U.S. Supreme Court Justice Samuel Alito’s opinion in Murphy v. NCAA on Monday makes it clear: The federal Professional and Amateur Sports Protection Act (PASPA) is unconstitutional, and any and all of the 50 states can now legalize sports betting. As I explain in an accompanying Sports Illustrated legal analysis, the ruling rejects arguments raised by the pro leagues, the NCAA and the U.S. Department of Justice. It also endorses a viewpoint that states ought to have the autonomy to determine whether sports betting should be a lawful or unlawful activity.
That said, the ruling does not mean that you can immediately place bets at nearby racetracks, casinos or lottery dealers. The ruling also does not prevent the federal government from adopting other legislation that could reshape the sports betting marketplace. As to whether pro leagues and their players’ associations will benefit in a world with legal sports betting, that remains to be seen. These and other potential impacts are addressed below.
There will be sports betting soon (but not right away) near many (but not all) of you
As of Monday morning, each state is now capable of advancing legislation that would make sports betting legal. The legislative process, of course, is hardly certain or instantaneous. Most bills fail to become law. Even successful pieces of legislation can take months or years from their introduction as bills to their implementation as laws.
To that end, sports betting fans in most states will need patience with the legislative process. After introduction, bills are normally subjected to hearings where testimony from subject experts and stakeholders is taken. Then there are committee votes, debates on the floor and finally votes by the members. In 49 states, this process takes place separately in the state senate and state house. (Nebraska has a unicameral legislature.)
After approval, house and senate bills need to have their different wordings reconciled before both the senate and house vote on a final, identical version. If majorities in both the senate and house pass the final version, it then goes to the governor, who contemplates whether to sign the bill into law or veto it (some bills are “veto-proof”, meaning they are supported by large enough majorities in the house and senate to override any gubernatorial veto).
Even after a state’s sports betting bill becomes law, the state will need to devise and adopt implementing procedures—most likely through its gaming commission—for offering licenses to casinos and other gambling entities that would be eligible to take bets. States will also need to fund any expenses related to administrating laws and regulations connected to sports betting. Only after all of these steps are met would consumers be able to bet on sports.
Mindful of this lengthy sequence and in anticipation of the Supreme Court ruling in favor of New Jersey, a number of states jump-started the legislative process. On Legal Sports Report, Dustin Gouker provides a very helpful map of the 50 states and the extent to which each has pursued sports betting legislation. A handful of states, including Connecticut, New Jersey, Pennsylvania and West Virginia, have already passed sports betting laws. Now that the Supreme Court has opened the door for these laws to become operational, they will go into effect in a matter of weeks or months upon adoption of licensing and regulatory measures. Another dozen or so states are considering, or have recently considered, sports betting bills. At the other end of the spectrum, 26 states have not seen sports betting legislation introduced, let alone approved. For both political and philosophical reasons, it’s safe to assume that some states will never legalize sports betting.
The consequence is that sports betting will be legal in some states and illegal in others. This is not surprising since views about sports betting vary—a point captured in Justice Alito’s opinion when he writes, “Americans have never been of one mind about gambling.” Even among states where it is legal, sports betting will be regulated in different ways: variance in age limits and taxation, dissimilar rules on the kinds of establishments (casinos, racetracks, etc.) where one can place a bet and limits on the kinds of athletic contests (such as professional or amateur) for which bets will be classified as lawful.
The idea of states having different sports betting laws may sound like it will cause chaos, but the dynamic is neither new nor necessarily troubling. For starters, states have already managed to operate with different laws on sports betting, since Nevada, Delaware, Oregon and Montana were exempt from PASPA. States also have a long history of adopting different laws about a wide range of topics. A survey on state laws connected to taxation, the sale of alcohol, punishment for crimes, transportation and traffic, gun control and the use of marijuana would prove that.
Besides, the federal government could re-enter the sports betting industry by passing a new federal law to regulate sports betting. The Supreme Court only rejected one particular law, PASPA. It did not rule on other potential laws that the federal government could adopt to regulate sports betting. Whether such a law withstands legal challenge would depend on how it is constructed.
