Indiana Sports Betting Bill Introduced, Pro Leagues Involved

According to a report by ESPN.com’s David Purdum, a bill which would legalize sports betting in Indiana was introduced in the state’s House of Representatives Monday. The bill, HB 1325, was the work of Representative Alan Morrison. If it passes, it will not necessarily take effect; in order for sports betting to actually start in Indiana, it would first need to be legalized on the federal level.

Indiana StampThat last part, though, is one reason why this bill is interesting. Included in the legislation is a one percent “integrity fee” that the sports betting operators would be required to pay to the professional sports leagues in the U.S. That fee, said Purdum, was suggested by the National Basketball Association (NBA) and Major League Baseball (MLB).

“We’ve certainly had some input and welcomed some advice and language that makes the leagues feel a little bit more comfortable,” Morrison told ESPN earlier this week.

What makes this interesting is that if we put on our deerstalker hats and play a little deduction game, the involvement of the NBA and MLB could very well indicate that they feel they will lose the “Christie II” sports-betting legalization case that was recently heard by the Supreme Court. The case will determine whether or not the Professional and Amateur Sports Protection Act (PASPA), enacted in 1992, will live on. PASPA prohibits sports betting throughout the U.S. except in Nevada, Delaware, Montana, and Oregon, though Nevada is the only state with traditional sports betting on individual games.

New Jersey has been fighting to legalize sports betting in the state, but the MLB, NBA, National Football League (NFL), National Hockey League (NHL), and NCAA have blocked New Jersey with lawsuits at every attempt.

If the NBA and MLB were confident that they would be on the winning side of the PASPA Supreme Court case, then why would they talk to Rep. Morrison about adding the integrity fee? One could infer that they see the writing on the wall and want to make sure they have a say in individual states’ sports betting laws.

That integrity fee, though, could be a problem for sports betting operators. One percent doesn’t sound like much, but that one percent is assessed on “the amount wagered on the sport’s governing body’s events.” In other words, it is a one percent fee on all bets placed, not on an operator’s gross gaming revenue. Professor I. Nelson Rose, arguably the leading expert on gambling law, explained on his blog this week that it is extremely punitive.

Extrapolating Nevada’s sports betting figures to Indiana, the average sports book would field $25 million in bets per year and make 4.16 percent on this amount, $1.04 million. The state imposes a 9.25 percent tax on gross gaming revenue and the federal government levies a 0.25 percent tax on “handle,” or total bets.

Thus, you get $62,500 in federal taxes ($25 million x 0.25 percent), $96,200 in Indiana state taxes ($1.04 million x 9.25 percent) and a whopping $250,000 for the league integrity fee ($25 million x 1 percent). Thus, the operator has $631,300 in revenue after all those taxes and fees, just 2.5 percent of all wagers. $631,300 isn’t chump change, but that is before actual corporate income taxes are taken out, as well as employee salaries, insurance, property taxes, and loads of other expenses.

As Professor Rose concluded, “I personally would never invest a cent into a business like this.”

The American Gaming Association seems to agree. In a statement, AGA President and Chief Executive Officer Geoff Freeman said:

While we applaud Representative Morrison’s efforts to bring legal, transparent sports betting to Indiana, handing sports leagues 20 percent of what’s left over after winnings are paid out, undercuts its economic viability. Doing so will ensure the illegal market continues to thrive in the state, and gut the tax revenues available to fund essential public services. We believe Indiana taxpayers deserve better.

We encourage Indiana to reject this short-sighted, misinformed idea, which simply replaces a failed federal prohibition with bad state policy. Our goal is to eliminate the illegal market, protect consumers and strengthen the integrity of the game. We invite all stakeholders to join us in working together in a thoughtful and transparent fashion.

If you are wondering where that 20 percent figure comes from when the integrity fee is actually one percent, look at the above numbers. Using Professor Rose’s estimates, the integrity fee would be $250,000 for an average operator on revenue of $1.04 million. That’s a 24 percent fee. Obviously the AGA used slightly different calculations, but they are close enough for the point to remain valid.

The NBA, in particular, might be totally fine with losing the PASPA battle. NBA Commissioner Adam Silver has expressed his support for legalized sports betting on multiple occasions, though he wants to see a federal regulatory framework, rather than state-by-state. In February 2017, MLB Commissioner Rob Manfred admitted in an interview that there was a “buzz” surrounding the possibility of legalized sports betting and that MLB was “reexamining” its stance on the matter.

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