Adam Silver Proves that NBA’s Sports Betting ‘Integrity Fee’ Is A Total Sham

During a press conference on Saturday at the All-Star Weekend, NBA commissioner Adam Silver inadvertently revealed that the league’s expansive lobbying effort for a cut of all wagers on legal sports betting is a bogus hodgepodge of nonsense.

“This notion that as the intellectual property creators that we should receive a 1% fee seems very fair to me” Silver said of levying a fee on potential operators. “Call it integrity fee, call it a royalty to the league.”

But… NBA and MLB officials have spent the past seven weeks imploring lawmakers in statehouses across the country that bills legalizing sports betting must include an “integrity fee,” for leagues to cover the cost of monitoring betting markets for any suspicious activity.

We have been wondering all along — what exactly is the league lobbying strategy in support of a 1% integrity fee, which amounts to about 20% of operator revenue — only to get this confirmation that it’s a disjointed, inconsistent, baseless money grab that would undercut the NBA’s purported goal: To eliminate an illegal sports betting market, to enhance the “integrity of the game.”

NBA Commissioner Adam Silver Suggests ‘Intellectual Property’ Is Reason Why Leagues Deserve 1% of Legal Sports Bets, Which Contradicts Various Other Arguments In Support of ‘Integrity Fee’

(Note: Please skip down to below for a look at the league arguments if you don’t need any background.)

In case you haven’t been following along: In nearly 20 statehouses across the country over the past seven weeks, lawmakers have introduced bills to legalize sports betting (some have already passed or are close). It’s all happening very quickly. The NBA, in conjunction with MLB, has registered lobbyists in 16 states and roughly 30 individuals attempting to convince lawmakers that, among several other things such as the right to limit certain wagers, the league deserves a 1% cut on legal sports bets all bets as an “integrity fee.”

Why? They’ve offered a multitude of reasons that we deconstruct below. The major takeaway here is that NBA commissioner Adam Silver just undermined all of them and revealed the truth about the “integrity fee”: It has everything to do with money and nothing at all to do with integrity. The NBA and other leagues already benefit substantially from sports betting. Let’s have Dallas Mavericks owner Mark Cuban speak to that point:

“We have always known betting, fantasy leagues and daily [fantasy] sports have driven interest and viewership,” Cuban wrote in an email exchange with ESPN The Magazine in 2015. “We did everything possible to encourage it while publicly condemning gambling. I’m glad [Silver] is putting the hypocrisy behind us and putting it all up front.”

Silver’s 2014 Support for Legal Sports Betting

Since the passage of the 1992 federal law banning sports betting outside Nevada (PASPA), the NBA and other major U.S. sports leagues have opposed legal sports betting. Collectively the NCAA, NBA and the other major leagues have fought in federal court against New Jersey’s efforts to legalize sports betting. The United States Supreme Court is now deciding the matter of Murphy v NCAA (previously Christie v NCAA), a legal battle that began in 2012 and will decide the fate of PASPA on constitutional grounds.

In 2014, Adam Silver penned an op-ed in the New York Times in which he advocated in favor of the legalization of sports betting — with certain consumer protection measures, integrity monitoring and other elements that indisputably are necessary for all parties: the leagues, the operators, states and consumers.

Nowhere in that article or in the intervening three years did Silver say that to-be operators of legal sports betting would be responsible for paying the leagues to conduct integrity monitoring, which the leagues are already doing in international sports betting markets and in Nevada.

Silver has said the NBA favors “federal framework” for sports betting. He doesn’t really say why. Here’s why: So the leagues can convince one group of federal lawmakers that they deserve a 1% instead of lobbying state by state, which they are finding is quite difficult. Right now they’re moving state by state and face-to-face with local officials that more directly observe what the leagues are asking: to take money from states and state-licensed operators. This is also an interesting dynamic because PASPA is a battle over federalism and states’ rights.

