When It Comes To The Indiana Sports Betting Bill, 1% Is A Big Problem

Sports betting bills seem to be all the rage at state capitols these days. Over the last year-plus, over 10 states have introduced legislation related to sports betting.

Most bills seek to establish a regulatory framework in place in the event the U.S. Supreme Court rules to overturn Professional and Amateur Sports Protection Act (PASPA) in the landmark Christie vs. NCAA (now Murphy vs. NCAA) case. Three – Connecticut, Mississippi, and Pennsylvania – have successfully passed bills thus far.

While the movement on the legislative front is certainly newsworthy, the details of the bills are actually fairly mundane. Many states have simply mirrored much of the language that other jurisdictions have implemented into their bills.

Indiana’ dual sports betting bills a mixed bag

Indiana is one of the latest to join the fray. Two new pieces of legislation, S 405 and H 1325, arrived in the Hoosier State’s Se
nate and House chambers earlier this month. Two Republican legislators from Terre Haute, Senator John Ford and Representative Alan Morrison, are sponsoring the respective bills. Neither forbids betting on college sports. This is an interesting footnote considering the NCAA’s Indianapolis headquarters.

The proposed legislation “authorizes sports wagering at riverboats, racinos, and satellite facilities” within the state’s borders. It also legalizes online and mobile wagering.

S 405 calls for an initial fee of one percent of the operator’s adjusted gross receipts from gambling activity in the most recently concluded state fiscal year or $500,000 for operators wishing to offer sports betting, whichever amount is larger.

An annual $75,000 administrative fee would also subsequently apply. Moreover, the state would tax sports betting revenue – the total amount wagered — at a rate of 9.25 percent.

H 1325 breaks with S 405 in a number of areas, including initial application fee ($75,000). The bill also includes a provision for operators wishing to offer an “Interactive Sports Wagering Platform.” The license application fee for online wagering runs $10,000, with a $5,000 annual license renewal fee also in effect.

Controversial clause grabbing headlines

However, the most notable difference in H 1325 — from both S 405 and any other prior sports betting bill — appears to also be its most controversial.

The proposed legislation contains a quarterly integrity fee, to be equal to “one percent (1%) of the amount wagered on the sports governing body’s sporting events.” According to David Purdum of ESPN, both the NBA and MLB are behind the inclusion of the language.

At first blush, the professional sports leagues’ involvement could arguably be a modestly optimistic development. The fact both deemed it necessary to proactively lobby for the provision appears to be a tacit admission of an eventual Supreme Court victory for New Jersey.

However, the more prevalent view is that the integrity fee is a poison pill for prospective gaming operators.

The nuts and bolts of the integrity fee

The integrity fee would be calculated based on the total amount wagered by sports bettors for each sport in the state over a given quarter. That fee, along with initial licensing fees and annual administrative fee and an existing federal excise tax of 0.25 percent on sports betting handle have many in the casino industry upset.

For example, the American Gaming Association labeled H 1325’s financial burden to be so onerous as to essentially make the bill a non-starter:

“While we applaud Representative Morrison’s efforts to bring legal, transparent sports betting to Indiana, handing sports leagues 20 percent of what’s left over after winnings are paid out, undercuts its economic viability. Doing so will ensure the illegal market continues to thrive in the state, and gut the tax revenues available to fund essential public services. We believe Indiana taxpayers deserve better.

“We encourage Indiana to reject this short-sighted, misinformed idea, which simply replaces a failed federal prohibition with bad state policy. Our goal is to eliminate the illegal market, protect consumers and strengthen the integrity of the game. We invite all stakeholders to join us in working together in a thoughtful and transparent fashion.”

Sports leagues’ role telling

The involvement of both the NBA and MLB in the proposed legislation is intriguing, but not altogether surprising. The NBA has particularly been out in front with respect to the legalized sports betting conversation. Commissioner Adam Silver even penned a New York Times Op-Ed in November 2014 detailing his support for federal legalization.

The NFL’s and NCAA’s lack of involvement at this stage is equally expected. Both entities have long objected to legalized sports wagering. The NCAA was even adamant about its games being excluded from the abundance of new laws regulating daily fantasy sports.

Naturally, how much legislative leverage any of the plaintiffs in Murphy vs. NCAA will wield if they lose the case remains to be seen.

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