“Misery acquaints a man with strange bed-fellows.” — from Shakespeare’s The Tempest.
Major League Baseball (MLB), the National Basketball Association (NBA), the PGA Tour, Washington Nationals, MGM, DraftKings, FanDuel, and Monumental Sports & Entertainment are all doing quite well (collectively, “Coalition.”)
However, given the precarious state of sports betting legislation in the District of Columbia and the unpleasantness and bad precedent it would bring for all off the above, the groups banded together to support the passage of a sports betting bill in D.C. that includes a variety of positions that are unique or difficult to reconcile in a broader context, or just altogether surprising.
What’s most surprising about this D.C. sports betting Coalition?
That DraftKings and FanDuel co-signed a framework that would require both companies to pay the leagues an “integrity fee” or “royalty” or “betting right and integrity fee” or “small fee” as the league(s) have alternately called them over the past 12 months comes as quite the development.
A bit more background and we’ll get to the questions that we’ve taken the liberty of asking and answering: Last Wednesday at a D.C. City Council hearing, lawmakers rejected an amendment to the leading bill that would have granted the leagues a direct cut of all wagers. Also, the Council kept the bill structured so that the DC Lottery would effectively obtain a monopoly for online/mobile sports betting.
A day later, a Coalition-penned flyer was hand-delivered to members of the Council and their staffs.
— Sports Handle (@sports_handle) December 3, 2018
Sports Handle watched the latest hearing on Tuesday to see if this Coalition’s flyer had any impact. Hard to tell.
One lawmaker warned against a system where the DC Lottery would become the only sports betting option in town, but the measure passed without amendment by a 9-2 vote. Next and final vote will take place on Dec. 18.
(1) Does this mean that DraftKings and FanDuel actually… support having to pay the leagues 25 cents for every 100 dollars wagered, as set forth in the flyer?
No, not quite.
Asked to confirm DraftKings’ involvement in the Coalition, James Chisholm, DraftKings’ Director of Global Public Affairs, said: “As in any coalition, individual members have issues they prioritize. For DraftKings, our priority is ensuring a competitive and open marketplace that fully embraces mobile.”
(2) But isn’t there still some risk involved in supporting a requirement that all sportsbooks pay the leagues a fixed fee?
Yes, we think so. The short-term concern for DraftKings and FanDuel obviously is to avoid getting shut out of the D.C. market entirely. But there’s still upwards of 20 more jurisdictions that will legalize or consider doing so, and now the pair have supplied lawmakers in those states (or the federal government) with a half-baked rationale, in written form, for why the leagues should collect a “small fee” (more on this).
(3) So why take the risk, if it is a risk?
D.C. is not a big market, population-wise, but this is another instance where the Lottery is on track to run the sports betting show entirely, squelching competition. It seems the DC Lottery is leading the D.C. Council around as to potential revenue, not the other way.
“I don’t believe all of the hype that’s been going on around this legislation,” said councilman David Grosso on Tuesday. “I believe there is a lot of self-interest in this debate and I believe that some of my (fellow council members) believe there will be millions and millions in revenue, and I don’t believe it.”
Grosso’s colleague, Finance and Revenue Committee chairman Jack Evans is, is incredulous about things, too.
“With our app, the bettor gets back 80 cents on the dollar vs. 95 cents somewhere like MGM,” he said last week. “So it goes to who would do that? How it makes sense to the bettor is that the sophisticated bettor wouldn’t use our app.”
Bottom line: The state lottery in other states like Missouri and Iowa are going to want a piece, too. In Rhode Island and Delaware, the state lotteries control the only (legal) option for residents; In R.I. the product and risk-management is run by bookmaker William Hill US and IGT, and in Delaware, by William Hill US and Scientific Games.
If D.C. goes through with this bill without alteration, lotteries in the states yet to come may be emboldened. If that happens, it may be harder for DraftKings and FanDuel to get footholds there.
(4) Is this Coalition a one-night stand or a full-fledged relationship?
No clue at this point if we’ll see a similar union in another state. It wouldn’t be fair to draw conclusions about the efficacy of their joint lobbying based on the results here, either.
(5) What was the “justification” you referenced earlier — for why leagues should get a “small fee” or “integrity fee”?
It’s right there in the flyer, but let’s call special attention to it here:
“Giving sports organizations a direct financial interest in the new betting market will create a massive benefit to the District and the D.C. businesses, as it will form a strong partnership among local government, betting operators, and the sports leagues — with their unparalleled sports fan reach and exclusive access to content — will be incentivized to support District’s sports betting market and drive its success.”
This is basically extortion. Who wrote this?
(6) You haven’t mentioned MGM Resorts International. Where do they fit in?
Not surprising to see MGM here, considering it’s already cut deals to become the official gaming or entertainment or sports betting partner of the NBA, MLB and National Hockey League. Keep in mind the NHL has expressly rejected the notion of an “integrity fee.”
Anyhow, MGM is already on board to pay those three leagues between $25 million and $80 million apiece over the course of those agreements — for “official league data,” and for rights to use trademarks and marketing purposes. Sports betting is a very small piece of MGM’s overall revenue pie, and it’s approaching things with an eye more toward cachet, entertainment and hospitality, and being friends with the leagues. And it certainly wouldn’t mind if all its competition, including DK/FD, had to pay for the so-called official league data. (FanDuel’s deal with the NHL will give it access to such data and forthcoming advanced analytics.)
(7) What’s this all mean for the consumer, the sports bettor?
The leagues have been the villains in this equation all along. In 1992, they were instrumental in getting Congress to pass the now-void federal ban on sports wagering outside Nevada. They battled New Jersey and Delaware with gloves off at every legal step. They deprived adults of easy access to an adult activity for a quarter century, and the states of associated revenue.
If the D.C. Council had a binary option to adopt this flyer policy wholesale or give the DC Lottery a complete monopoly, the former option — the side of the leagues — would be better for the consumer.
Competition is good. Bettors would be much better served by a market with the trio of DK/FD/MGM competing against smaller brands to attract and retain new users through innovation, good pricing, apps with quality U/I, etc.
The DC Lottery apparently will be offering a sportsbook whose most notable feature is price gouging. You guys in D.C. like betting into -140 on both sides?
Of course, this is not a binary option. The D.C. law at least does have a mechanism that would allow the Lottery to move away from a single-app system, should it flop. However, many people who stand in wreckage of their own making aren’t quick to call for help or admit there’s a mess.
Besides the last item on the flyer regarding integrity requirements, the first point on competitive mobile sports betting is paramount for the consumer. D.C. residents who like sports betting should hope that the City Council keeps the top and the bottom and throws out the rest.