Posted by John Vrooman on Thursday, May 17, 2018 in National Football League.

Interview with CBS.

• I am writing on integrity fees. Are the pro leagues and NCAA entitled to them?  Is so, what should they cover?

The Big 4 professional leagues and the 2 quasi-professional NCAA revenue sports are seeking a piece of sports betting action, and it can easily be argued that they are not necessarily justified in doing so. The buzz words integrity and integrity tax imply that the leagues are self-justified in seeking up to 1 percent (NBA and MLB) of the sports betting handle (total amount bet) to compensate for gambling corruption risk and the necessary internal measures necessary to police that risk.

The leagues are simply trying to internalize the gaming externality that they are creating by playing a fair game. The political bargaining question then arises as to what the leagues’ credible “or else” threat would be if they did not receive what they perceive as their fair share of the handle. As legalized betting evolves the opportunistic leagues will literally internalize sports betting at their respective venues.

The real world practical answer is unclear, but the leagues as sports cartels wield significant economic and political power that could lead to an inefficient solution. Mark Cuban has said that the SC decision would probably double franchise values in all leagues. A more accurate estimate would be a value increase of about a third, but the future stakes are still very high. One thing is clear, the integrity buzz will be lobbied by both sides of the politically manipulated and inherently inefficient bargain.

• The leagues are reportedly seeking 1 percent of the handle.  Won’t that make it impossible for the bookmakers to make a profit?

An efficient bookmakers hold (net take) is about 5 percent of the handle (gross bet) with little or no margin for error. This would make the proposed one percent integrity tax on the handle about 20 percent of the hold. This would put a tax cost squeeze on the bookmakers that would force survivors to tighten the betting odds and ultimately generate an unregulated competing shadow market that would provide better betting odds. By charging the gaming tax on the handle instead of the hold the leagues would naively re-create a shadow market and ultimately kill the golden gambling goose under the pseudonym of integrity.

• Will the sports book companies have to accept limits on their advertising like tobacco companies?

Yes but if the sports betting market is over regulated or over taxed at the Federal or state level the shadow betting market will re-emerge at all levels.

• Pro athletes are well compensated in the U.S.  Even so, won’t the leagues have difficulties in policing its players and employees who may be compulsive gamblers?

Traditionally athletes in individual sports with inequitable distribution of winning (WTA and ATP) have the greatest incentive for cheating. This pre-condition could perhaps be replicated in team sports for proposition side bets on individual in game performance (in leagues with interplay down time like the NFL).

The classic argument for legalized betting is that cheating is a function of playing the games in the dark shadows. In reality, cheating will probably occur at the same rate based on the player wealth distribution, with or without regulation. The real-world above-board solution would be for the players to get 50 percent of the leagues’ “integrity action.”