill in Works, Outlining Taxation, Novel ‘Integrity’ Idea, Regulatory Scheme, Who Can Operate Sportsbooks, Online Betting and More

New Jersey Sports Betting Bill in Works, Outlining Taxation, Novel ‘Integrity’ Idea, Regulatory Scheme, Who Can Operator Sportsbooks, Online Betting and More
Downey (L) and Houghtailing (R)

First off, let’s make clear the intention of this bill, which is sponsored by Assembly members Eric Houghtaling (D-11), Joann Downey, (D-11) as well as John Burzichelli (D-3), who is also the Deputy Speaker and Appropriations Chair. When asked for comment, Houghtaling and Downey’s offices referred Sport Handle to their news release.

“When the Supreme Court finally speaks, it’s going to take a complete refreshment of the statute to allow gaming to function in New Jersey,”  Assemblyman and co-sponsor John Burzichelli told NJ1015 in April. “There’s some discussion that we could go tomorrow, if the Supreme Court ruled our way. But in the end, I personally feel the statute has got to be refreshed and properly structured once we understand the range the Supreme Court is going to grant us.”

Key Components of the Bill:

(1) Who can run a sportsbook? The bill would permit Atlantic City casinos and racetracks in the state (even dormant ones that could reboot) the opportunity to obtain a sports wagering permit;

(2) Taxes and fees:

  1. The tax rate for sports betting gross revenue produced from on-premises betting is 8 percent;
  2. The tax rate on mobile/online gross revenue is 12.5 percent;
  3. The application/issuance fee for a permit shall be not less than $500,000;
  4. Also there’s an annual fee of $500,000 on all permit holders payable to the State General Fund, benefiting the Department of Human Services and Council on Compulsive Gambling of New Jersey.

“I think it’s a good starting place,” Lesniak told Sports Handle of the taxes and fees here, “And then we’ll have to hear from the casino operators and the race tracks as to whether they can make that work; but I think it’s a reasonable approach, if we’re allowed to do it.”

(3) Mobile and online: Casinos and racetracks holding a sports wagering permit may conduct an online sports pool or may contract with a licensed operator to handle the online wagering/apps, and patrons have to be 21 years of age and up;

(4) “Integrity fees” and costs: Buried the lead here a little bit. A couple weeks ago we learned from NJ.com and Politico that members of Governor Phil Murphy’s administration met with MLB and NBA officials, who have been feverishly lobbying for a “betting rights and integrity fee” paying them 1 percent off-the-top on all wagers. Referencing the presentation as a whole, one official said that it was “laughable.” According to sources, this bill is coming through the Governor’s office.

From the bill: The “integrity fee” here would go directly to the “Sports Wagering Integrity Fund,” which would be wholly managed by the Attorney General. The cost?  All casinos and racetracks would pay equal to the lesser of $7.5 million or 2.5 percent of gross sports wagering revenue (it would take some tremendous volume for a single sportsbook to have $7.5 million represent the lesser of these two possibilities).

Those funds will cover, among other things:

  1. integrity monitoring expenses;
  2. public relations expenses associated with integrity issues;
  3. personnel costs associated with the establishment of a sports wagering integrity unit within the division; and
  4. any other eligible expenses approved by the attorney general.

Notably this keeps monitoring between the sportsbooks, the Division of Gaming Enforcement (DGE) and local law officials and gives them the ability to work with the leagues directly, but would eliminate paying the leagues directly to expend money as they see fit — or pocket it since the leagues view their preferred fees as a “royalty” as much as an “integrity” expense.

(5) Update: According to Observer, the language in draft version of A3911 that would allow leagues to seek reimbursement for “integrity expenses” — discussed immediately below — does not appear in version of bill filed at the Office of Legislative Services.

This bill does make a concession to the leagues:

“A sports governing body whose sports events are wagered upon in New Jersey casinos or racetracks may seek reimbursement for expenses incurred relative to ensuring the integrity of its sports events with respect to sports wagering operations in New Jersey by submitting a claim for such compensation to the attorney general.”

