- The Sports Leagues including the MLB are looking for a “1% integrity fee” from all bets placed that would act as a new revenue source, and cover other costs such as enhanced security measures to prevent illegal betting and match fixing.
- The sports betting market has been estimated at $287 billion USD annually, a market that appeals to the MLB.
- The MLB is investing heavily in lobbying states to influence and shape sports betting regulations in their favor, after losing their case in the Supreme Court.
OVERVIEW
On the 14th of May 2018, the US Supreme Court struck down the "The Professional and Amateur Sports Protection Act", also known as PASPA. This federal law dating from 1992 banned sports gambling in most US states, with a few exceptions. It was deemed unconstitutional and the Court has ruled in favor of letting individual states decide and make their own sport gambling regulations. This ruling came after the State of New Jersey tried to sidestep PASPA in 2012 in order to pass a law legalizing sports betting, and was sued by the Sports Leagues, including the MLB. After a rejected initial attempt in 2014 to bring the case before the Supreme Court, it was finally heard in December 2018, with the ensuing victory coming 6 months later. This change in a 26 year-old rule is bound to have a major impact on the Major League Baseball (MLB).
CURRENT RULE
At present, it is illegal in most US states to bet on sports teams, or the outcome of their games, with some exceptions. It is possible to do so in Nevada for example. However, this rule has led to a huge illegal betting market to prosper, estimated at between $60-150 billion annually. States, led by New Jersey, have been looking to boost their revenues by collecting taxes from sports betting, and have been blocked by this law for the last two decades.
CURRENT DISCUSSIONS
The MLB as well as the other US Sports Leagues were opposed to an eventual ruling against the PASPA, fearing that it would affect the "integrity" of their league, through match fixing, conflicts of interest or danger for the players and the umpires. However, as soon as they sensed that the ruling of the Supreme Court would not be in their favor, they started to lobby State politicians in order to shape the sports betting regulations, even asking for a fee from the betting houses. The Sports Leagues including the MLB want to be part of the discussions about how the industry will be regulated, so they can benefit from the changes and reduce the risks associated with the integrity of their leagues or rising costs to implement anti-fraud measures. The MLB is also worried about the type of bet that will be legal, expressing their worries about certain categories that can be hard to track for fraud. The percentage of the "integrity fee" is also a well discussed theme, as well as the nature of this fee. Some arguments have been given by the MLB, but swiftly rejected by the betting industry and the States. This is fee is seen by them as just a way to create a new revenue from nothing.
POSITIVE IMPACT AND OPPORTUNITIES
This change in the law could have positive or negative aspects on the MLB, depending on the turn of events and the regulations that will be implemented by each State. In terms of positive impact, legalizing sports betting could open up a new revenue stream for the League, especially if States accept to impose an "integrity fee" on sports bets. This fee would be a percentage comprised between 0.25% and 1% of all bets placed. According to the MLB, it would help cover the rising costs linked to enhancing security measures to protect from match fixing or betting irregularities. Another type of positive impact is that the number of viewers of Baseball games could rise as people would have more interest in a game whose outcome affects them directly, in case they placed a bet on it. A study found that for the case of the NFL, adults that placed bets watched 19 more games than the ones that did not, during the 2015 season. A majority of respondents to a survey admitted that betting on a game made them much more likely to watch it. The MLB has already started to invest in technology to try to increase interest in the games with its At Bat app. The inclusion of betting to that app would enhance the interactive experience of the user even more. Another opportunity that can arise from this new market is for the League to sell real-time game data and statistics to casinos, as this information can be vital for gamblers. This would provide them with yet another revenue stream. The NBA has already made a multi-million dollar deal with a company called Sportradar for their real-time data, allowing them to sell it to casinos themselves.
RISKS AND CONSIDERATIONS
The MLB is worried about the eventual risk to reputation and integrity that could arise from an activity such as sports betting. The image of the league has suffered in the past with the fixing of the World Series games in 1919 by some players from the White Sox, and in 1989 when Pete Rose bet on the Cincinnati Reds, a team he managed. To avoid these scandals, the MLB would have to pay for more research to detect potential corrupt conduct and irregular bets. A particular concern is suspicious betting across state lines, something that cannot be detected if data is not aggregated. All these measures would involve extra costs, that the integrity fee would cover, according to the MLB.
Apart from match fixing and corrupt conduct, the representants of the MLB are worried about physical retaliation and violence against the game's actors such as players, coaches and umpires, as their eventual mistakes can cost large amounts of money to gamblers, with potential dangerous consequences.
LOBBYING
The MLB and NBA have teamed up to lobby State legislators in order to shape regulations in their favor. They are trying to make the best of a situation that they fought against, and lost. A study by the American Gaming Association conducted recently has estimated the sports betting market at more than $287 billion in bets nationwide, a figure that has raised the interest of the MLB. They have invested heavily in lobbyists to make sure they can have a share of the pie.
EVENTUAL PARTNERSHIPS
There has been no official information about an MLB team partnering in a project related to betting, but it was reported that the owner of a team has met with a bookmaker to discuss sponsorship opportunities. As the previous law did not allow fothe sponsoring, advertisement or promotion of sports betting, this change would open the door to potential advertising and sponsorship revenue for MLB teams, originating from sports betting.
OPPOSITION TO THE INTEGRITY FEE
States and casinos are vividly opposed to the proposal of an integrity fee that they would have to pay to sport leagues. They are claiming that it would hurt their margins and that they would rather pay more taxes to support their communities than pay the sports teams. The argument advanced by the Leagues has been deemed weak and even comical. The irony has not been lost on the State of New Jersey, which has incurred millions of dollars of legal fees, to finally win the case, and then be asked by the Leagues for a place at the table and a cut of the revenues of sports betting.
CONCLUSION
With the decision of the Supreme Court to open the door to sports betting in US States, a new market of billions of dollars could be about to be created, with important impacts on all the stakeholders, including the MLB. The latter, together with the NBA and other Sports leagues is intent on taking advantage of this new market by asking for a cut of all bets placed, and by lobbying to influence the regulations in their favor. The MLB claims that this fee would cover the costs linked to integrity and security risks that would arise from the change in law. Other financial opportunities from the MLB could come from advertising, sponsoring and promotion revenues linked to sport betting.