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.

New Jersey Likely Won First Round in Sports Betting Battle in US Supreme Court

Yesterday, the U.S. Supreme Court court heard the first oral arguments in Christie v NCAA. If you're not familiar with this case, New Jersey is trying to overturn the federal sports beeting ban, the Professional and Amateur Sports Protection Act of 1992 (PASPA). The law blocks states from legalizing sports gambling within their own borders. The state of New Jersey asserts that this is a violation of the 10th Amendment because four states, primarily Nevada, were grandfathered in and able to still offer legal sports betting in their states. (My latest article with The American Conservative has many interesting background details on the case.)

Las Vegas Sportsbooks such as this one may get some competition in the future, depending upon the outcome of Christie v NCAA. (Image via Wikimedia Commons)

Make no mistake, the federal ban on sports gambling could easily be overturned in a conservative Supreme Court (5 Republicans - 4 Democrats). The reason is that Christie v NCAA is a states' rights battle, not a gambling issue. And, generally, the conservative viewpoint supports states' rights.


The transcript shows that three of the liberal Justices (Ginsburg, Sotomayor, Kagan) began with an aggressive line of questioning for Theodore B. Olson who was arguing on behalf of New Jersey. (Olson served as the Solicitor General during the George W. Bush administration.) However, the left-of-center Justice Stephen Breyer seemed to show his leaning from the beginning. He seemed to be making Olson's case for him by, at one point, citing the Airline Deregulation Act. However, Breyer later pivoted and essentially pointed to other issues in favor of New Jersey's case.

U.S. Supreme Court Justice Stephen Breyer - Wikimedia Commons

As usual, Clarence Thomas didn't speak, but he's a strong advocate for states' rights. His four conservative counterparts seemingly signaled their support of New Jersey's case with their questioning. And, in the end, nearly every legal analyst believes at least five and maybe six Justices will vote to overturn PASPA. That includes sports law expert and media figure, Daniel Wallach, who believes that it is 6 to 3 in favor of New Jersey. Wallach believes that it will go according to party lines, other than Breyer who will rule in favor of New Jersey.

Likewise, in a more sports betting friendly format, Dustin Gouker of the Legal Sports Report set a fictional over/under on the number of Justices leaning in favor of New Jersey at 5.5.

So far, so good. We'll have to see how this proceeds. Hopefully, this senseless, crony capitalist federal sports betting ban will be overturned.

Disney's Ridiculous Anti-Gambling Crusade

There is a potential ballot measure in Florida for 2018 that is worthy of your attention, the “Florida Voter Approval of Casino Gambling Initiative.” If passed, all future casino businesses would need permission from Florida’s voters, not the legislature, to operate in this state. 

We all should support a more inclusive political environment. However, we also need to fully understand the corporate interests behind such an initiative; Disney has aggressively funded this anti-casino lobbying effort.

It’s a natural assumption that Disney’s long-time opposition to casino expansion has to do with maintaining the family-friendly reputation of the company. After all, you’ll never see images of Mickey Mouse rolling a pair of dice or celebrating a successful spin at the roulette table. However, Disney’s subsidiary, ESPN, makes considerable profits from the dissemination of gambling information.  

ESPN’s website offers an entire section, “Chalk,” which is purely dedicated to gambling. That’s where you can evaluate the latest sports betting odds, check out Chad Millman’s podcast “Behind the Bets,” in addition to a variety of other gambling-related content. 

ESPN has also accepted advertisements from Bet 365, a U.K.-based sportsbook. Likewise, ESPN and another U.K. bookmaker, William Hill, once developed an app, ESPN Soccer Goals, which directly enabled U.K. sports fans to bet the games online.

That wasn’t Disney’s first foray into the gambling sector. Disney acquired PureSkills.com in 2000 and rebranded it as SkillGames.com after investing millions of dollars into the company. The website was set to be launched in 2001 in a venture of what could be best described as “skill-based gambling.” Participants had to pay to play various games (word, trivia, sports, etc.) with the chance to win cash prizes. However, Disney ultimately backed out of this deal at a time when a few influential Congressmen were trying to outlaw Internet gambling.  

Disney’s connections with gambling aren’t limited to online content. For example, very few people think of professional poker as a sport. Nor has anyone ever viewed the World Series of Poker and thought to themselves, “Wow. What a collection of the world’s greatest athletes.” Regardless, ESPN, “the Worldwide Leader in Sports,” earns hefty revenues from its extensive coverage and broadcasts of these competitions.

