NBA and MLB Quietly Hustle States for Cut of Sports Betting Jackpot
OCEANPORT, N.J. — Monmouth Park Racetrack bet its future against long odds, and it's about to cash in on what it hopes will be a jackpot.
OCEANPORT, N.J. — Monmouth Park Racetrack bet its future against long odds, and it's about to cash in on what it hopes will be a jackpot.
Five years ago, when sports betting was illegal essentially everywhere but Nevada, the 147-year-old horse racing track near the Jersey Shore invested $1.5 million in turning a drab cafeteria into a gleaming, 300-seat bar that could begin taking bets at the turn of a switch. The move was based on a speculative bet that the state would prevail in a fight against the major sports leagues to legalize sports betting.
The bet appears to have paid off: The U.S. Supreme Court ruled against the sports leagues in May, and the New Jersey Legislature is set for a vote as soon as Thursday on legislation to clear the final roadblocks that keep Monmouth Park's bar from being the first licensed, full-service sports betting parlor in the state.
But the size of Monmouth Park's payday is still unclear. After fighting an all-out war for years against sports betting, the leagues are now trying to jockey for a piece of the action. Major League Baseball and the National Basketball Association, in particular, have quietly been working behind the scenes for months as they braced for a pivotal decision from the Supreme Court, teaming up on a multistate lobbying blitz to have a say in how sports betting should be legalized.
MLB and the NBA have been pressing for "integrity fees" of up to 1 percent of all bets placed on games — purportedly for policing against game-fixing — and drafted what's known as model legislation to help get the fees codified into law in each state. To make their case, they have been bankrolling more than 80 lobbyists in more than a dozen statehouses and dispatching top officials across the country — from Kansas to New York — to testify in legislative hearings.
All this is part of an influence game that pits the leagues against a host of other special interest groups — including the gambling industry, college athletic programs, players' unions and even service providers for gambling addicts — while Congress ponders whether to wade into the legal thicket and come up with a new federal framework to regulate sports betting.
The attraction? Billions of dollars in projected profits could be reaped from what's long been the domain of illegal barroom bookies and offshore operators. Legalized sports betting is estimated to be worth $41.2 billion a year in the U.S., according to a 2017 study commissioned by the American Gaming Association, a trade group that represents the casino industry. Once regulated, it could generate nearly $9 billion in federal, state and local taxes.
For Monmouth Park and other struggling gambling venues, the stakes are high: The outcome of the leagues' lobbying campaign could make or break their future success, as integrity fees threaten to take the lion's share of profits from sports betting.
Dennis Drazin, chairman and CEO of the management company that operates Monmouth Park, said the leagues should be the ones paying New Jersey, which racked up millions of dollars in legal fees for its fight to legalize sports betting.
"The leagues could have sat down with us years ago, but they didn't," Drazin said. "I just think it's wrong for them to be coming here at this point trying to seek any money from us."
At its core, New Jersey's legal fight at the Supreme Court was about state sovereignty — whether the Professional and Amateur Sports Protection Act, a 1992 federal law that banned states from legalizing sports betting, amounted to an unconstitutional "commandeering" of state officials for federal purposes.
In the 6-3 decision, the Supreme Court came down squarely on New Jersey's side. "It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals," Justice Samuel Alito wrote for the majority. "A more direct affront to state sovereignty is not easy to imagine."
In the aftermath of the landmark decision, Delaware won the race to be the first state outside of Nevada to allow single-game sports betting, with its three casinos beginning to take bets Tuesday. The state had a head start, having already legalized sports betting before Congress tied its hands in 1992. "We're hopeful that this will bring even more visitors into Delaware to see firsthand what our state has to offer," Democratic Gov. John Carney said in a statement.
Eying the potential for a tax bonanza, other states have also been laying the groundwork to cash in on sports betting. In fact, in the lead-up to the Supreme Court's ruling, New Jersey and five other states — Connecticut, Mississippi, New York, Pennsylvania and West Virginia — had already taken the initial legislative steps to clear the way for sports betting. All that's missing in each state is a legal framework to regulate what's known as "sportsbooks."