If there’s no more funds to pay the leagues? Tough luck. But we’ll see about this portion of the integrity monitoring framework. I wouldn’t bet on the league-friendly language making it into the final version.

“After they’ve fought us tooth and nail all the way, at every step of the way. I’ve been in court eight times on this case and the fact that the state of Nevada doesn’t pay loss to the leagues, why would New Jersey?” Lesniak said. “We’re not stupid. I don’t know what lobbyist got their way into this bill that I believe came out of the governor’s office but it’s, quite frankly in my opinion, that provision in it is dead on arrival.”

“They should be paying back our legal fees or helping promote their viewership to having sports betting.”

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(6) Importantly: Sports wagering permit holders may not to operate or accept wagers via an online sports pool unless a sports wagering lounge is established and has commenced operation in its facility;

(7) And as an extension of that, regarding online sportsbook offerings (emphasis added):

It shall be an express condition of operating an online sports pool by or on behalf of a casino licensee pursuant to an agreement with a casino licensee that the online sports pool shall be branded in a manner to emphasize the identity of the casino licensee and that online sports bettors shall be provided with promotional credits, incentives, bonuses, comps, or similar benefits designed to induce online sports bettors to appear in person at the premises of the casino licensee’s casino hotel in Atlantic City, New Jersey. The division shall establish by rule standards governing the provision of these measures.

Obviously the state is eager to drive patrons to the brick-and-mortar facilities, racetracks and their to-be constructed sportsbooks.

Also indicated by this language is the wise recognition that allowing people to register for a sports betting account online would be a smart way to engage potential patrons currently betting in the black market. Rather than forcing them to register in person, which is the status quo in Nevada. Get people registered through branded apps and go from there.

(8) In the draft version of the bill, betting on collegiate events taking place in New Jersey is prohibited, as well as a sport or athletic event in which any New Jersey college team participates regardless of where the event takes place. There is a caveat for tournament games.

(9) Who’s in charge? The DGE will have responsibility for licensing and will promulgate regulations for the conduct and operation of the sports wagering activities. The New Jersey Racing Commission would also be involved in approving the operation of a sports pool at a racetrack and any agreement between a casino and a racetrack to jointly operate a sports pool; and 

(10) Finally, the bill charges the DGE with devising and managing other regulatory functions, including:

  1. amount of cash reserves to be maintained by operators to cover winning wagers;
  2. acceptance of wagers on a series of sports events, including the manner in which sports pool and online sports pool accounts are created and funded by patrons;
  3. maximum wagers that may be accepted by an operator from any one patron on any one sports event; and
  4. use of credit and checks by patrons. 

What Now?

New Jersey is in a unique situation here and has to be careful given its involvement in the Supreme Court case. This law, which would legalize sports betting at the state’s casinos and racetracks, would be illegal under the Professional and Amateur Sports Protection Act (PASPA), the fate of which will be decided by the high court. New Jersey is arguing that PASPA, the 1992 federal ban on sports betting outside Nevada, represents a 10th Amendment violation. 

Lesniak calls this bill with the league concession a “trial balloon.” Eventually some balloon will probably sail if New Jersey prevails in the Supreme Court case, depending on the nature of the decision. If the court rules on statutory grounds, finding that the 2014 bill creating a regulatory free “Wild West” can move forward, who knows what may happen. But it sounded at oral argument like Chief Justice Roberts isn’t fond of that outcome or of the belief that Congress intended that with PASPA.

“Considering the popularity of professional and collegiate sports, as well as the myriad of other gambling opportunities offered throughout the state, allowing sports betting in our Atlantic City casinos and racetracks is a natural next step for New Jersey,” said Assemblyman Eric Houghtaling in the press release.

The Garden State’s legislative session runs until Dec. 31, so the only urgency here is setting the table for a possible post-PASPA world. The next possible date for a decision in the case is May 14. Stay tuned for that and progress on this bill.

Also Check Out From SportsHandle:

Status of Sports Betting Bills Around the Nation as Sessions Wind Down

More Expert Predictions for the Supreme Court Sports Betting Case Decision

A Bad Bet Disrespecting Legalized Gambling’s Anticipated New Customers

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