Integrity Fee Issues For NBA And MLB Run Deeper Th …

The concept of an integrity fee paid to sports leagues by states legalizing sports betting flopped so resoundingly that it had to be renamed.

League officials stopped referring to an integrity fee and started calling it a royalty. By any name, a cut of legal sports betting handle stood as the goal, along with profit from the sale of so-called official league data.

It appears we have reached the point where the concepts of integrity fee, royalty, and data intersect. And that raises a number of challenging questions for leagues, specifically the NBA and MLB, to answer.

One way or another, I'm gonna find ya …

A recent story by Matt Rybaltowski explored reports of Nevada sportsbooks being asked to pay the NBA and MLB for official data amounts equal to an integrity fee. That allegedly took place through data distributor Sportradar.

When asked about William Hill’s position on these purported fees, CEO Joe Asher said, “It’s no secret we are firmly opposed to any sort of integrity fee.”

Indeed, Asher flagged a potentially related issue in July 2018, noting that the effect of consolidation of data utilizing exclusive providers would be leagues being able to charge whatever price for data they want.

The situation is that the NBA and MLB have demanded Nevada books pay 0.25 percent of handle to the leagues in exchange for official league data.

NBA, MLB disagree with integrity fee story

The NBA contests the characterization of that story. Scott Kaufman-Ross, the NBA’s Senior Vice President, Head of Fantasy and Gaming, provided the following statement to Legal Sports Report:

“The NBA’s sports betting partners recognize the value of official NBA data and work with us to protect the integrity of our games. We provided a season-long grace period for other betting operators to have access to official NBA data while we discussed partnership terms.

“While that period is ending — something distributors and operators have known since the start of the season — we remain committed to securing additional sports betting partnerships.”

The private negotiation for an integrity fee raises an obvious question: why there has been such a song and dance surrounding the legislative process if sports leagues are able to effectively get what they wanted through private negotiations?

More questions arise for leagues

There are also other questions, chief among them may be how widespread is this practice?

Kenny Gersh, MLB Executive Vice President of Gaming and New Business Ventures, was asked to comment on whether MLB has requested operators pay a 0.25% of handle fee, or whether the practice was under consideration. He also was asked whether MLB requested a fee from offshore sportsbooks.

Gersh responded with a detailed statement:

MLB invests significant resources and capital to produce a fast, reliable and rich data feed that will allow sports books to create more engaging products for our fans and generate additional revenue from the ability to offer more types of markets and keep those markets open longer.

The right to use our official data requires a direct license from MLB and the data will be supplied by one of our authorized data distributors. This is the first season we are making our official data feed available to sports betting operators and this licensing structure was put in place prior to the start of our season.

We have granted our data distributors a grace period during which they can supply our official data to operators while we negotiate deals for its use. In addition to a license to use official MLB data, the deals we are looking to strike also include rights to use other MLB intellectual property and access to certain marketing opportunities to further distinguish these legitimate operators from unlicensed operators, including offshore books, which will not have any access to such data, rights or marketing opportunities.

We are only selling our official data via direct licensing to operators based in the United States. Sportradar has full and exclusive rights to sell our official data feed outside of the U.S. but is prohibited from providing it to any operator that allows bets to be taken from customers physically present in the United States in violation of applicable laws.

Data providers in the integrity fee discussion

While the sports leagues are purportedly driving the push for agreements for the use of official data, delivery goes through the data providers.

Sportradar declined to comment. Sources who have dealt with the company tell LSR the company offers both unofficial and official data feeds for sale, with the primary difference being the speed of information flow. That generally means a few seconds, which can be a lifetime for in-play betting — a product not yet widely utilized by Nevada bettors.

Genius Sports, another company with official data distribution contracts, was asked if they were positioned similarly to Sportradar with regard to informing clients about the new structure of data contracts. The company declined to comment as well.

Are sportsbooks going to pay this fee?

Robert Walker, of US Bookmaking, said that his company was not affected by these demands:

If it is indeed true, I am not surprised. The leagues are doing whatever they can do to get a fee. I feel this agreement is between the leagues and the data providers only. The books should not have to pay an additional fee than what was otherwise agreed upon.

If the fees are raised eventually due to the leagues demand than a sports book will have to decide if a data fee vendor change makes sense.

Walker’s statement raises an important point about sportsbooks being able to find different providers, but one question that is beginning to pop up is whether there will be enough data provider alternatives to those with official contracts with sports leagues for a competitive marketplace to really survive.

Matteo Monteverdi, US President for Sportradar, said recently his company has 90% market share in New Jersey.

Exact market-share numbers in legal US sports betting app markets are difficult to ascertain, complicated in part by a number of sportsbooks having contracts with multiple providers. It is believed that Sportradar and Genius Sports have a fairly significant share of the national market.

Do we have a competition problem?