Many other states — up to 37 states in all — are expected to join the ranks in coming years. According to a Center for Public Integrity review, sports betting bills have been introduced in 14 other states so far — including in Rhode Island, whose Democratic Gov. Gina Raimondo is so bullish that her proposed state budget has $23.5 million in projected revenue from it.
Meanwhile, the flurry of activities in statehouses forced MLB and the NBA to reverse course earlier this year and step up their state-by-state influence game.
In New York, for instance, lobbying records show that the leagues are sparing no expenses, jointly paying $58,500 a month to retain the services of 21 lobbyists, who hail from five top lobbying firms in the state — including The Parkside Group, a political consulting firm that also represents the Democratic Senatorial Campaign Committee.
The playbook was similar in New Jersey, where the leagues hired a total of 13 top Trenton lobbyists — with both enlisting A.J. Sabath, a former commissioner of the Department of Labor and Workforce Development, and Eric Shuffler, a longtime political player who served on Democratic Gov. Phil Murphy's transition team earlier this year. Lobbying records show that they have landed private meetings with the state's top leaders, all Democrats, including Assembly Speaker Craig Coughlin, Senate President Steve Sweeney and two of his staffers, as well as the governor's chief of staff.
In January, the leagues' lobbying campaign helped them score a win in the Indiana General Assembly, which introduced a pair of bills that borrow some language from their model bill — titled, "Model Sports Wagering Act" — including a provision for integrity fees. Since then, six other states have also introduced bills that give the green light to integrity fees.
So far, the bills have stalled in most states, either in the face of opposition or because the legislature has already adjourned for the year. But one is still alive in New York, where the chairman of the state Senate’s gambling committee is backing integrity fees.
Following the playbook
By drafting model legislation, the leagues are following a tried-and-true playbook in influencing the nitty gritty details of policymaking in statehouses across the country.
It's a political tactic whose early success can be traced to the beginning of the 20th century, when the American Association for Labor Legislation drafted model bills in its historic crusade for unemployment insurance and workers' compensation.
The American Legislative Exchange Council then began seizing on the tactic after it was founded in 1973 by right-wing activist Paul Weyrich, drafting model bills by the hundreds and getting them introduced in dozens of states. The group promotes an array of issues dear to its conservative, pro-business interests and then counts on its members — several thousand legislators, as well as hundreds of private entities, including many Fortune 500 companies — to drum up support.
Drafting model legislation can help shape the agenda in statehouses — particularly in the part-time, "citizen legislatures" whose members hold day jobs, said Alexander Hertel-Fernandez, assistant professor of international and public affairs at Columbia University.
"When you look at the full range of potential legislative issues, most legislators don't have a strong opinion about a lot of it, particularly when it comes to more technical subjects," said Hertel-Fernandez, who has studied hundreds of ALEC's model measures. "So they let organizations that are pushing model bills play an important role in defining what they should be considering."
Trying to score a win
The leagues' model legislation isn't only about pressing for integrity fees. While silent about taxes, it also pitches a number of league-friendly provisions that give them a veto over which types of bets could be allowed, as well as control over scores, player statistics and other data used by sportsbooks.
But the controversy over integrity fees has so far dominated the debate in New Jersey and elsewhere.
In its defense of integrity fees, the NBA has been particularly outspoken in recent months, even though its spokesman declined to comment on the record for this story. In January, for instance, NBA Senior Vice President Dan Spillane traveled to Albany, New York, and told the state Senate’s gambling committee that sports betting would require the league to do much more "in compliance and enforcement, including bet monitoring, investigations and education."
NBA Commissioner Adam Silver, meanwhile, has offered a more mercenary justification for integrity fees, arguing that the NBA deserves to receive a "royalty" for what he calls the league's "intellectual property."
"In the case of the NBA, we'll spend roughly $7.5 billion creating NBA basketball this season. And to the extent that product is then used for casinos, betting parlors to make money on, we feel … that we should receive some sort of royalty," Silver said last month. "So call it a royalty; call it an integrity fee. We will have additional expenses, and it's ultimately our intellectual property, and we ultimately believe we should be compensated for it."