A brave new world for leagues and emerging debate over “sports betting right and integrity fees”
At first glance, one might expect that Monday’s Supreme Court ruling would be disappointing to the pro leagues and the NCAA. After all, they lost.
But pro leagues have already taken steps to embrace certain aspects of sports betting. They have also positioned themselves to pivot quickly to this new landscape and to profit from it.
Take the NBA. League commissioner Adam Silver has openly endorsed the federal government legalizing and regulating sports betting. Silver’s recommended path for sports betting remains a possibility. Leagues and some other businesses would prefer that there be a uniform set of rules for sports betting across the country, rather than as many as 50 different sets. If differences in states’ sports betting laws prove problematic, Silver’s idea will only gain traction.
Silver and his predecessor, David Stern, have also not shied away from linking the NBA to Las Vegas, where sports betting has been legal since 1949. For instance, Las Vegas hosted the 2007 NBA All-Star Game, as well as an annual Summer League, where all 30 NBA teams will compete in 2018.
Anticipating a loss before the Supreme Court, the NBA has joined other leagues in demanding payment of so-called “sports betting right and integrity fees,” which have become commonly referred to as “integrity fees.” Betting operators and sports books would pay these fees to the leagues in states that legalize sports betting.
The fees would reflect several features.
First, and placing emphasis on the phrase “sports betting right”, such fees would account for the derivative quality of sports betting: Leagues provide the games upon which bets are made. Leagues then expect to receive a portion of the share, much like a player or musician expects to receive a portion of a royalties associated with others trading on their identities or talents.
Second, the “integrity” portion of the expression encompasses leagues’ increased risk and elevated spending on compliance, monitoring and investigations related to sports betting activities. To that end, leagues contend they should not have to bear all the risks while betting operators and bettors gain all the profits.
The concept of integrity fees triggers controversy on multiple levels. Betting operators and sports books are naturally opposed to paying leagues when those leagues would provide games irrespective of whether people can bet and irrespective of whether integrity fees are paid. Those operators can rightfully ask why, if integrity fees are so essential, leagues never demanded integrity fees from Las Vegas betting operators.
State governments are also poised to oppose integrity fees if collection of those fees translates into a reduction in collected tax revenue. States could stress that enforcement of licensed sports betting is a public, not private, matter. State regulators and law enforcement are the appropriate entities to enforce state betting laws. Leagues, from that perspective, have no standing to administer sports betting laws.
Further, even if legal sports betting leads to new costs for leagues, leagues are sophisticated actors. They appreciate how business works. When laws change, private companies sometimes incur new costs. One can argue that companies adversely impacted by new laws should revisit their business model to remain competitive rather than expect preferential treatment to offset any losses.
The leagues can respond to such a critique in a variety of ways. For one, the scope of sports betting in America is about to expand dramatically, and this will impact how leagues deliver games to fans. The impact will lead to additional costs. Also, the leagues can credibly insist that sports betting operators and bettors themselves shouldn’t be able to get a “free ride” off of the efforts of leagues and players. The leagues can further point out that integrity fees have been used in Europe to help preserve the integrity of games.
Determining the value of integrity fees and how owners and players will share them
Even if sports betting right and integrity fees are adopted by states, it’s not clear how those fees should be computed. In testimony provided earlier this year, NBA senior vice president and assistant general counsel Dan Spillane revealed that the NBA believes “it is reasonable for operators to pay each league one percent of the total amount bet on its games.” Alternatively, recent legislative proposals in New York, Kansas and Connecticut advocate for integrity fees totaling one quarter of one percent of money bet on games. Keep in mind, the value of the sports betting industry is expected to soon grow to between $150 and $200 billion: even a quarter of one percent of that market would provide leagues nearly a half billion dollars.
Another uncertainty is whether, and to what extent, integrity fees would be shared with players—the persons from whose labor games are produced. Last week, the players’ associations for the four major leagues issued a joint statement in which they demanded a “seat at the table to ensure that players’ rights and the integrity of our games are protected.” Although the statement did not explicitly insist on players receiving a portion of integrity fees, its reference to “the integrity of our games” was telling.
