Cue the soundtrack to David Bowie and Queen’s “Under Pressure.”
As many 2019 legislative sessions draw to a close, a number of states and stakeholders in the U.S. sports betting landscape are feeling it. Lawmakers across the country are scurrying to get sports betting legislation passed and signed into law in time for football season, while stakeholders publicly testify to common and conflicting interests, and privately negotiate — or spar — over potential commercial engagements.
Last week, Sports Handle published a report on the push by two major professional North American sports leagues to collect a percentage of betting handle from sportsbook operators in Las Vegas. Sports Handle reported that over the last month, Sportradar, an official sports betting data provider of the National Basketball Association and Major League Baseball, exerted pressure or at least communicated to certain books that they would need to pay the NBA and/or MLB separate and additional fees for access to the leagues’ in-game betting data feeds, supplied by Sportradar.
Many Nevada sportsbooks already have agreements through which they receive data from Sportradar; the only thing that’s changed in recent months is the designation of “official” with respect to MLB and NBA feeds, and which feed a sportsbook may receive as a result of some new conditions. Namely:
“The right to use our official data requires a direct license from MLB and the data will be supplied by one of our authorized data distributors,” reads an MLB statement published by Forbes on Tuesday. And according to Bloomberg on Friday morning, MLB’s Kenny Gersh said that MLB will “require a deal before operators can work with an official data provider.”
In other words, you can’t just be a Sportradar client now. You have to be a partner of the league, too. This direct-license strategy that MLB and apparently also the NBA is using, is putting Sportradar and perhaps also Genius Sports (NBA’s second official provider) in a real pickle. Perform Group, a U.K. based global sports media company, was announced as the MLB’s second official betting data partner earlier this spring. They’re all paying millions to be official partners with the leagues, yet apparently granted the leagues the right to restrict them from supplying licensed operators until and unless the leagues strike separate, direct agreements.
Thus, the official outfits stand to lose a significant chunk of their U.S. business. Making matters more difficult, Sportradar is not allowed to sell unofficial data featuring content from these leagues any longer, a source told Sports Handle. So the data provider is likely in the process of attempting to convert numerous contracts with sportsbooks that receive unofficial NBA and MLB data to the official data feed, according to the source.
It was heretofore unknown — publicly, though it was known throughout parts of the industry — that the NBA and MLB are privately seeking the same thing they are seeking via lobbying and through testimony in dozens of statehouses across the country: an off-the-top slice of the betting handle from licensed sportsbooks. That cut has been alternatively called an “integrity fee” or “royalty” or simply “compensation” as this conversation has evolved since the start of 2018.
An aspect of the initial Sports Handle report under dispute by all parties involved concerns the length of the “grace period” and whether data feeds will actually get cut for operators that do not strike an agreement directly with the league. Though two deadlines have reportedly passed, at least one sportsbook that had received word of a possible shutoff appears to still be receiving the feeds. Now, two new deadlines have been set: next week for the NBA signal and by the All-Star break in July for the MLB one, Bloomberg’s Eben Novy-Williams reported.
For now it’s difficult to ascertain how much leverage the leagues have over Sportradar and other official data providers. That could change in the coming months when the grace periods implemented by the leagues expire.
“The NBA’s sports betting partners recognize the value of official NBA data and work with us to protect the integrity of our games,” said Scott Kaufman-Ross, the NBA’s senior vice president, head of fantasy and gaming, in a statement to Sports Handle.
“We provided a season-long grace period for other betting operators to have access to official NBA data while we discussed partnership terms. While that period is ending — something distributors and operators have known since the start of the season — we remain committed to securing additional sports betting partnerships.”
If a large percentage of Sportradar’s existing clientele balk at paying the leagues to be an official partner, on top of paying Sportradar’s fees as the supplier, where does that leave Sportradar?
“We are keen to bring the sides together, but there may well be operators that opt out,” David Lampitt, Sportradar’s managing director for sports partnerships, also told Bloomberg. “The challenge for us and the NBA and MLB is to make sure that we create such a compelling offer and that it is sufficiently attractive and advantageous, that even if they don’t sign up now, they will get on board sooner rather than later.”
Sportradar is under a lot of pressure now to pacify at least three sides, including new investors. And with MLB and NBA now requiring a satisfactory cut, how much room may be left in sportsbook operators’ budgets to obtain additional Sportradar products, or absorb increases in their own rates?
Since PASPA was overturned in May 2018, 11 U.S. jurisdictions (10 states plus the District of Columbia) have legalized or offer legal sports betting. The next will be Tennessee, the only state so far that has passed a law including a mandate that licensees must use only “official data” sources in connection with in-play wagering. Tennessee’s bill passed out of the House and Senate in late April and is now awaiting Governor Bill Lee’s signature. Lee says he won’t sign, but will allow the bill to become law.
Sports betting regulations are not yet written in Tennessee, so we don’t know how that may unfold in practice. In every other state, licensed operators face no such restriction, so they will indeed have the option switch to a data feed not endorsed by the leagues if they find one that better suits their business needs. In effect, the leagues with increased financial demands are creating a promising market for unofficial data — data they have argued jeopardizes the integrity of the game. In effect, weighing integrity versus profitability.