Maybe. In fact, Sportradar themselves flagged the problem of major data players crossing markets in the European context last August in their rebuttal to the interim Tennis Integrity Report, which Reuters argued traced “many of the [tennis integrity] problems to the 2011 agreement between the ITF and data company Sportradar.”

Sportradar noted that consolidation of the data market raises competition questions stating:

In addition, a relevant International Governing Body will no doubt be concerned that if they are deemed to be dominant in the market for the provision of particular live scoring data, then the withdrawal of such supply to the various, already well established, downstream markets would leave it open to accusations of abusing a dominant position.

Indeed, the specific recommendation that “International Governing Bodies to include in their contracts for the sale of official data to each data supply company… a requirement that the data supply company impose specified obligations that betting operators must fulfil and continue to fulfil, in each case as a precondition of the continued supply of official data” will be of concern because of the potential tying obligations imposed in at least two related markets.

A matter of (anti)trust

In the US, we deal with most competition problems via antitrust law, a mechanism designed to ensure the proper functioning of the marketplace.

Marc Edelman, a professor of law at Baruch College and expert on antitrust regulations and their application to sport, said:

“As a general matter, a company may choose to do business or not do business for any reason. What makes the leagues distinct is that they have a monopoly in their sports.”

Edelman noted that while sports leagues have monopolies amongst their own sport, when they seek to leverage that monopoly into another market they may run afoul of Section 2 of the Sherman Antitrust Act, which can be a felony with fines up to $100 million for corporate offenders.

Edelman cautioned:

“It would be very early in the process to draw any presumption that there is an antitrust violation, but these allegations would have to be looked at very closely from a collusion perspective under Section 1 of the Sherman Antitrust Act, and from the perspective of attempting to create a monopoly in a new market, under Section 2 of the Sherman Act.”

Is it all Monopoly money?

One question that arises is whether or not these setups and combinations between sports leagues and data providers rise to the level of a monopoly in the marketplace.

While there is not a hard and fast rule, Judge Learned Hand, one of the most cited jurists in the history of the country, opined that greater than 90 percent market share would certainly amount to a monopoly, whereas 60 percent market share would be insufficient.

The NBA has previously been challenged over similar types of “tying” arrangements, like the type of arrangement purportedly taking place with official data providers.

TV troubles?

In 2002, the NBA successfully defended a lawsuit, along with DirecTV, over allegations that the NBA League Pass product violated antitrust laws as the exclusive means for viewers to watch out of market games. The NBA and DirecTV prevailed in this lawsuit by virtue of the Sports Broadcasting Act of 1961, which allows some professional sports leagues to pool their broadcasting rights, without violating antitrust laws.

The plaintiffs were unsuccessful in their tying agreement arguments, choosing to pursue a price-fixing theory, leaving the court without the ability to fully address the bundling issue.

The Sports Broadcasting Act exemption for pooling broadcast rights may appear somewhat relevant to data feed distribution, but Edelman throws cold-water on that suggestion noting that “the Sports Broadcasting Act is extremely narrow.”

Therefore it would be highly unlikely that the leagues or data companies could successfully use the Act as a shield against antitrust claims.

The possible asterisk

Edelman flagged an important issue:

“Presuming there is an antitrust involving this behavior, the National Basketball Association’s risk would be comparatively greater than Major League Baseball, which has a limited antitrust exemption.”

Indeed, the Supreme Court decision in Flood v. Kuhn affirmed baseball’s antitrust exemption, which effectively allows MLB to engage in anti-competitive behavior in a number of areas connected to “the business of baseball.”

We raised the possibility that this type of activity might be included within the scope of the “business of baseball” to Indiana University Kelley School of Business Professor Nathaniel Grow, who literally wrote the book on the origin of baseball’s antitrust exemption.

Grow stated:

My initial reaction is to think that the licensing of data would be sufficiently linked to the game such that it would be covered by the exemption.

That having been said … the scope of the exemption is basically whatever the reviewing court wants it to be, so it's also entirely possible a court could rule otherwise. The Garber decision a few years back ruled that broadcasting activities weren't part of the business of baseball, so you could certainly analogize that to gambling data.

What to make of this

The consolidation of the data market purportedly occurring by MLB and the NBA via their official data providers could have very different consequences, with the NBA likely facing greater risks than MLB.

Data providers, however, could be put in serious financial jeopardy in the event of an adverse finding that they engaged in anticompetitive behavior.

The bundling of products can be very costly. Microsoft was sued by the Justice Department and European Union authorities for its practice of bundling Internet Explorer with the Windows operating system and racked up billions in fines from Europe and tens of millions of dollars in legal fees.

It eventually agreed to a settlement that involved opening up aspects of their intellectual property to competitors. Antitrust laws are designed to prevent the type of non-competitive behavior allegedly taking place here.

The post Integrity Fee Issues For NBA And MLB Run Deeper Than They Appear appeared first on Legal Sports Report.

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