Prior to 2018, New Jersey crusaded to get a federal sports betting ban repealed. Garden State politicians felt that they should have the same right as Nevada to offer legal sportsbooks.
One hurdle standing in the way involved opposition from major sports leagues. Slowly, though, the MLB, NBA, and NHL offered their support.
This support was key to getting the Professional and Amateur Sports Protection Act (PASPA) repealed. However, sports leagues still want one thing in return: a 1% integrity fee.
1% doesn’t sound so bad. After all, legal sportsbooks stand to make billions, right!?
As you’ll read below, a 1% integrity fee would destroy the betting industry before it even takes flight.
What Is a Sports Betting Integrity Fee?
Professional sports leagues didn’t suddenly fall in love with gambling. They’ve always done their best to keep sports betting down for fear of another Chicago Black Sox Scandal.
Of course, such fears are largely unnecessary when considering the elevated pro salaries of today. Nevertheless, corruption always remains a remote possibility.
Leagues began endorsing sports betting over thoughts of how they could capitalize on the matter. Both the leagues and franchises figure to benefit greatly from partnerships with regulated sportsbooks. For example, the Philadelphia 76ers have a notable partnership with FOX Bet.
An integrity fee would deliver this cut. This fee refers to bookmakers paying professional sports leagues a percentage of their handle (more on this term later).
Australian and French pro leagues currently draw a small percentage of betting action in each respective country. American sports bodies are hoping for the same.
Each League Is Looking for 1% of Sports Betting Revenue
Sports leagues aren’t so wrong in their mission to get a piece of the betting pie. After all, their support helped get the Supreme Court to strike down PASPA.
The problem, though, is how much leagues are asking for. They want 1% of operators’ handle. This scenario would see legal sportsbooks collectively transfer 1% of their handle to each league separately.
For reasons that I’ll cover later, some sports governing bodies have reduced the asking price to 0.25% of handle. But if the MLB, NBA, NFL, NHL, and NCAA each get a cut, that would still be 1.25% going to the leagues.
Who’s Asking for These Fees?
The MLB, NBA, and NHL have led the push for integrity fees. They’ll actively support sports betting legislation in any state that includes such payments.
The NFL and NCAA have never truly joined in the acceptance of sports gambling. Both organizations fought to keep PASPA in place.
Nevertheless, the NCAA and NHL will want their slice if every other major league gets sports betting integrity fees.
In the absence of integrity fees, leagues want payment from land-based sportsbooks or online sports betting sites that use official sports data. The latter term refers to outcomes, results, and statistics relevant to a specific sports league.
Bookmakers that use official data can update their odds and live bets faster. However, they by no means have to use the official variety.
Why Do Leagues Think They Deserve a Cut of Sportsbook Profits?
The NBA has been more actively seeking part of sports gambling revenue than any other league. According to NBA spokesman Mike Bass, professional leagues need this revenue to combat the risk of corruption.
“If sports betting is legalized federally or state by state, we will need to invest more in compliance and enforcement,” Bass explains. “[The NBA] believes it is reasonable for operators to pay each league 1% of the total amount bet on its games to help compensate for the risk and expense created and the commercial value our product provides them.”
Bass also noted that the integrity fee is similar to how other countries handle the matter. But the American Gaming Association (AGA) argues that the fees rip off both bookmakers and sports gamblers.
“Now, let’s get real about eliminating the illegal market, protecting consumers and determining the role of government,” says Geoff Freeman, President of the AGA. “A role that most certainly does not include transferring money from bettors to multi-billion dollar sports leagues.”
After all, sportsbooks only realize around 5% revenue from their handle. They’d give away 100% of their profits by paying 1% of handle to each major pro sports league and the NCAA.
Sports Leagues Are Confusing Handle vs. Revenue
The terms handle and revenue have confounded politicians and media outlets alike ever since states began legalizing sports betting. The leagues also seem to be confused on the matter.
Here’s a quick definition of each:
- Handle – The value of all bets that a sportsbook accepts for a particular match.
- Revenue – The profits that a bookmaker earns through the wagers they accept.
Handle can refer to how much money is bet for a specific game, sport, or time period. For example, an operator could look at their handle for NFL games in March.
Regardless of how it’s measured, though, handle merely indicates all bets placed. This figure is much, much higher than the revenue that sportsbooks make.
Again, operators typically only earn around 5% in revenue off the handle. If a bookmaker handled $1 million in bets, for example, then they might earn $50,000 off this amount.
They make their money by collecting “juice” from the losing side of wagers. This juice commonly amounts to the losing side paying around 10% of their bet, or around 5% of the betting action on both sides.
1% of the handle, as an integrity fee proposes, would wipe out 20% of bookmakers’ revenue. As mentioned before, five leagues receiving this 1% fee would take 100% of the operators’ profits.
The latter would be making nothing off their efforts. In fact, they’d take on heavy losses when accounting for all of their expenses.
I don’t know if league executives truly didn’t understand this aspect when they began calling for 1% integrity fees. On the surface, though, they seem to have a severe misunderstanding of how betting handle and revenue compare.
The Leagues Will Never Get 1% of Handle
Sports leagues might as well ask bookmakers for a gazillion dollars. Their integrity fee plan is this ridiculous.
Support from leagues might have helped get PASPA repealed. However, this Supreme Court action may have happened regardless.
State governments don’t need league approval to regulate sports gambling. Likewise, bookmakers only need states’ approval to operate—not the leagues’ acceptance.
Perhaps, sports bodies will get something out of the deal in the end. But here are a few reasons why they may receive nothing without winning a legal battle:
- 1% integrity fee is a stupid approach – Maybe leagues wanted to start high by each asking for 1% of total handle, but they’ve just made themselves look dumb.
- States earn less – State governments can’t tax bookmakers as much if the leagues are taking a big cut.
- Gamblers pay the cost – Bookmakers will feature worse odds and fewer bonuses if they have to cover more fees.
- Leagues don’t have a great claim to the money – Sports bodies have argued that they must pour money into monitoring sports corruption. But these costs can’t honestly be worth 1% of handle for every state.
- Sports leagues are being greedy – Leagues already benefit indirectly from betting, because the latter heightens interest in sports. They don’t need to receive gambling revenue on top of the matter.
Better Plays for Sports Leagues
Simply put the pro and collegiate sports governing bodies’ asking price is too high. A regulated betting industry can’t exist with each league receiving a 1% integrity fee.
Maybe some states/bookmakers will choose to pay them for the use of official league data. But the leagues need to be reasonable with the price.
So far, they’ve been quite unreasonable. Therefore, I don’t expect them to wisen up when it comes to the official data.
Leagues are only on board with legislation that sees them get a cut. They may end up taking some states and/or operators to court if they don’t get their way.
Sportsbooks only get around 5% of the total handle. They need to factor expenses and taxes into these slim margins.
Sports leagues are now asking bookmakers to fork over even more money. Bookmakers aren’t going to willing comply with such demands.
State governments aren’t onboard with the idea either. After all, integrity fees would cut down on how much they can reasonably tax operators.
The leagues’ best play for profiting off sports gambling is charging for official league data. Even this route, though, has proven fruitless for them so far.