Let’s Get to the Leagues’ Arguments and Contradictions

Here are Silver’s full comments at a press conference at the NBA’s All-Star Weekend in Los Angeles (via ASAP Sports; emphasis added):

Since a 1% fee on the handle of sports books could amount to a 15 to 20% levee on their revenues and threaten the viability of their business model, how receptive is the league in negotiating with those books in tying the proposal to revenues instead of the overall handle?
ADAM SILVER: So I’m not sure if your math is right, but let me just say that we’ve been asked by multiple jurisdictions for our point of view on how sports betting legislation should work, and right now there are roughly 20 states that are actively considering sports betting bills in anticipation of the Supreme Court overturning PASPA.
We created in our mind what a model bill should look like. What was included, to your point, in that model bill is a 1% fee, call it integrity fee, call it a royalty to the league.
I would only say from the NBA’s standpoint we will spend this year roughly $7.5 billion creating this content, creating these games. Those are total expenses for the season. So this notion that as the intellectual property creators that we should receive a 1% fee seems very fair to me.
Having said that, it’s what our view of a model bill was. We were happy to sit with legislators and look at the economics and talk about what is the best system. I will say what will come with legalized sports betting are enormous additional expenses for the league that go directly to integrity. Our ability to monitor that data, our ability to flag problem issues, trends around the league, enforcement, additional training.
So, again, we’ve never suggested that this is the only way to look at it. In fact, the 1% came directly from other jurisdictions outside the United States that used that very fee as the model for how leagues or content creators should be compensated for the use of their intellectual property.
But to the extent that we sit down and there are other ways and better ways to reach a fair result, we’re happy to have those discussions.

But league officials and lobbyists have not been calling this fee an intellectual property fee or a royalty (for which they have no legal right).

League Argument Number #1: It’s an intellectual property fee, or a “royalty fee”

Compare that with with what Senior Vice President and Assistant General Counsel Dan Spillane told New York State senators at a public hearing in late January. Hint: Not an intellectual property fee or a royalty.

League Argument #2: They’ll need to spend more in compliance and enforcement

Perhaps, yes. Meanwhile, the league is stating that a legal, regulated sports betting environment is better for its league to protect the integrity of its game. Because right now, Americans are making about $400 billion in illegal wagers annually (Silver’s figure) — and it’s all going unmonitored.

So, leagues want the benefit of not having all these wagers in an illegal market — for integrity reasons — but it doesn’t want to pay for it? Consider this pointed remark from West Virginia state senator Douglas Facemire during the testimony in February of MLB/NBA lobbyist Scott Ward:

"I don't see why we should give you 1% for anything" says Senator Facemire to MLB's Blair. "Why should we pay you to protect you own interests. Especially 1% off the top. "It's ike we're paying the insurance premium" on your game." #hammer
— Sports Handle (@sports_handle) February 12, 2018

League Argument #3: To compensate leagues for the risk and expense created by betting

Isn’t the point of the league support for legal sports betting that there’s greater risk by having voluminous sports betting occurring in an illegal market?

League Argument #4: To compensate leagues for the commercial value their product creates for betting operators

This is another way of claiming an intellectual property fee, or a royalty. Let’s call this one the commercial value fee.

Regarding Ward's case and integrity fee, Senator asks. "Is there anything mandating that? Is that just a request?" Boyd says no, points to Nevada overseeing integrity monitoring for years with no dime paid to leagues.
— Sports Handle (@sports_handle) February 12, 2018

League Argument #5: So the leagues don’t root against fans

This one is the most absurd yet. Ward offered the rationale at the West Virginia hearing. We took a closer look at it here, but the gist of it is that the leagues want a cut of wagers off the top and not on revenue because if it’s the latter, the league would be rooting against one side. This completely misunderstands how sports betting works.

The Lobbying Will Continue

Now that Silver has revealed the truth on the record, the task of the lobbyists in 16 states (and growing) will get more difficult. That is, if lawmakers are paying attention or if they’re as discerning as Senator Facemire.

A pair of bills are on the table that do include the “integrity fee” — in Indiana and Illinois. Various other states are going ahead, refusing to oblige the leagues’ disingenuous request for a cut.

Meanwhile, the United States Supreme Court is currently weighing the constitutionality of PASPA: an operative federal law banning sports wagering altogether. In other words, the leagues are supporting a federal ban on sports betting while going state-to-state supporting it — as long as they get a cut of wagers. What a time to be alive.

A decision in Murphy v NCAA may come as soon as March 5, but likelier we submit on April 2 or April 30. In the meantime, we’ll continue to monitor — for integrity — the shapeshifting NBA arguments.