Wednesday, May 9, 2018

The NBA's "Integrity Fee" Is Ridiculous, But Not Unprecedented (Pt II)


Sports betting has always been highly stigmatized in this country. Hence, when faced with the Pete Rose scandal in the early 90s, most Americans favored a decision that led to more criminalization and prohibition. Consequently, the Professional and Amateur Sports Protection Act (PASPA), which banned the expansion of legal sports betting, was passed in 1992 in a widely bipartisan manner.


On the other hand, sports gambling scandals tend to elicit pleas for more transparency in Europe where most of the market is legal and regulated. That’s exactly what happened in the wake of a €2 million match-fixing scandal in 2005. The German professional soccer league Bundesliga was rocked by revelations that a referee, Robert Hoyzer, had been fixing matches.


That scandal indirectly led to the formation of ESSA (Sports Betting Integrity). This independent organization is funded by 26 legal bookmakers in the European Union. The bookmakers that are members of ESSA share information about suspicious betting information. 


Those companies spend a tremendous amount of money on staffing and software to monitor suspicious betting. As a result, when suspicious behavior is discovered, ESSA files reports that are distributed to the proper gaming regulators. ESSA communicates with 20 of the top sports governing bodies, including FIFA and the IOC. 


Most Americans are completely unaware of ESSA’s existence. That’s most likely why the NBA has been able to lobby for its “Integrity Fee.” To be brief, ESSA (a non-profit organization) has been expertly monitoring suspicious betting for several years and it has done it with only a sliver of the budget demanded by the NBA.
 

With that said, the NBA isn’t the first sports league to lobby for an Integrity Fee. In 2010, the French legislature required bookmakers to pay fees to the respective sports leagues. As a result of that fee and other burdensome taxes, there aren’t many licensed sportsbook operators in France, sixteen to be exact. Thus, roughly 40% of France’s sports betting takes place in the black market.
 

A few other countries have imposed these types of fees as well and the Asser Institute conducted the most comprehensive study on this issue. That study didn’t find these fees to be necessary. Instead, it determined that “integrity benefits…could be achieved well outside the framework of private law.” It also came to the logical conclusion that overtaxing the sports betting industry forces much of the activity into the black market.

By the same token, ESSA has found that sports betting is very likely to take place in the legal market as long the government’s taxes don’t surpass 20% of the sports betting revenue or “hold.” Khalid Ali, the Secretary General of ESSA, mentioned several positive models. However, the U.K. seemed to stand above the rest.


Bookmakers in the U.K. are taxed at 15% of the hold. As a result, there are over 200 licensed operators in the U.K. and, remarkably, only 5% of the betting is believed to occur in the black market.


A fully legalized market results in amazing transparency with twofold benefits. Europe’s bookmakers have to follow strong anti-money laundering laws, which help to deter game fixing. That data also helps to provide better investigative leads into suspicious betting.


To be precise, ESSA issued 266 alerts of suspicious wagering last year. These potential scandals involved eleven different sports and spanned every continent except Antarctica. Notably, seven of these alerts involved six tennis matches and one boxing match in the U.S.


Tennis is responsible for the highest percentage (60%) of alerts worldwide and there are a variety of reasons. To name one, it’s much easier to fix an individual sport. Also, these cases almost always occur in the circuits involving poorly-paid players. The second-most affected sport is soccer with 17% of the alerts. Again, these cases rarely involve the major sports leagues. After all, those players generally make way too much money to be corrupted in this manner.

Wikimedia Commons
Thankfully, transparency helps to identify potential game-fixing in these lower-level circuit games. There are obvious red flags, such as high levels of action on otherwise obscure games. However, this fully regulated environment allows bookmakers to attach advanced risk profiles to their clients that can trigger alerts from a variety of factors, such as geography, activity levels, etc.

All in all, it appears that PASPA will be overturned and there’s a lot of uncertainty in the U.S. for how to proceed with taxation and regulation. However, the international community offers many lessons for the proper guidelines.


The black market can be practically eliminated as long as the taxes are reasonable. That will create substantial transparency and drastically improve sports integrity. Also, there’s no need to impose an Integrity Fee on behalf of the sports leagues. Those efforts can accomplished for a fraction of the price and most of the costs are already absorbed by the bookmakers.

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