MLB spokesman Michael Teevan told the Center for Public Integrity that the league is focused on using its “expertise, rights and footprint to help the states that have smart and modern sports betting laws” develop regulatory frameworks that protect the games’ integrity, which he called “paramount” to the teams.
In recent weeks, MLB and the NBA have picked up new allies in their fight for integrity fees. The Professional Golfers' Association has come out in support, while the Lead1 Association, which represents athletic directors at 129 colleges, has argued that colleges also deserve integrity fees to police game-fixing.
Tom McMillen, Lead1's president and CEO, said college sports has had its share of scandals throughout its history — such as an infamous point-shaving scheme in which mob-tied gamblers bribed Boston College basketball players to fix games in the late 1970s.
"This issue is particularly delicate at the college level," said McMillen, a retired NBA player and a former Democratic congressman from Maryland. "Nobody wants to see another point-shaving scandal."
In West Virginia, the leagues have also found an unlikely ally in Republican Gov. Jim Justice, who owns The Greenbrier resort, which has a casino but also hosts a PGA tour, as well as NBA and NFL training camps. The state already passed sports betting legislation without integrity fees, but the leagues are still lobbying there — led by Orrick, Herrington & Sutcliffe, a top law firm based in San Francisco that successfully lobbied to legalize daily fantasy sports betting in nearly 20 states on behalf of DraftKings and FanDuel. Justice appears happy to oblige.
In May, Justice arranged a closed-door meeting in hopes of brokering a private agreement in which the leagues would receive integrity fees directly from casinos. "There's real benefit, always, to partnering with people rather than fighting," he told reporters. "And the amount of the integrity fee is going to be borne by the casinos. And they can afford that. Our state is really having to pay nothing."
Still, the leagues face an uphill battle in overcoming fierce opposition to integrity fees, especially in states like New Jersey, where the gambling industry wields considerable political clout. During the past five years, it gave nearly $600,000 in political contributions and spent $3.9 million on lobbying in the Garden State, according to the National Institute on Money in Politics.
Jennifer Roberts, associate director of the International Center for Gaming Regulation at University of Nevada, Las Vegas, said a key reason for the opposition is that the leagues are pressing for a share of bets placed on games — instead of a share of revenue.
Roberts said the difference is crucial, given that sportsbooks typically operate on thin profit margins. As an example, she pointed to the 2018 Super Bowl, on which more than $158 million was bet in Nevada, but sportsbooks took in only $1.17 million in revenue — or 0.7 percent of bets — after paying out the winnings. This explains why integrity fees aren't imposed in Nevada, where sports betting has been available for nearly 70 years.
In New York, Sen. John Bonacic, a Republican who chairs the state Senate’s gambling committee, has been trying to strike a compromise by introducing a bill that includes integrity fees of 0.25 percent of bets — with a cap set at no more than 2 percent of revenue. He estimates that, under his bill, the leagues would stand to receive about $2 million to $8 million a year.
"With sports betting, there's going to be an increased burden for the leagues: There has to be technology upgrades, and you may have to hire a few more people to handle integrity monitoring at a much higher scale than now," said Bonacic, who has met with top officials from MLB, the NBA and the PGA. "That's why I felt we'd have to make a compromise."
But the gambling industry isn't the only special interest group competing with the leagues.
In April, for instance, four of the major players' unions issued a joint statement, arguing that their members deserve a cut, too. "Betting on sports may become widely legal, but we cannot allow those who have lobbied the hardest for sports gambling to be the only ones controlling how it would be ushered into our businesses," the statement said. "The athletes must also have a seat at the table to ensure that players' rights and the integrity of our games are protected."
The National Council on Problem Gambling has also been critical of the leagues, pointing out that they have only paid lip service to addressing the issue of gambling addiction. "The leagues have called, in general, that there should be some sort of consumer protections, but they have not been specific and they certainly have not called for specific funding," Executive Director Keith Whyte told the Center for Public Integrity. "They've got both an economic and ethical responsibility to do a lot more to minimize harm."
And, in New Jersey, the leagues' hopes for integrity fees appear to be diminishing by the day. Two weeks ago, Sweeney, the Senate president, went so far as sending letters to governors and legislative leaders in other states, urging them to reject integrity fees.
