With NBA Ownership Stake In Paddy Power, Request For ‘Integrity Fee’ Amounts To Double Dipping
Irish bookmaker Paddy Power’s merger with FanDuel makes the NBA into a shareholder of that entity. . [+] (Photo by Carl Court/Getty Images)
In perhaps one of the least surprising bits of sports-business news, Paddy Power Betfair (the largest Irish-based sportsbook) yesterday announced a proposed merger with FanDuel, one of America’s two largest daily fantasy sports operators. This transaction — coupled with Paddy Power’s earlier acquisition of DRAFT — positions Paddy Power for major expansion of its sports betting operations in the United States. It will also convert the National Basketball Association, which is currently a shareholder in FanDuel, into a shareholder of the globally recognized sportsbook.
Paddy Power’s proposed acquisition of FanDuel makes complete sense from a business perspective. As many U.S. states move toward legalizing state-licensed sports gambling in the aftermath of Murphy v. NCAA, there is perhaps no management team better positioned to help FanDuel’s transition from operating on the fringes of sports gambling to entering the market’s core than the leadership of Paddy Power.
But at the same time, Paddy Power’s acquisition of FanDuel calls into even greater doubt the NBA’s lobbying efforts for a so-called integrity fee on sports gambling, as the National Basketball Association will now be shareholder of a sportsbook, as well as an entity seeking a share of all money spent on sports betting. It seems axiomatic that when you are in the sports betting market yourself, you should not also be paid by states to monitor this market. That is simply double dipping.
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Leaving aside for a moment the already dubious notion that U.S. states should grant a share of all state-licensed sports gambling revenues to the already billionaire team owners based on some proclaimed, amorphous property right, the argument in favor of states voluntarily granting the sports leagues an “integrity fee” becomes all the more bizarre as leagues such as the NBA now will also profit from the industry directly as shareholders. To the extent anybody doubted that the NBA had an economic incentive to monitor the integrity of its own contests before, when you add its new ownership stake in Paddy Power, as well as the huge sums of money the NBA already earns in ticket sales and broadcast revenue, there is no doubt that the league will monitor in-game integrity irrespective.
Moreover, by granting the U.S. professional sports leagues an “integrity fee,” it in essence makes it more affordable for companies owned by U.S. sports leagues to vertically integrate into the sports gambling market because any sports betting company that was entirely owned by a U.S. professional sports league would, in essence, pay 99 cents on the dollar to operate their sports gambling operation because they would be paying the 1% fee back to themselves. While yesterday’s merger between Paddy Power Betfair and the NBA, in essence, makes the NBA a minority shareholder in a sportsbook, states cannot ignore the possibility that a major U.S. sports league such as the National Football League might ultimately take on a larger equity stake in a sportsbook, or create one entirely on its own.
As America has already seen from the recent, rapid legalization of daily fantasy sports that emerged in the United States in late 2015 and early 2016, there are very real economic advantages, as well as libertarian rationales, for opening up the doors to traditional, legal sports betting. However, at the same time, the state legislatures that are seeking to pass new bills to legalize sports gambling need to be mindful of the economic realities of the marketplace, which do not always align with the claims made by big-business lobbyists.