DA's Morning Tip
In wake of Supreme Court ruling, NBA preparing for impact of sports betting
But the woman took off the great lid of the jar with her hands and scattered all these and her thought caused sorrow and mischief to men. Only Hope remained there in an unbreakable home within under the rim of the great jar and did not fly out at the door; for ere that, the lid of the jar stopped her, by the will of Aegis-holding Zeus who gathers the clouds. But the rest, countless plagues, wander amongst men; for earth is full of evils and the sea is full.
–Hesiod, Works and Days
The fable of what became known as Pandora’s Box, rather than Pandora’s Jar (the original wording, per Hesiod, having changed in translation over the centuries), resonates more than ever today, in a world in which we want immediate answers before we even know what the right questions are to ask. The notion of unintended consequences is front and center as we learn more and more rapidly because of technology but spend less and less time contemplating what we’ve learned—also, in large part, because of technology.
The Supreme Court’s 6-3 decision last week that opened the door to legalizing gambling on sports in the United States will do a few things we already know. It will inject hundreds of millions of dollars into state coffers around the country, as legislatures and municipalities rapidly approve bills that will allow residents of their respective states to bet on, basically, anything—but, from now on, legally, with the states getting the lion’s share of the revenues.
The ruling will allow states to legally set up sports books, which will allow citizens of those states to make bets on games without having to drive to Las Vegas or call a 900 number on some island in the Atlantic.
Nineteen states, led by New Jersey—which set all this in motion when its citizens passed a nonbinding referendum in 2012 legalizing sports betting, and whose state legislature soon after codified that referendum into state law—had fought the federal government in court the last five years, and had lost almost every decision in the courts until last week. Those and other states are now scrambling to get sports books and casinos up and running as soon as possible.
“This is their new lottery ticket,” said Michele Roberts, the Executive Director of the National Basketball Players Association, in a phone interview Saturday.
The SCOTUS decision, striking down the Professional and Amateur Sports Protection Act (PASPA), enacted in 1992, will create a tsunami of interest in sports across the board going forward—collegiate and pro. Hardcore fans will now be able to put a bet on whether the next pitch will be a ball or a strike; whether the field goal will go wide left, wide right or down the middle; if the 50 percent foul shooter makes the next one or not. But, as is the case with March Madness and the NCAA Tournament, people in every office, car pool, dorm or church will be able to participate as well. Casual fans who don’t follow every drop of the puck or grind through 162 regular season baseball games will nonetheless tune in on their various devices to see the outcomes of innings, quarters, halves and periods.
We know that sports leagues and their television partners will, one way or another, be further enriched, with the attention already paid to their games and broadcasts almost certain to grow exponentially as more people place legal bets on the various outcomes. And more eyeballs viewing/consuming mean bigger ratings, more clicks and more advertising dollars.
And, we know Las Vegas, no matter which other municipalities get up to speed in the coming years, is going to remain front and center in setting the lines and odds and everything else that develops.
“We’ve been preparing for this decision for quite some time now,” said Jay Kornegay, the vice president of Race and Sports SuperBook at the Westgate Las Vegas Resort and Casino, the largest of its kind in the state.
“We’re not of the position that considered (the decision) a threat,” Kornegay said. “We’re in the boat of it being an opportunity. We’ve been preparing to expand our brand, the SuperBook, in other jurisdictions. How that will work will depend on the states and the specific regulations that will be set up.”
PASPA basically barred states from being able to legally accept wagers on sporting events; four states that had existing sports betting laws—Nevada, Oregon, Delaware and Montana—were grandfathered in and allowed to continue their programs. (Ironically, PASPA’s main sponsor in the U.S. Senate was Naismith Memorial Basketball Hall of Fame forward Bill Bradley, who authored the bill while serving as Senator from New Jersey.)
And, on the surface, who would have a problem with that?
Which is the problem with surface-based analyses.
What we don’t know about the potential impacts of the SCOTUS decision is what’s unnerving—for professional sports leagues including the NBA, but, potentially, for so many other people connected either directly or tangentially with sports at all levels.
There will certainly be unintended consequences of bringing gambling out into the open, with an impact that can’t possibly be imagined or prepared for at this juncture. You simply cannot introduce this much money into the system of sports this quickly—the sports betting industry in the United States, mostly in the shadows outside of the legal betting allowed in Nevada, is estimated to go through hundreds of millions of dollars annually—without the river of dollars cutting through places with which it shouldn’t connect.
“There are so many parts to this,” said Marc Ganis, the co-founder of SportsCorp, Ltd., a sports consulting firm that has assisted in the sale of NFL, NBA and Major League Baseball teams and the building of arenas and stadiums around the country for much of the last two decades, connecting prospective and current team owners to the leagues and to revenue sources that aid in the purchase of those teams and the building of their owners’ new palaces.
