US sports betting facing state hurdles, but data and sponsorship openings for leagues
By Simon Ward
The US sports betting market is developing less quickly than anticipated, but there should be a domino effect as more states legalise and profit from the activity, while the major leagues would be better advised to take advantage of data and sponsorship opportunities than seek a share of the revenues, according to industry observers.
Last May’s US Supreme Court ruling that effectively gave states the right to legalise sports betting was anticipated to open the floodgates for gambling operators on that side of the Atlantic where it has, until now, been a relatively minor source of revenue.
However, although seven states (Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island and West Virginia) have joined Nevada, where betting was already legal, in lifting restrictions, there is as yet no sign of a bonanza.
New York, which is home to the four top leagues (MLB, NBA, NFL and NHL) and eight leading professional teams, is seen as a potential tipping point, but, although state legislation is being considered in the wake of the repeal of the Professional and Amateur Sports Protection Act of 1992, there is uncertainty over how far-reaching this will be.
While a constitutional amendment in 2013 gave four casinos the right to launch sports betting if and when federal law allowed, New York has yet to enact this, and governor Andrew Cuomo is opposed to mobile betting, which is seen as the real game-changer.
This stance is misguided, according to Raymond Lesniak, the former New Jersey state senator who fought a long battle against PASPA, and was instrumental in bringing sports betting to his jurisdiction.
Speaking to Sportcal ahead of his appearance at the Betting on Sports America conference in New Jersey next week, Lesniak said of the growth of the market: “I actually expected it would be quicker in other states like New York.”
He added: “They’re missing the boat. New Jersey is benefitting in terms of revenue into the state treasury and jobs… The casino industry was struggling and the racing industry would have gone bust in a few years.”
Sports bets worth $1.9 billion are reported to have been placed in New Jersey since last June, when the activity became legal, of which 80 per cent derived from the internet and mobile, and sports fans have been crossing the border from New York in order to partake.
Meanwhile, online sports betting is set to be launched in the neighbouring state of Pennsylvania in the coming months.
However, Cuomo has played down the tax gains, saying in a radio interview last month: “Sports betting, first of all, does not make you that much money. They [New Jersey] raised something like $13 million - $13 million is a rounding error in our state. So I don’t even think the economic benefit is there. I am not a fan… [of when] you can bet anytime from your cellphone.”
Lesniak, for his part, claims that the level of illicit sports betting, from which no tax accrues, is another convincing argument for legalisation, saying: “It is going on in their backyards so why wouldn’t you?”
PASPA was long defended by the major leagues and the National Collegiate Athletic Association, which had concerns about the integrity of their sports, but they have changed their tune since it was repealed, with partnerships with betting companies and casinos being announced on a regular basis.
Asked if more states are likely to pass legislation once they see financial benefits of sports betting, Lesniak said: “Without a doubt that will happen. It’s a question of if, not when. When the NCAA said they wouldn’t go to states with betting, I said they’re going to have to have all of their tournaments in the [conservative] state of Utah.”
While there have been efforts to introduce federal legislation on sports betting, notably via the Sports Wagering Market Integrity Act put forward late last year by senators Charles Schumer of New York and Orrin Hatch of Utah, these have made little headway, meaning that the growth of the industry will be dependent to a large extent on the 50 state legislatures.
Jaap Kalma, the interim business development director of sports betting analysis company SBC and the former chief commercial officer of Italian soccer giants AC Milan, agrees that the US market is developing slower than many expected, saying: “To some degree I get the impression they seem to be reinventing the wheel. The choice to push down into state level has made things very complicated… Technologically and with integrity checking on a state level.
“I think that’s been hampering things and affected a whole load of discussions about the potential size of the market. That is based on a number of unknowns. How big is illegal betting? I’ve seen estimates of five to six time the legal market.”
On the potential of the US sports betting industry, Kalma has noted projections that it could be worth two to three times the capital of the money-spinning UK market.
He added: “There are three key factors: the first being the number of states [with legalised betting]. We could be up to 30 [with legislation in motion] by the end of this year. There are about 20 that are now actively discussing legislation.
“The second question is the key one. What are they going to allow? Are they going to allow online betting? Limiting betting only to current premises is going to be very limiting.Then there are the hurdles in the way of legal betting. The question of integrity fees and tax. That way you put up a lot of barriers to betting.