Dissecting the dynamics
The apparent impasse between not-yet league partners and official data suppliers has elicited disparate reaction from gaming experts worldwide. Some have downplayed the pursuit to collect additional “royalties” as nothing more than a commercial dispute between two parties.
“From a sports rightsholder perspective, it isn’t a sharp practice, it is a way of generating a reasonable return from betting operators who are profiting from the sport,” said Adrian Ford, general manager of Football DataCo, the data rights holder of all competitions organized by the English Premier League. “I know this is not a popular view with betting operators and it’s a well worn argument in the U.S. — but why shouldn’t a sport get a return from the betting market?”
But the language on what to call a 0.25 fee could be clearer and more consistent with legal principles. While top pro sports leagues initially described the payment as an “integrity fee,” they quickly changed their tune — now referring to the fees as royalty. But “royalty” implies that there is an intellectual property right involved, said Rudy Telscher, a leading U.S. intellectual property attorney at Husch Blackwell LLP.
“Obviously, there is no trademark, copyright or patent right involved with data,” Telscher told Sports Handle.
The sports leagues might try to claim a proprietary interest in the data, Telscher noted. A 1991 ruling by the Supreme Court in Feist Publications, Inc., v. Rural Telephone Service Co., could make such a claim questionable, he argued. The Court in Feist, sought to resolve why facts are not subject to copyright claims. In writing the majority opinion, Justice Sandra Day O’Connor stated that in the fact collection process copyright standards can only be applied to the creative portions of the process. In 2006, Telscher represented CDM Fantasy Sports against Major League Baseball — and defeated the league– in a case where MLB sought to prevent CDM from using statistical data, and effectively establish a monopoly over it. The Supreme Court denied an appeal from MLB to hear the case.
“On balance, I think the sports leagues have a weak position,” Telscher said. “I suspect that is why the Vegas sportsbooks are blowing them off.”
Elsewhere, in Albany on Wednesday, the New York State Senate held another hearing on the possibility of mobile sports betting in the Empire State. One witness, Scientific Games Chief Legal Officer James Sottile, called into question whether statutory mandates should require operators to purchase official league data when it has not been established that the leagues own the property.
“They don’t own it,” Sottile said. “They simply have ready access to it and the ability to license it.”
Under the tent
MGM Resorts, FanDuel and The Stars Group (now partners with FOX Sports) have become official betting partners of the NBA over the last year. MGM is paying a reported $25 million to the NBA in a three-year marketing deal that also affords it access to official data through either Sportradar and/or Genius Sports. It’s unclear if MGM is paying a percentage of handle in any jurisdiction. Terms of the FanDuel and Stars Group deals are undisclosed. It’s possible that one or both agreed to a similar flat fee, or alternatively it’s possible one is paying the sought-after percentage in lieu of an 8-figure sum.
According to Bloomberg’s report:
Gersh said that in any jurisdiction that adopts their preferred 0.25% integrity fee, MLB would deduct that cost from the data payment for any official partner. Asked if the NBA would do the same, Kaufman-Ross said the league “will protect our partners,” without getting into specifics.
Representatives from MGM Resorts declined to comment.
Now, for those not yet partnered with leagues: depending on the size and scope of a sportsbook, the pricing rates for in-game data feeds can vary considerably. A package for about 1,000 games per month to power in-game betting typically would range in the low-six figures annually, according to sources.
From a contractual standpoint, for sportsbooks not yet partnered with leagues and purchasing such a fixed number of games: if they have used a portion of that allotment for NBA and/or MLB contests, but get cut off from those leagues without a separate deal in place, presumably the 1,000 games would have to get fulfilled with in-game data from another sport. Almost certainly games of less wagering interest to the sportsbook’s clientele.
MLB has now given its data distributors a grace period until the All-Star Break to allow Sportradar (and Perform Group) to supply gaming operators with its official league data as sportsbook operator negotiations with the league continue. But MLB has been less successful than the NBA in attracting official betting partners. So far, MLB’s only official partner is official MGM.
“In addition to a license to use official MLB data, the deals we are looking to strike also include rights to use other MLB intellectual property and access to certain marketing opportunities to further distinguish these legitimate operators from unlicensed operators, including offshore books, which will not have any access to such data, rights or marketing opportunities,” MLB said in a statement published by Forbes.
But baseball betting isn’t as popular as basketball and football betting, in-game wagering or otherwise. And it’s a known industry fact that baseball has the lowest hold of all the major U.S. sports, because it’s dominated by sharp players who grind over a 162-game season. Furthermore, the sportsbooks typically see lower volume during the sleepy summer vacation months, and less than revenue compared with football in particular.
Among the perks or new bells and whistles that MLB might offer licensed sportsbooks is access to proprietary Statcast data, measuring things like home-run distance or batted-ball velocity. But there’s no established market for that type of wagering. Official MLB partner MGM does not yet offer wagering on such events, which would likely make — at best — for low-limit proposition-type markets, driving little betting volume or revenue. Furthermore, it’s unclear whether or when regulators in Nevada or New Jersey or elsewhere will permit wagering on such markets.