"Now that [the leagues'] efforts have been ultimately unsuccessful they wish themselves to make 'the fast buck' and to 'get something for nothing,'" wrote Sweeney, who did not respond to requests for comment. "Ironically, they are calling this extortion attempt an 'integrity fee,' even while fully aware that providing participants a stake in the volume of betting would amount to what could more accurately be called an 'anti-integrity' fee."
On Thursday, the New Jersey Legislature is widely expected to pass sports betting legislation without integrity fees, and Murphy could sign it into law as soon as the next day.
Bringing in a national referee?
As the fight over the integrity fees rages on in statehouses, the National Collegiate Athletic Association and the National Football League have been taking a different tack, calling on Congress to regulate sports betting.
A week after the Supreme Court's ruling, NFL Commissioner Roger Goodell issued a statement, saying Congress should "enact core standards for states that choose to legalize sports betting" — which would, among other things, protect consumers and the leagues' "content and intellectual property."
In a statement, NCAA President Mark Emmert expressed his support for federal regulation of sports betting. "While we recognize the critical role of state governments, strong federal standards are necessary to safeguard the integrity of college sports and the athletes who play these games at all levels," he said.
The National Hockey League, meanwhile, prefers a set of uniform rules to apply nationwide, whether through congressional action or with a collective agreement among 50 states.
"We'd like consistency and we'd like not to have it vary state by state," NHL Commissioner Gary Bettman told reporters last week. "Now, if all the states want to come together and do the same thing, that would be the equivalent of federal legislation."
In many ways, what the leagues are asking for has already been proposed: In December, U.S. Rep. Frank Pallone Jr., a Democrat from New Jersey, introduced the Gaming Accountability and Modernization Enhancement Act, which would allow states to legalize sports betting — so long as they put in place consumer protections, including a ban on underage betting and safeguards against gambling addiction.
While Pallone's bill — which doesn't include a provision for integrity fees — hasn't budged since its introduction, U.S. Sen. Orrin Hatch, a Republican from Utah and one of the original architects of the 1992 law on sports betting, has also announced his support for a federal framework to regulate sports betting.
"For the sake of the athletes, for the sake of the fans and for the sake of the game, Congress must act to protect the integrity of sports and guide states as they consider whether to embrace sports betting," Hatch wrote in a column in Sports Illustrated, vowing to introduce a bill that would put in place "minimum standards."
But some states are already pushing back. A day before Hatch's column was published, gaming regulators from Louisiana, Massachusetts, Michigan and Nevada issued a statement to urge Congress to stand down. They argued that "coordinated action among jurisdictions" — states and Native American tribes — is what's needed to root out corruption in sport betting.
The state regulators also slammed "the so-called 'integrity fee,'" arguing that it would only "increase the costs of legal sports betting, siphon much-needed tax revenues away from state coffers, and increase state regulatory burdens."
Marc Edelman, a law professor at the City University of New York's Baruch College, said the leagues could still get what they want out of Congress, owing to their longstanding presence on Capitol Hill. According to the Center for Responsive Politics, for example, the NFL alone has spent more than $6 million for its lobbying efforts since 2013, and its Gridiron PAC gave $1.2 million in campaign contributions during the 2016 election cycle.
"It was this lobbying effort that led to the creation of the Professional and Amateur Sports Protection Act in the first place," said Edelman, who specializes in the business of sports. "So it's still possible that the lobbyists will prevail on behalf of the leagues."
Daniel Wallach, a sports gaming law expert and attorney at Florida-based Becker & Poliakoff, agreed that the leagues know how to play better in the federal arena. "Could it happen this year? Highly unlikely," he said. "But sports betting checks a lot of the important boxes for lawmakers — it's a revenue generator, it's a tax generator, it's a job creator, it's what the people want — so there's very little countervailing pressure against a sports betting bill being pushed through Congress."
For his part, Monmouth Park's Drazin isn't waiting to find out what Congress is going to do. He's focused on getting the track's bar and the adjoining grandstand area — which can hold about 7,500 people — ready to take bets as soon as the state lets him.