(World Series of Poker - Wikimedia Commons)

Furthermore, several ESPN commentators openly discuss the betting odds of the upcoming games. Albeit, they often provide a disclaimer such as, “I don’t condone gambling, but…” Then again, the former ESPN show host Colin Cowherd never offered such a pretense. On a weekly basis, he extensively analyzed the point spreads with his guest, R.J. Bell of the sports handicapping service PreGame.com.

(Colin Cowherd - Wikimedia Commons)

 If Disney truly had a moral aversion to gambling, it wouldn’t have accepted millions of dollars in advertisements from the daily fantasy sports DraftKings during the 2015/2016 football season. Likewise, Disney wouldn’t have entered into negotiations to purchase a $250 million stake in DraftKings as it did one year earlier. Disney never closed that deal, but suffice it to say, Disney isn’t opposed to gambling. It’s opposed to the competition from gambling. 

Their company has donated over $1 million this year to multiple anti-casino groups to promote the “Florida Voter Approval of Casino Gambling Initiative.” Again, there is nothing wrong with giving the voters more power. In fact, we should support such an initiative. However, let’s have an honest conversation about the pros and cons of the legislation. Let’s examine if additional casinos would hit a point of diminishing economic returns, along with all of the other relevant issues. Also, let’s be fully aware of the special interests involved.

Think Poker Isn't A game of Skill? Think Again.

There have been numerous variations of this adage, but the movie Rounders opened with a brilliant line that perfectly sums up the skill aspect of poker. 

“If you can’t spot the sucker at the table within the first half hour at the table, then you are the sucker.”

With that in mind, I’d like to offer my own variation:

If you think poker isn’t a game of skill, then you obviously haven’t acquired the skill.

It’s stunning that this can still be controversial in some peoples’ minds. Yes, in the short term, bad luck can trump a perfect poker strategy. However, over time, the luck of the draw evens out and a player’s skill level will determine his or her success rate.

A successful hedge fund that consistently beats the market isn’t viewed as merely “lucky.” Then why is a professional poker viewed so differently? The answer has to do with perceptions, legality, and stigma.

After all, poker was once shrouded in mystery and dominated by the riverboat grifters of the 19th century who literally had tricks up their sleeves. But, televised poker tournaments have helped to provide full transparency. By making the hole cards visible and providing the exact probabilities for each hand, these contests educated millions of viewers about the complexities of the game. 

Despite having thousands of participants, year after year, we see many of the same faces consistently at the top of these tournaments. That doesn’t happen by chance. One of those players, Annie Duke, has the perfectly succinct explanation for why poker is a game of skill. She accurately stated that you can’t intentionally lose a game of chance; conversely, that is entirely possible with a game of skill.

So what does it matter if people have a difference of opinion on this matter? The issue is that it affects the legality of the game. The courts are generally more lenient with forms of gambling that are primarily based upon skill.

This issue is particularly relevant in Pennsylvania where the state legislature is considering a bill to legalize online gambling and video gambling terminals. If passed, Pennsylvania would become the fourth state to legalize online poker. 

The Pennsylvania legislature is moving in this direction due to a budget shortfall, however, the state’s judicial system has been less welcoming of this game. To be more specific, the state ruled that poker is not a game of skill via Pennsylvania v Dent.

Walter Watkins, along with his girlfriend Diane Dent, organized small-stakes Texas Hold’em games out of his garage. He didn’t take a rake but asked for tips from the players. Watkins and Dent were eventually busted by an undercover cop for gambling charges. 

The pair successfully contested the charges in court due to a judge agreeing that poker is a game of skill. However, the State Superior Court reversed that decision in 2010 and ultimately ruled that poker is based primarily upon chance.

The Pennsylvania legislature has the chance to partially rectify this inaccurate ruling by the State Superior Court by legalizing online poker. However, that obviously wouldn’t eliminate wasteful undercover investigations that led to Pennsylvania v Dent.

Meanwhile, the state’s outdated gambling laws have done nothing to reduce the demand. WITF of Central Pennsylvania reported that illegal poker video game terminals have become increasingly popular in the state. Bear in mind, this market is completely unregulated and untaxed.

There is growing black market in large part due to lobbying efforts of the casino magnate, Sheldon Adelson. To be brief, he claims his objection to Internet poker is for “moral” reasons, but this crony-capitalist charade was fully debunked in my book Dealing From the Bottom of the Deck: Hypocritical Gambling Laws Enrich Crooked Politicians, a Select-Few Casinos, and the Mob. 

From state to state, the game of skill debate is usually left to the interpretation of the courts. However, a Virginia State Senator, Louise Lucas, introduced a bill earlier this year to recognize poker as a game of skill. The Senate version passed, but we’ll have to wait and see if the companion House bill has the same success. 

