In-stadium, real-time sports betting in the United States – an overview of legal issues facing clubs and leagues
Published 19 March 2019 By: Aaron Swerdlow
Last May, the United States Supreme Court struck down the federal ban on sports betting, marking the start of a new era in the sports industry.1 The Court’s decision in Murphy v. National Collegiate Athletic Association declared the federal Professional and Amateur Sports Provision Act (PASPA) unconstitutional, paving the way for individual states to legalize and regulate sports betting within their borders.2 Since the Murphy decision, eight states have implemented full-scale legalized sports betting, and twenty-nine other jurisdictions have introduced or passed their legislative frameworks at the time writing.3 It is only a matter of time before sports betting is legal in the vast majority of the United States.
Many expect that betting is the future of sports and might be the answer to recent viewership declines in professional leagues such as Major League Baseball.4 One way that professional sports leagues and teams hope to use recent gambling legislation to re-engage fans is through in-arena, real-time sports betting. Ted Leonsis, the CEO of Monumental Sports & Entertainment and owner of seven professional teams in several different sports, sees the potential for arenas to be transformed into entertainment superplexes that feature betting windows, kiosks and in-game betting options from mobile devices.5
It was inconceivable even ten years ago for fans to place real-time bets on their mobile devices as they watch the action unfold from their seats, it is likely to become a reality soon as more states implement sports betting legislation. However, the implementation of real-time betting presents a number of legal issues. This article will discuss, arguably, the three most important and controversial legal issues facing the burgeoning industry, including:
use and collection of game data by oddsmakers;
regulation and prevention of underage and automated bets; and
preserving the integrity of the game.
Background: The Alliance of American Football Provides A Glimpse Into The Future Of Real-Time Betting
Major sports leagues likely will be paying close attention to the Alliance of American Football (AAF) 6 when it kicks off its debut season in early February 2019. The AAF, announced in March of 2018, is a professional football organization founded by well-respected American football executives. It is comprised of an eight-team league and began in February 20197. The AAF has partnered with MGM to launch a digital platform that will allow fans to place in-game bets directly from their mobile devices.8 The platform will only be available in the US. It will not be used in brick and mortar arenas, at least during the AAF’s inaugural season, because the teams are based in states where full-scale legalization has not yet occurred.9
Fans with access to the platform will be able to place traditional bets on which team will win or the number of points scored, as well as prop bets on the outcome of any given play.10 Real-time betting is particularly well-suited for football, which has a built-in window of time between plays when bets can be placed.
Use and Collection of Game Data by Oddsmakers Raises Privacy and Legitimacy Concerns
A tremendous amount of data must be gathered for sportsbooks to accurately set odds for real-time betting. Given this, one of the biggest questions leagues must answer before implementing real-time betting is how this data will be collected and disseminated, likely a contentious issue in upcoming sports league labor negotiations. The AAF, for example, plans to have its players use wearable technology to collect data.11 However, the use of wearable technology might lead to privacy issues, disputes over whether players, teams, or leagues own the data, and the potential for teams to use data to drive down the value of a player during contract negotiations.12
Real-time betting also raises legitimacy concerns when considering whether oddsmakers are required to use “official” data when generating betting lines.13 “Official” data refers to a league-approved tabulation of data, as compared to “unofficial” data, typically collected in-person without league approval by third-parties hoping to sell the data to sportsbooks and oddsmakers for a significant profit.14 Though leagues like the NBA have partnered with sportsbooks to collect and track accurate official data, such partnerships cannot prevent purveyors of unofficial data from attending games and collecting data in-person.15
Likely, the most effective way to reduce the use of unofficial data is at the legislative level, by including a requirement within regulatory frameworks that all providers offering sports betting must use official data. Several states, including New York and Pennsylvania, have introduced legislation mandating the use of official data, and a recently proposed federal bill seeks to create a national clearinghouse for betting data and require the use of official data.16 While, this bill has a limited period of exclusivity it intends to ensure minimum national standards regarding data regulations. Though federal oversight of the sports betting industry creates its own issues and likely would lead to an extensive legal battle, legislation requiring the use of official data is probably the most effective way to police the data black market.
