New Jersey Lawmakers Propose Fee on Sports Bets for Major U.S. Leagues
New Jersey lawmakers are trying to head-off another legal confrontation with the major sports leagues by offering them a fee on sports bets. The move by State Senator Jim Whelan and State Assemblyman Vincent Mazzeo is a hope that the NFL, NBA, MLB, and NHL won’t join in a new lawsuit when New Jersey casinos and racetracks begin taking sports bets late in October.
Adam Silver’s New Stance
The offer came in an open letter by the two lawmakers to Adam Silver, the commissioner of the National Basketball Association. Last month, Silver had addressed an audience and told them that sports gambling was inevitable and that the NBA needed to embrace it. In fact, Adam Silver suggested that the best course of action was to be proactive, to get out ahead of the trend, and find a way to collect revenues from sports gambling.
Silver’s position is seen as a major departure from the traditional stance put forward by leaders of the major American sports leagues. Silver took over as NBA commission in February 2014, after David Stern had spent 30 years in the job. Two years ago, David Stern had labeled New Jersey’s politicians as “foolish” and “short-sighted” for trying to legalize sports gambling in the state. At the time, the NBA had joined a lawsuit filed by the NFL, NHL, Major League Baseball, and NCAA. The sports organizations argued that New Jersey’s legalization of sports gambling was a grave threat to the integrity of their leagues and associations.
New Jersey Defeated in Appellate Courts
When a New Jersey judge ruled that the state was in violation of the 1992 PASPA law which regulates sports betting on the federal level, Governor Chris Christie appealed those rulings. Eventually, the case was placed before the U.S. Supreme Court, which declined to hear the case. Christie vetoed a new bill by the New Jersey legislature in August, because he saw the bill ending in another legal deadend–with the state in direct defiance of federal statutes. Instead, Christie and his lawyers chose to take an interesting intepretation of an appellate judge’s opinion that the state could not write laws to approve sports betting, but could choose to ignore such activity and stay within federal law.
That interpretation is the likely course of action if the ruling judge (Judge Michael Shipp) gives a favorable clarification when he renders an opinion on the case in October. If so, the New Jersey’s casinos and racetracks will start taking sports bets. It is expected that such betting would prompt another lawsuit by the NBA, NFL, and fellow sports leagues. Thus, the fee offer may be New Jersey’s best way to avoid another round of legal battles, which could go in either direction.
Protecting the Integrity of the Leagues
The letter by the lawmakers said, “While we strongly support the legalization of sports betting in New Jersey and the economic benefits it will bring to Atlantic City, we are cognizant that sports leagues like the NBA need the necessary resources to protect the integrity and fairness of games.”
Fees for a Game Integrity Department
Whelan’s and Mazzeo’s proposal would create a de factor partnership between New Jersey and the leagues. The leagues would draw a 0.25% fee on every bet made legally in New Jersey. The money from these fees would be used to create a “Game Integrity Department” in each league or association. The Game Integrity Departments would investigate suspicious betting patterns and otherwise police their players’ and coaches’ conduct.
Other Fees to Be Paid
The proposed fee for the sports leagues would not be the only one. According to federal law, the IRS is supposed to receive a 0.25% fee on “any wager authorized under the law of the state in which (it is) accepted.” According to one interpretation of that statute, it is possible the federal government would end up collecting 2% of the revenues on sports betting in New Jersey.
Even if that were the case, the taxation would appear to be light for New Jersey’s sportsbooks. Governor Chris Christie’s interpretation of the sports betting laws means New Jersey’s Division of Gaming Enforcement would not be licensing and regulating the sportsbooks in the state. That seems to imply that the state government would not be able to collect tax revenues on those activities, either. The move is not meant to raise more revenues for the state government, but to allow struggling businesses in the state to collect revenues to help them remain viable. Casino gambling fees and taxes tend to be in the 8% range in regulated states (as an average), so a set-up which skimmed 2.25% from the sports wagers in the state would be a boon for the bookmakers.
Taxing on the Honor System
That may be the major flaw in the plan by Mazzeo and Whelan. For the sports leagues to receive the fees offered, they would have to trust the sportsbooks to pay them the correct size fees in an unregulated market. Essentially, the race courses and Atlantic City casinos would be working on the honor system. With so much money at stake for struggling enterprises, the temptation to fudge the numbers might be too great for Adam Silver, Roger Goodell, Gary Bettman, Bud Selig (and his coming successor), and Mark Emmert to trust.