Last week, an early draft of a new sports betting bill began making the rounds in the New Jersey statehouse.
Although NJ already has an enabling law on the books, it’s far from comprehensive. Federal law still prohibits states from “authorizing” the activity within their own borders, a restriction from the 1992 act known as PASPA.
What they can do, arguably, is repeal their own constitutional prohibitions against sports betting, essentially creating an unregulated market. Striking a law from the books is not the same as adding a new one, right?
NJ has threatened to do exactly that if the US Supreme Court doesn’t grant the relief it’s seeking. Lawmakers and regulators would much prefer to have the framework for the industry down on paper, though, and to put the proper controls in place.
To that end, the updated NJ sports betting bill has come to light, officially filed into the Assembly on May 7.
The new NJ sports betting bill in brief
Assemblyman Eric Houghtaling and Assemblywoman Joann Downey lead the group of six Democratic sponsors. Houghtaling and Downey represent the 11th District in Monmouth County, home to two of the state’s three racetracks.
A3911 would allow casinos and tracks alike to apply for NJ sports betting permits. Initial licensure would cost at least $500,000, and renewal would be at least $250,000. The state would also collect a $500,000 fixed fee from operators each year.
Approved licensees would be able to offer sports betting both in-person and online, provided they also operate a land-based sportsbook. That wouldn’t be an issue for most operators; some have already begun to carve out space.
Other highlights of the bill:
- Prohibits wagering on amateur teams or events in the state
- Imposes a tax rate on revenue — 8 percent for land-based and 12.5 percent for online wagering
- Does not limit the data sources sportsbooks can use, but requires providers to obtain a casino service industry license
- Creates an integrity fund for investigation and enforcement of betting-related issues
Like the licensing fees, those tax rates are somewhat low by comparison and pretty friendly for operators.
NJ sports betting would be overseen by the NJ Division of Gaming Enforcement, the body that regulates all gambling in the state. The NJ Racing Commission would also be involved in the process with regard to its licensed tracks. All of this makes perfect sense — maybe apart from taxing online wagers differently.
Lastly, though, there are also provisions for an “annual integrity fee,” which raises some eyebrows. Professional sports leagues have lobbied for these fees, which are viewed by some as a mere money grab, and NJ is the last place you’d expect to see them appear.
This is a bit different than the others, though.
An integrity fee…
NJ is making a statement with its version of the integrity fee.
As far as structure goes, it’s unique among states. A3911 proposes that operators pay back the lesser of $7.5 million or 2.5 percent of revenue. This will end up being 2.5 percent. A sportsbook would need to earn $300 million to hit the cap — more than the combined revenue for all sportsbooks in Nevada.
Money collected would be deposited into a new Sports Wagering Integrity Fund, held by the state treasurer. That fund would cover these costs:
- Integrity monitoring expenses
- Public relations expenses associated with integrity issues
- Personnel costs associated with the establishment of a sports wagering integrity unit within the DGE
- Any other eligible expenses approved by the attorney general
After receiving an early copy of the bill last week, sports betting outlets reported the inclusion of this integrity fee for the leagues. They were right at the time. Here was the passage from the draft:
A sports governing body whose sports events are wagered upon in New Jersey casinos or racetracks may seek reimbursement for expenses incurred relative to ensuring the integrity of its sports events with respect to sports wagering operations in New Jersey by submitting a claim for such compensation to the Attorney General.
That language has since been stricken from the bill.
As written, the only parties that can submit claims against the fund are “the division and any other law enforcement agency” the attorney general designates. Sports leagues are not law enforcement.
But not for the leagues
The concept of the integrity fee has been popularized by Major League Baseball and the NBA in recent months.
The leagues have spent hundreds of thousands of dollars on a lobbying effort spanning nearly every state with an active sports betting bill. Money is the gist of what they’re seeking, both to cover increased diligence and as a royalty for providing the games on which people are betting.
States have so far shunned the request, and New Jersey is a huge longshot to buck that trend. These leagues, after all, are the same leagues litigating against state to block NJ sports betting. That fight has already cost the state at least $8.6 million in legal fees.
It is somewhat amusing to see an integrity fee included in an NJ sports betting bill, but with the money withheld for official use. For extra style points, lawmakers dangled the carrot in front of the leagues before leaving them out of the introduced bill. You crave more irony, you say?
Although the leagues made integrity fees trendy, the idea actually originated with the great state of New Jersey itself. Back in 2014, before the legal battle began, lawmakers floated the idea of compensating the leagues with revenue from sports betting. That idea is most certainly off the table now.
Interestingly, the leagues have also asked for control over the data sources sportsbooks use to settle bets. No state has granted this request so far, and NJ is moving far in the opposite direction. This bill explicitly provides that the DGE is responsible for approving and licensing data providers.
It’s like an extra little kick in the leagues’ backside on their way out the door.