Controversial Sports-Betting Fee Would Boost Revenue, Study Says

(Bloomberg) -- For more than a year, Major League Baseball and the National Basketball Association have argued that they should get a cut of every legal bet placed on their games.

A study from gambling consultant Spectrum Gaming Group says imposing the controversial royalty -- also called an integrity fee -- could generate more money for sportsbooks and states because of greater cooperation from the leagues.

Commissioned by the leagues to analyze the viability of a 0.25 percent royalty, Spectrum calculated that annual gaming revenue should range from $6.5 billion to $9.1 billion in the roughly 20 states that are currently mulling regulation. League involvement, the study says, could push the money to the higher end of the range, a potential swing of billions of dollars.

“A royalty fee to the leagues could create a partnership among leagues, operators and states that could accelerate the passage of legislation and create a larger regulated sports betting market and therefore more revenue for all parties,” Spectrum said in its executive summary. The report doesn’t take an official stand on the fee.

The study says the NBA and MLB could be instrumental not just in passing legislation, but passing the right type of legislation. Spectrum, which declined to comment beyond the report, suggests the leagues could help advance effective regulation, reasonable taxation and mobile betting. Mobile alone could be worth triple the proposed fee.

Willing Partners?

In an interview, MLB executives said states that agree to a royalty fee would also see the league become a much more willing partner in expanding gambling within their borders. That could mean more tie-ins with local teams, promotion via MLB’s website and social media, and access to the league’s official data, according to Kenny Gersh, baseball’s executive vice president of gaming and new business ventures.

For example, Gersh said baseball was considering making all operators an “officially licensed product of Major League Baseball” in states that agree to the royalty.

“If a legislator wants to take control of the process and make sure that we’re putting all of our resources into helping their state make money, this is their opportunity to do so,” he said.

Tax Dollars

For many states, tax money is the main motivator for legalizing sports gambling. So far, no state has enacted a bill with the royalty, though a number, including Missouri and Illinois, are considering legislation that includes the provision. The closest the leagues have come may be Connecticut, where lawmakers said last month that they’re open to the royalty if the leagues agree to a partnership.

In addition to the business and tax argument, the league also says the royalty fee is fair. Baseball wagers wouldn’t happen without MLB staging games. As sports betting expands, the potential for match fixing also grows. A fee would help the league protect its $10 billion enterprise.

Operators see it differently. “Sports betting is a very low-margin business,” the American Gaming Association said in a statement. “The leagues’ interest in taking a percentage of gaming revenue before winners are paid out, before states and localities receive tax revenue, and before infrastructure to offer those bets are paid for is a nonstarter.”

The new industry is already creating new revenue streams for the leagues. Both the NBA and MLB have signed marketing deals with operators, and lucrative deals with data distributors.

The next few months will be critical for both sides. MLB Deputy General Counsel Bryan Seeley said that when he visits statehouses or speaks at hearings, lawmakers ask about what other states are doing. Having a model bill passed in one state might set the tone for others.

“It’s important to show that states are willing to do it,” he said. “But it’s also important because we think our model bill will actually grow the pie and the state will be better off.”

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