Real-Time Betting Must Be Regulated to Prevent Underage Gambling and Automated Bets
Given that online and mobile sports bets are not placed in-person at traditional brick and mortar sportsbooks, it is more difficult to verify the age, identity, and location of the individual placing the bet. Online betting eventually will make up about 75 percent of revenue for U.S. sportsbooks, based on recent estimates, so those offering digital sports bets should implement and enforce thorough safeguards and compliance measures to prevent underage and illegal gambling.17
The Washington DC bill18 regarding mobile betting has recently passed and contracts are being finalized. It could be active by the fall and, while it may not specifically mention in game betting, it does name an exclusive operator, IntraLot (the current lottery provider), to develop and operate the app.19
Though legislatures can mandate that age, identity, and physical location must be verified before any digital bets are accepted, whether companies offering bets actually are complying with this requirement is difficult to police. Sportsbooks and leagues must implement comprehensive age verification systems, perhaps utilizing facial recognition and GPS technologies already prevalent in mobile devices. The ability to place bets could be tied to a fan’s ticket or in-arena betting, verified using facial identification technology that has been implemented at several venues already.20 Further, such providers can use geo-blocking technology that prevents digital betting from jurisdictions that have yet to legalize sports betting.
Additionally, sportsbooks and leagues should have systems in place to prevent high volume automated bets. To do so, they can collaborate with third-party companies and state and federal gambling regulators to monitor suspicious activity and police any bets that do not appear to be legitimate.
Leagues Implementing Real-Time Betting Must Preserve Integrity of the Sport
One of the reasons PASPA initially was enacted in 1992 was to preserve the integrity of sports in light of Major League Baseball’s gambling scandal that culminated with Pete Rose’s permanent ban from baseball for betting on games.21 The impending rise of real-time sports betting could lead to similar integrity concerns. For example, the AAF has indicated that its players may be compensated in proportion to the volume of bets placed on them, a unique new financial benefit in American professional athletics.22 Such a system would provide players with an extra revenue stream but may also incentivize cheating. Nevertheless, the major professional leagues will be paying close attention to the AAF’s test case.
The NCAA may have reason to be concerned that legal sports-betting will lead to illegal payments to student-athletes, who currently are prohibited from receiving any compensation under the NCAA amateurism rules.23 Professional leagues and NCAA schools should continue to educate their young players about the potential for corruption that legal sports betting could bring.24
Comment: Real-Time Betting, if Implemented Correctly, Will Help Leagues Re-Engage Fans and Generate Revenue
This issue of integrity is paramount in the mature UK sports betting market. In the UK, where sports betting has been legal since 1961, part of every gambling license fee goes toward the UK Gambling Commission, who publishes quarterly reports on integrity. There are sport-specific watchdog organizations like the Tennis Integrity Unit (TIU) that investigate match-fixing in tennis. The TIU has flagged over 18 top ranked players25 in the last decade for potential match fixing. The U.S. has already experienced corruption in regard to sports betting despite having no official market. Examples of corruption related to sports in the US include the NCAA point-shaving scandal in the late 1970s and the NBA match fixing scandal of 2007, where NBA referee Tim Donaghy bet on games he officiated.
While the U.S. is still figuring out how to regulate sports integrity, in Europe, sports integrity concerns are addressed by national regulators, data firms, and sports leagues themselves. At the forefront of this effort is the European Sports Security Association (ESSA). The ESSA uses an early warning system to detect unusual betting patterns and alert local sports authorities. ESSA secretary general, Khalid Ali has been meeting with US sports leagues, advising them on how to best combat match fixing and corruption. He sees the NCAA as a particularly vulnerable organization due to the players’ lack of compensation. Ali believes the US needs established methods of sharing information between states and leagues as well as law enforcement26. Foremost, player education is a must. The ESSA has formal meetings with players to establish rules and expectations concerning bribes and gifts in regard to match fixing.
Sports leagues, oddsmakers, and players should be wary of the concerns discussed above as more states legalize sports betting and real-time sports betting becomes more widespread. The inaugural season of the AAF will provide a telling example for the future of real-time betting in the U.S. Real-time betting will allow leagues to generate new fans and keep fans engaged during duller games. Finally, leagues might negotiate to receive a percentage of all bets placed on their games, which could lead to a massive windfall for leagues and their players through revenue sharing.27
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- Tags: Alliance of American Football (AAF) | Betting | Gambling | Major League Baseball (MLB) | Professional and Amateur Sports Provision Act | The National Football League (NFL) | United States of America (USA)
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Partner, Weinberg Gonser LLP
Aaron Swerdlow, a partner at Weinberg Gonser LLP in Los Angeles, California, guides emerging technology, corporate, sports, and entertainment clients with transactional, employment, and corporate law matters. He has extensive experience in negotiations, business contracts, sports law, arbitration, trademarks, as well as drafting and negotiating private equity, corporate restructuring, licensing, and employment agreements. He also negotiates and drafts joint venture, finance, employment, marketing, and third-party media service agreements for emerging technology companies, medium-sized business, and e-sports ventures.