Online Sports Gambling: The Integrity Fee and the Use of Official League Data
For many New York football fans, the 2022 NFL playoffs have come with an extra bit of excitement. No, it’s not that the Jets or Giants have finally made it after years of absence. It’s that at the end of 2021, legal online sports betting finally launched in New York.[1] Along with beer and wings, people placing wagers on their phones is now quickly becoming another staple of game day. And its not just football. Today, it seems like no matter what sport you watch, the presence of gambling is everywhere. Every commercial break is filled with ads from DraftKings, FanDuel, Caesars[2], and Bet MGM. Sports talk shows now discuss gambling openly. Betting lines are displayed on the bottom tickers of broadcasts. Legal sports gambling, which only a decade ago could only be done in Las Vegas, is now everywhere, and everyone is trying to cash in.
Nowhere is this turn towards gambling more abrupt than in the professional sports leagues themselves. The major US professional sports leagues have made an almost 180-turn from a decade ago when it comes to sports gambling. Having once spurred all notions of sports gambling, the leagues now are fighting to ensure that they see a cut of the money to be made from online gambling. The leagues in recent years have thus far been lobbying for two main ideas: (1) an “integrity fee”; and (2) to have legislatures mandate that online sportsbooks must use official league data in their products.
The Integrity Fee
The less successful of the two methods so far has been the “integrity fee.” The fee or alternatively called a “royalty”, would give a league a percentage of all the money bet on their respective sport.[3] Proposals in state legislatures have typically ranged from 1% to 0.25% of the money from bets placed.[4] This proposal has been met with resistance from sportsbooks which typically run thin-profit margins. 1% of all bets placed can equal up to 25% of their revenue.[5] Additionally, there is no particularly good reason why the leagues deserve an “integrity fee” for doing essentially nothing. “[R]ather, they believe they deserve to be paid for the intellectual property, for the existence of [the] games” that sportsbooks offer bets on.[6] This view has been explicitly endorsed by NBA commissioner Adam Silver, saying “[t]his notion that as the intellectual property creators that we should receive a 1 percent fee seems very fair to me.”[7] The “integrity fee” has also found support from the MLB and PGA Tour as well.[8] But while the leagues see it as compensation for their intellectual property or to somehow uphold the integrity of clean and uncompromised professional sports, one expert in the field has called it the “single biggest shakedown in the history of sports.”[9] So far, however, the leagues have met with little success in lobbying for an “integrity fee.” In addition, many of the recent state proposals have been on the lower end of the spectrum, for instance, Massachusetts’ 2020 bill only calls for a 0.25% royalty to be paid out to the leagues.[10] Thus, while many states still have legislative proposals introducing an “integrity fee” in the works, no such bill has yet been passed.
Official League Data
While the “integrity fee” idea has stalled out recently, the leagues have found much greater success in mandating the use of “official league data.” Lobbying from the sports leagues has already lead to Tennessee and Illinois passing laws that mandate “that to-be licensed sports betting operators use only official league data for in-play wagering.”[11] Effectively, the leagues want to create a monopoly of their game data so that the sportsbooks have to come to them to purchase it. Again, the sole motivation on the part of the leagues for this push seems to be to profit from a new revenue stream.[12] Additionally, the leagues need these state mandates in order to profit, as there is most likely no other feasible protection for the data that the sports leagues generate. The statistics that a sport generates, like for instance, that Tom Brady threw 3 touchdowns in a game, are facts. Facts cannot be copyrighted, as they do not possess the modicum of creativity needed to gain federal copyright protections.[13] Thus, under current intellectual property law, anyone, including the online sportsbooks, are allowed to collect and use publicly available sports statistics. These laws essentially create a new intellectual property right for the leagues in the data that their sport just happen to naturally produce.[14] Without such data mandates in place, the leagues would have to compete with third parties in the open market for the collection and selling of sports data.[15] With the mandates, the leagues can maintain a monopoly over the data that their respective sports generate and profit by licensing it to the sportsbooks. This situations has led some to raise concerns that such an arrangement might create data monopolies that violate antitrust law.[16] Such laws may in fact violate section 1 or 2 of the Sherman Antitrust Act.[17]
Overall, the professional league’s intellectual property arguments are weak. However, with the significant resources that the leagues have at their disposal and from the extensive lobbying efforts they have already made, it seems clear that they will not let weak legal arguments deter them from joining in on the booming online gambling market. How these aggressive moves by the sports leagues will play out in the states is yet to be seen. What effect increased league involvement might have on sports gambling is unknown. But regardless, it is highly probable that the leagues will continue to push hard for a piece of the gambling pie in the years to come.
Footnotes