Again, the case for the game of skill argument is fairly obvious. All anyone has to do is read one the 580 books on poker strategy currently available on Amazon.com. However, I think what may be the best close for this discussion is acknowledging a project that isn’t directly related.

Let’s just say that Artificial Intelligence (AI) is well above my pay grade, but even an outsider can recognize the amazing technological advances. In particular, AI in poker has a fairly lengthy history. So without any further ado, let’s check out this amazing infographic detailing the advancements of AI with poker. The infographic is impressively designed and has numerous interesting facts, but it also indirectly demonstrates that poker is a game of skill. You can check out the official link here.

Harry Reid opposes DFS; He Prefers NV's Monopoly on Sports Betting

Harry Reid (Photo/Wikimedia Commons)

Nevada Senator Harry Reid recently had an exit interview with the Las Vegas Review-Journal. As always, Reid was outspoken and he offered his thoughts on daily fantasy sports. He said, “(Daily) fantasy sports is the worst of the worst.”   

You may not be familiar with daily fantasy sports, but you likely know of the companies that dominate this industry, FanDuel and DraftKings. If not, you probably don’t watch much TV because those two companies have inundated the airwaves with their advertisements. Daily fantasy sports (DFS) differs from traditional sports gambling by betting on the players’ statistics, not the outcome of the game. To put it another way, DFS is another form of sports gambling. These DFS companies took advantage of a loophole that exempted fantasy sports from the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).

Harry Reid supported the UIGEA because the Nevada casino industry wanted to suppress competition from offshore gambling websites. However, the UIGEA didn’t dramatically affect the demand for online gambling. Hence, the darling of the Nevada casino industry, Harry Reid switched his stance on Internet gambling. Reid tried unsuccessfully in 2010 to add a bill legalizing online poker to an extension of the Bush-era tax cuts. The regulations in Reid’s bill would have created an enormous competitive advantage for major Nevada and New Jersey casinos to the exclusion of nearly every other state.

Why would Harry Reid criticize daily fantasy sports (DFS) when his largest corporate donors offer full-scale legalized sports gambling? Once again, the answer is competition. Nevada benefits from a bill, the Professional and Amateur Sports Protection Act of 1992 (PASPA), that essentially provided a monopoly on sports gambling for their state. Only Oregon, Montana, and Delaware were allowed to continue offering sports gambling, albeit in extremely limited formats. (The sordid history behind this bill is detailed more fully in my upcoming book series, Rackets.)

The state of Nevada requires daily fantasy sports companies to apply for a gambling license, and that’s the way it should be in every state. However, the DFS companies have asserted that DFS is a “game of skill” to avoid gambling laws and regulations. The truth of the matter is that DFS is “skill-based gambling,” just like traditional sports betting. After all, some professionals make a living from DFS and traditional sports gambling.

Daily fantasy sports now exists within a gray area of the law. Five states have formally outlawed DFS; ten more are drafting similar laws. On the other hand, twelve states have officially legalized DFS and thirteen more have proposals in place to do the same. These states obviously want the tax revenues. Also, it is now much easier for politicians to support legalized gambling because the stigma has decreased. Case in point, Fairleigh Dickinson University conducted a national poll in 2010 in which only 39% of Americans supported legalized sports gambling. Nonetheless, the residents of New Jersey passed a ballot to legalize sports gambling in 2011 with 64% of the vote. And, in the following year, Fairleigh Dickinson University conducted that same national poll but with far different results. They found that 51% of Americans supported legalized sports betting. In other words, the stigma faded in a way similar to what happened with legalized marijuana. Polls show that support for legalized marijuana surged after Colorado and Washington passed their state referendums in 2012.

Unfortunately, the federal government has blocked the state of New Jersey from offering sports gambling because it violates the Professional and Amateur Sports Protection Act of 1992 (PASPA). However, New Jersey is contesting the constitutionality of this decision through the court system. Indeed, PASPA certainly seems to violate their state’s rights under the 10^th Amendment. In fact, five state attorney generals (West Virginia, Louisiana, Arizona, Mississippi, and Wisconsin) recently filed an amicus petition for the U.S. Supreme Court to review New Jersey’s sports gambling case.

Regardless of the outcome of that case, Congress has been pressured to review PASPA. One of the central forces behind this lobbying effort is the fact that 42 states now offer casino gambling. Hence, overturning PASPA has become the primary issue for the American Gaming Association (AGA). “The next (U.S.) president is going to have that issue of legalizing sports betting on their desk,” insists Geoff Freeman, the CEO and president of the AGA. To say it another way, several states want to end Nevada’s monopoly on sports gambling.