“Many important parts are being, if not ignored, treated way too casually,” Ganis said. “It’s an important decision and will result in meaningful changes—and not all of them will be positive.”
Chief among the many new concerns is, obviously, the threat of gambling and gamblers reaching teams and players—or, even more worrisome, the mere accusation of untoward behaviors by team employees. We all know the tinfoil crowd is already out there, especially this time of year, when some claim every playoff game is fixed, either through result or point spread, to benefit some shady entity.
“As the executive director of the players association, I’m supposed to be seeing this as how to monetize this for the benefit of the players,” Roberts said. “But there are so many other things that we have to anticipate addressing.”
The union anticipated a SCOTUS ruling that would allow gambling going forward when it negotiated the most recent Collective Bargaining Agreement with the NBA—and provide the players with a potential cut of the new revenues generated. Article VII, Section 1, (a) (1) (xiii) states players will receive their share of Basketball Related Income including:
All proceeds, net of Taxes, less reasonable and customary expenses (which expenses shall be subject to New Venture treatment, if applicable, under Section 1(a)(6)(iii) below), subject to the provisions of Section 1(a)(6) below, from gambling on NBA games or any aspect of NBA games, subject to appropriate treatment of categories of excluded revenues or other amounts, if applicable, under Section 1(a)(2) below and allocations for multi-element deals. 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…
Yet how can leagues adequately prepare for not just the influx of money, but the enhanced scrutiny that will follow every moment of every game going forward?
Again: we’re not even talking about the potential incentives to actually play cute with point spreads and/or results of games. Point shaving scandals have roiled college basketball throughout the decades, from CCNY and Kentucky in the 1950s, to Boston College in the 1970s, to Arizona State to Tulane and Northwestern in the 1990s.
Just the appearance and/or accusation of same in our social media world today could be devastating; witness the corrosive effect of the claims of former NBA referee Tim Donaghy that NBA officials had been compromised.
At base, scrutiny of players, coaches and other team officials could well increase to a level we have yet to see.
“Are the unions and the players prepared for some privacy invasions, similar to what takes place to testing for performance enhancing drugs, but now related to integrity—which is a much less tangible matter?,” Ganis asked.
When you add up players, coaches and training staffs—who would have the kind of access on player injuries that could be enticing to those who are putting down bets—there could be up to “600 people right off the bat who have to be monitored on a regular basis,” Ganis said. “And they’re going to have to agree to this. The Players’ Association had to agree that their members had to have their blood drawn or to give urine samples to test for drugs. What about if you want to look at their e-mails or their bank accounts?”
For that matter, he asks, what about garbage time, after which the result of the game has long been decided. A player who drives to the hole to score what would normally be a meaningless layup at the buzzer could impact the spread—and would immediately fall under intense scrutiny.
Roberts sees an even bigger adjustment that will have to be made.
“I have no issue or any reason to believe players will need to or need to change their in-game conduct,” she said. “I think our guys love this game. I don’t have any worry that this is going to make players suddenly become cheaters. What I do worry about is the guy who says ‘ I feel a little sore today,’ and he really does, and someone saying to him from your environment that he’s trying to affect the betting environment.
I don’t have any worry that this is going to make players suddenly become cheaters. What I do worry about is the guy who says ‘ I feel a little sore today,’ and he really does, and someone saying to him from your environment that he’s trying to affect the betting environment
Michele Roberts, the Executive Director of the National Basketball Players Association
“Your (media) colleagues are going to have to be managed in terms of what kinds of questions are appropriate. You have people now asking Steph (Curry), ‘are you sure your knee is okay?,’ and him saying ‘yes!’ And I love that brother. In the new environment, you can imagine people accusing him of being disingenuous in terms of his health so that he can manipulate the spread. It could be really ugly.”
Nonetheless, the ruling was hailed by many who have skin in the game.
Some who’ve been on the front lines of the NBA/gambling debate during the last few years don’t believe there will be deleterious effects created by the SCOTUS ruling. They are not worried about potential integrity issues, feeling there could actually be enhancements created by new technology solutions. They understand we’ve crossed the Rubicon as a country when it comes to gambling and understand the desire to move illegal wagering to legal betting, deprive organized crime of the profits and enhance state finances.
Emerging companies like Swiss-based Sportradar, with which the NBA and the other major sports leagues in the United States have partnerships, produce and analyze enormous amounts of data about sporting events, which are provided to the various leagues, while also policing potential betting anomalies that could unearth shenanigans with point spreads and the like.
The advent of daily fantasy sports betting, accelerated in 2006 after passage of the Unlawful Internet Gambling Enforcement Act (UIGEA), brought daily fantasy sports betting into the sunlight, with DraftKings and FanDuel, leaving no rational philosophical distinction between that and other forms of gambling.