The statement further expresses that players will bear some of the “costs” of sports betting. Indeed, the players’ associations contend that legal betting could jeopardize players’ privacy and publicity rights. The term “publicity rights” refers to legal protections that safeguard individuals from the commercial exploitation of their names, images and other identifying characteristics. In recent years, players have attempted to enforce these legal rights in a related industry: daily fantasy sports. In 2015, San Francisco 49ers wide receiver Pierre Garcon sued FanDuel in the U.S. District Court for the District of Maryland, arguing that FanDuel unlawfully utilized NFL players’ names and likenesses without those players’ consent (Garcon and FanDuel later resolved the lawsuit through a settlement). It is possible that similar litigation could emerge against sports betting operators. This would more likely occur if players believe that their publicity rights are being exploited by sports betting operators without permission or compensation.
Players’ efforts—and expenses—to protect their publicity rights could be used as a basis to demand a portion of any integrity fees paid to leagues. After all, leagues insist on integrity fees to offset their spending on compliance, monitoring and investigations connected to sports betting. Players seem poised to experience similar costs. They could thus argue that they too deserve a cut of integrity fees.
But “deserve” is not how owners and players decide how to divide the pie of wealth they create. Division of wealth is determined by the collective bargaining agreement. The CBA reflects each side giving and taking—and each must live with the consequences.
The operative question is thus whether players have a contractual right, under the relevant CBA, to receive sports betting right and integrity fees.
Take NBA players. Their CBA with the NBA does not mention sports betting right and integrity fees. However, Article VII of their CBA contains an expansive definition of “basketball related income”, which includes common forms of revenue generated by NBA games. TV broadcasts, apparel sales, arena signage and other NBA products and services that produce revenue are included within BRI. The CBA dictates that players and owners evenly split BRI, as each receives between 49% and 51% depending on various factors. BRI is also connected to the configuration of the annual salary cap for NBA teams, with higher BRI meaning a higher salary cap.
Sources familiar with the NBA’s thinking on sports betting right and integrity fees tell SI.com that the league and players’ association are in agreement: These fees count as BRI. This makes sense on a number of levels.
First, the “sports betting right” portion of the fees reflects the shared enterprise by players and the league in delivering a product from which sports betting companies seek to derivatively profit. These fees would account for the use of labor and identity.
Second, Article VII includes gambling revenue within the definition of BRI (so long as that revenue isn’t generated by a gambling business owned by the NBA or its teams):
[BRI shall include] all proceeds, net of Taxes, less reasonable and customary expenses…from gambling on NBA games or any aspect of NBA games…[But] BRI shall exclude revenues from gambling on NBA games or any aspect of NBA games generated by casinos or other gambling businesses, owned or operated by a Team, Related Party, or a League-related entity, whose total revenues are not predominantly from gambling on NBA games or any aspect of NBA games.
On one hand, the “integrity” portion of fees might not literally comprise “proceeds from gambling.” They constitute league investments into safeguarding games from unlawful, unethical or undesired practices—much like league investments into other kinds of security that are not part of BRI. However, the NBA is not expected to engage in such word-parsing. If the NBA receives sports betting right and integrity fees, those fees will be included in BRI.
The same dynamic is apparent in the CBAs of the NFL, MLB and NHL. Each of those CBAs contains different formulas for sharing revenue, and each omits mention of sports betting right and integrity fees. Although the NBA and NBPA are on the same wavelength, it remains to be seen whether those other leagues and their respective players’ associations debate whether and how to share integrity fees. They could reach an agreement based on a shared interpretation of a CBA. Alternatively, individual states’ legislation could address allocation of integrity fees so that both owners and players are recipients. Either way, expect integrity fees to remain a critical issue in the aftermath of sports betting in America.
Michael McCann, is SI’s legal analyst. He is also the Associate Dean for Academic Affairs at the University of New Hampshire School of Law and co-author with Ed O’Bannon of the new book Court Justice: The Inside Story of My Battle Against the NCAA.