In terms of negotiations with sportsbooks, according to sources, the league has lowered its demand from 0.25 percent of a sportsbook’s pro baseball handle to 0.25 percent of in-play wagers on MLB games.
The timing of this lowered asking price dovetails with a recent amendment to an Illinois sports betting bill discussed at a hearing on Wednesday. The bill as amended would levy a 0.20% off-the-top fee on operator in-game wagering handle only, not the entire handle.
“We support the official league data mandate,” said MLB Senior Vice President and General Counsel Bryan Seeley during the hearing. “Amendment 2 also contains the provision that leagues receive from gaming companies .20 percent on Tier Two wagers. We’d prefer to see that on all wagers, but we appreciate that. I do think a royalty to the leagues creates incentive to grow the pie.”
One additional layer: international gaming companies garnering a very small fraction of their revenue from sports wagering, such as Caesars Entertainment, may at this time be willing to go ahead and a pay the leagues a fee for data alongside hefty state licensure costs (Tennessee is $750,000 annually) to potentially edge smaller regional operators out of the market.
Private equity giants enter the fray
Complicating matters further, Sportradar may be also feeling the heat from investors. Last July, Canada Pension Plan Investment Board (CPPIB) and Silicon Valley-based growth equity firm TCV acquired stakes in Sportradar from Stockholm-based private equity firm EQT and certain minority shareholders at an enterprise value of $2.4 billion.
EQT first invested in Sportradar through its EQT Expansion Capital II fund in 2012, then subsequently invested in the sports data provider through another fund two years later. By 2015, Sportradar received further backing when Washington Capitals and Wizards owner Ted Leonsis, Michael Jordan and Dallas Mavericks owner Mark Cuban invested in the Swiss company, as part of a $44 million funding round. Sportradar, at the time, appeared well-positioned to become a “global force,” in the sports data industry, Cuban told TechCrunch.
During its partnership with EQT, Sportradar achieved organic and acquisition-based growth at approximately 40 percent revenue growth annually, according to a statement announcing the deal.
Sportradar’s valuation has since risen to $2.9 billion last October, according to PitchBook, a Seattle-based company that provides research on global private equity activity. The most recent valuation came weeks before the NBA inked an agreement with Sportradar and Genius Sports Group to become the league’s first betting data partners. Under the deal, Sportsradar and Genius Sports got non-exclusive rights to distribute official NBA betting data to licensed sports betting operators in the U.S.
“There’s a lot of pressure for Sportradar to deliver on the valuation,” an industry source said. “They can’t afford any hiccups.”
CPPIB and TCV did not respond to requests for comment.
The pressure could be felt equally by Genius Sports and The Perform Group, Sportradar’s two main competitors in the field. On Thursday, Genius Sports announced a multi-year partnership with Football DataCo. The deal gives Genius Sports the exclusive right to collect, license and distribute live data from the Premier League to the global sports betting market, delivering a blow to Perform, the previous rights holder.
“Being selected by Football DataCo as their exclusive official data partner is transformational for our organization and reinforces our position as the global leader in sports data capture and distribution technology,” Genius Sports Group CEO Mark Locke said in a statement.
Over the last year, both data providers have emerged as acquisition targets from major players in the private equity space. In April, U.K. headquartered Perform was sold to Vista Equity Partners in a deal that is expected to result in the combination of Perform and STATS, LLC. By combining with STATS, Perform could expand its footprint throughout the U.S. marketplace. During Spring Training, MLB appointed Perform as an authorized data distributor to U.S. sports betting operators, weeks after completing a similar deal with Sportradar.
Last July, a group of funds advised by Apax Partners, a private equity advisory firm with aggregate commitments of more than $50 billion, announced a definitive agreement to acquire Genius Sports. Although Genius signed a 10-year technology deal with the NCAA in 2018 aimed at modernizing the association’s data collection system, the agreement did not include a sports betting distribution component.
Neither Perform, nor Genius Sports responded to requests to comment for this article.
The battle has just begun
With four months before kickoff of the 2019 football season, the data war between the leagues and third-party partners versus sportsbooks resistant to purchasing official league data is still in the first quarter. On Wednesday, FOX Sports announced that it is acquiring a 4.99 percent minority stake in The Stars Group for approximately $236 million. Under the deal, the two are entering into a sports wagering partnership that will pave the way for the launch of FOX Bet later this fall, the first U.S. sports betting platform operated by a major broadcast network.
Last Fall, FOX Sports and Sportradar came to terms on a data agreement designed to assist the network in enhancing its digital content on real-time broadcasts. Fox holds the broadcast rights for the World Series, Super Bowl LIV in 2020 and the 2022 FIFA World Cup.
The network’s entry into the new legal sports gambling frontier illustrates the importance of completing strategic partnerships before the market becomes fully mature. Those who fail to act quickly could be left behind. Days before the one-year anniversary of the May 14, 2018 PASPA decision, one thing remains clear: the pressure on industry participants has never been more intense.
Brett Smiley contributed to this report.