“Many ask if this decision will impact the integrity of sports themselves. I think it’s just the opposite,” Washington Wizards owner Ted Leonsis said in a statement last week after the ruling was announced. “I think that the increased transparency that will accompany more legalized betting around the country will only further protect against potential corruption. They say sunlight is the best disinfectant, and in this case I believe that is certainly true.
“Of course, there are a huge number of questions about how today’s decision will play out across different states and throughout the different leagues. I don’t claim to know all of those answers today, but what I do know is that this is a new frontier for professional sports and teams who don’t seize on this opportunity will be left behind. As millennials and Gen Z continue to embrace the second screen, it’s not hard to imagine in the near future fans on their devices analyzing data, placing bets and communicating with each other in real time during games. Legalized sports betting will only bring fans closer to the game, ramping up the action in each minute and creating more intensity. It will bring new revenue into the economy, creating jobs and growing our tax base. Today’s decision is a great one for sports fans and I am eager to embrace it.”
In doing so, Leonsis echoes the position of NBA Commissioner Adam Silver, who wrote an op-ed in The New York Times in 2014 advocating the legalization of sports betting. It was a reversal of the league’s previous position, which had been advocated for strongly by then-commissioner David Stern.
Silver advocated passing federal laws that would allow states to accept legal wagers, but with uniform regulations and technological safeguards. (The league reiterated this position after the SCOTUS ruling last week.)
“Let me be clear: Any new approach must ensure the integrity of the game,” Silver wrote back in 2014. “One of my most important responsibilities as commissioner of the NBA is to protect the integrity of professional basketball and preserve public confidence in the league and our sport. I oppose any course of action that would compromise these objectives.
“But I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.”
Along those lines, the NBA and other sports leagues are already advocating for a cut of the new potential revenues, arguing that they not only provide the apparatus and platforms for games, but will have to make additional investments to investigate potential suspicious activities. The so-called “integrity fee” argued for by the leagues could be up to one percent of all monies bet on games.
“The issue of the integrity fee is a really good one,” Ganis said. “Do I think the leagues should receive a fee? The answer is unequivocally yes. The reason for it is simple—they are the ones putting on the events that are being gambled on. It’s like a casino that has a poker tournament. They take a cut of every pot, because they’re hosting it. They bring in the dealers, they provide the venues, they make sure no one’s cheating…they take the same cut of the tournament that the leagues are asking for.”
“The league shares, we share the same interest in maintaining the integrity of the game,” she said. “There’s more common space there—no difference in terms of our interests…we do share with the league the notion that it’s somewhat unseemly that people are going to make billions of dollars on a product that we’ve created. We fight about enough. It’s sort of refreshing that we can find, without any real difference between us, something that we can try to resolve together.”
Of course, the gaming industry demurs.
“We’ve been doing that for 40 years,” Kornegay said. “This is nothing new to us. We’ve been protecting the games and the product for four decades. Some have been acting like we haven’t been doing this. I met with the leagues 14 years ago in Indianapolis and we told them, at the time, we were on the same side. We want to protect the game like you do. Integrity is the name of the game for us.”
Casinos have entire departments who monitor spreads and that are the first to blow the whistle when something doesn’t quite smell right or add up with a spread.
“It’s not periodically or a spot check,” Kornegay said. “They check everything we do—on our side of the counter and on the other side of the counter. When they talk about the integrity fee, I’ve heard some say if there’s a scandal, the leagues are going to take a hit. Well, we’re going to take a hit too…people aren’t going to want to bet on something that they don’t think is fair and true.”
In addition, states such as Nevada already assess significant taxes on casinos and other gambling establishments—in Nevada’s case, a graduated tax rate that tops out at 6.75 percent—that make profit margins smaller. Now, no one’s planning a telethon for the owners of Mandalay Bay or the Bellagio. But an integrity fee would cut into their net.
“Sports books are amenities to their casinos, not a revenue generator,” Kornegay said. “….we’re not shoveling out gold every day. It’s a very volatile game. It’s the only casino game that doesn’t have a mathematical probability (favoring the house) in it. We lose a lot.”
(The NHL expansion Vegas Golden Knights, which advanced to the Stanley Cup finals Sunday with a Western Conference finals win over Winnipeg, stand to provide a rare but nonetheless bracing financial hit to sports books like Kornegay’s.)
We are just at the beginning of this, of course, and there’s no guarantee that legalizing betting is going to slay the economic golden goose. There could well be unintended positives, too. (Bookmakers, for example, are going to have to market their services on a larger scale, which could produce larger revenue streams for leagues and their teams.)
After all: the only thing left in Pandora’s jar/box after she opened it was hope.
“Adam is, arguably, the smartest person I’ve ever met,” Ganis said. “Adam Silver is brilliant. He’ll figure this out. But it needs to be figured out.”
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