“These will decide the size of the legal market and the ability of brands to engage in marketing and sponsorship.”
Integrity fees The lack of federal legislation on sports betting has been an obstacle to the major leagues’ hopes of extracting a share of the anticipated large revenues through a ‘royalty fee’ or ‘integrity fee’ that would entail close co-operation with the industry.
MLB and the NBA have led the drive for a 0.25-per-cent share of the revenues of betting operators, both online and offline, but no state has yet taken the plunge and included the proposal in legislation, while the American Gaming Association, which represents the casino industry, remains opposed to the concept.
Lesniak has no qualms about the lack of federal oversight, saying: “Thankfully Congress doesn’t seem to be able to get anything done, which is fine by me. They should stay away from sports betting and leave it to the states.”
He is also against integrity fees, saying: “They [the leagues] tried in New Jersey and we told them to take a hike. They fought me in court for eight years [over PASPA], costing me millions in legal costs and lost revenue, and now they want a share of it.”
Pressed on whether the leagues should be entitled to a share of the proceeds from betting, Lesniak was unyielding, saying: “They’ve already taken advantage of it. Their franchises have increased in value.”
He cited Mark Cuban, the high-profile owner of the NBA’s Dallas Mavericks, who said in the wake of the repeal of PASPA: “I think everybody who owns a top four [league] professional sports team just basically saw the value of their team double, at least.”
Last October, a Nielsen Sports report commissioned by the AGA predicted that the top four US major leagues stand to earn a combined $4.2 billion per year in extra revenue from various sources, as a result of the widespread legalisation of betting. The NFL led the way with $2.3 billion, ahead of MLB with $1.1 billion, the NBA with $585 million, and the NHL with $216 million.
Kalma does not see integrity fees as practical, but believes that the leagues can capitalise on the value of their data in official partnerships with casinos and betting companies.
There have already been agreements in this area, notably between the NHL and MGM Resorts, and between MLB and Sportradar, the sports data intelligence company.
He said: “It’s a pretty complicated argument. I have some perplexity about the integrity fee. I feel they tend to overestimate the integrity issue, even if when you look at the UK and Italy, we’ve had our share of integrity issues in the past, especially in the lower leagues.
“The legalised market helps rather than hurts integrity, the tools are out there and there are disincentives you can create. It’s not that surprising that they look at this issue in the US given PASPA, but the integrity costs to sports are not that high.
“I might go the other way with data fees. There’s sense to have a throwback in sponsorship and a data fee. The problem is if you go too high [with the cost], it will go against legal betting. The industry should focus more on how, in a responsible manner, they can provide services to the betting industry.”
Betting sponsorship The lowering of the barriers to sports betting have prompted many operators to look at ways in which they can promote their business in USA, and sponsorship, in part through traditional branding, is a possible avenue.
Lesniak said he had “no problem” with betting sponsorship, and advertising, as long as it is within acceptable bounds.
He added: “I’ve complained about some of the advertising, which has been over the top. I do believe in regulating the advertising, like was done with cigarettes… because of the addictive qualities.”
However, Kalma claims that betting firms more used to the generally less-regulated markets in Europe will have to be prepared to adapt to the different landscape in North America.
He said: “The uncertainty of the development of the industry will be amplified in how sponsorship will develop. The US is very different, with the franchise system, and, in this structure, the leagues play a larger role. If you look at the profit and loss of an American sports team, it’s entirely different. They’re much more focused on matchday and on TV rights [revenue] than on commercial.
“You have very little [sponsor] visibility in US sports, which is the main rights category in Europe: relatively little perimeter branding, and jersey branding you practically do not have. It’s more focused on IP and matchday activity, and digital. In that sense, the types of [betting] partnerships will be different to those in Europe.”
Raymond Lesniak will be speaking at SBC’s Betting on Sports America, the largest dedicated sports betting trade show in USA, in New Jersey next week, and will also be signing his new book, Beating The Odds: The Epic Battle that Brought Legal Sports Betting across America. Jaap Kalma is the coordinator of the Sponsorship Forum at the conference. For more information or to get tickets click here.