Legalized Sports Gambling: Leagues and States Roll the Dice Part 2

We felt that in order to get to that place, we’d be better off preserving the existing federal law and then through congress to replace it, as opposed to what ultimately happened, which was striking down the federal law and then seeing what would happen in congress, which so far has been nothing, and I would wager that it will be nothing for quite a while, and now, sorta dealing with it in 50 different states, which is what we’re doing. – So, Derek, why was the NCAA involved? – Well, I think very easily, the NCAA has had a long standing opposition to sports wagering, and is just consistent with the philosophy of our membership, they don’t believe it’s in the best interest of collegiate athletics, or the welfare of student athletes, so that’s been the NCAA’s long standing position. The court’s decision in no way changed our policies, so it’s still a prohibition for a student athlete, for myself, for a coach, administrator, to engage in any sports wagering where the NCAA sponsors a national championship. – I love it when you NCAA guys speak of the student athlete. (laughter) As if he or she exists. – We believe they do. – You believe they do. Belief is a wonderful thing. Now, David, were you in the courtroom when– – Yes, I was also there, and I came to the same conclusion that Rick did very early on, and the first thing we did when we returned to New Jersey was we pulled all the casino leadership together and said three things to them. One, we’re gonna win this case. Two, the state of New Jersey is gonna roll out sports wagering immediately after we win the case and have a new law passed, because we need a new law passed, therefore, you need to be ready, you need to be ready by doing three things. Start your construction plans now, for building your sports book. Two, pick your partners, because for people who don’t understand sports wagering, casinos and racetracks do not engage in sports wagering. They have partnerships with companies that are experts in that throughout the world, that run the sports wagering for them. Pick your partners, get them into the state, and we have to vet them to make sure they’re not tied to organized crime. And the last thing is, we told them get yourself a good lobbyist, because the legislature, when they get a hold of this, they’re gonna twist it all over the place before the law becomes operational in New Jersey. And then sure enough, we won the case May 14th, and Governor Murphy, to his word, signed the law four weeks later, and on his desk, which he demanded of us, were the regulations to implement sports wagering immediately, and we began sports wagering three days later. – Why was New Jersey so pathological about this? I mean, the case was originally Christie, right? – Correct. – Governor Christie.

Claims Governor Murphy. And you guys are losing, losing, losing, losing, yet you say we’re gonna win this case. – Well, we did two things that worked in our favor. One, if anybody knows about state governments, people get a little annoyed when you’re spending millions of dollars on a case which people think you’re gonna lose, so behind the scenes, Governor Christie and the administration came to me to go the casinos and we went to the casinos and said, to the racetracks too, you’re a fee-funded organization, which means you pay us to regulate you, therefore, you’re paying for the entire litigation costs. We didn’t have to worry about taxpayer monies funding the litigation. The second thing that we did beyond that was you had some extremely strong personalities in our legislature and with our governor, and when they think they are right, they’re gonna run to the end and fight you all the way, so the force of will with people like Ray Lesniack, state senator, president of the senate, Steve Sweeney, Governor Christie, Governor Murphy, you know, he’s the closer that brings this to finalization, but they just felt we had the right case and we’re gonna fight it to the end. And we got lucky. – Ari, were you just an idle bystander as this was going on? – It sounds like I was the only one not in the courtroom, but FanDuel traditionally is a fantasy sports company, we had our interests in this case, obviously, given the direction we’ve gone now, but for us, the NBA, NCAA, state of New Jersey, these were the real stakeholders in it. Our observation was purely from a speculative commercial standpoint, in that since New Jersey has gone online with sports wagering, soon after the case was decided, our company was acquired by Patty Power, Betfair, which is one of the largest worldwide operators, they obviously saw the value in having a well-known national brand that has millions of registered users who are avid sports fan, and so, as you’ve seen the success that both us and Draft Kings have experienced in the market, to begin, it was an obviously good thing for our business, and one thing that we kept a close eye on. – So what actually has New Jersey done? What’s legal in New Jersey? – Well, for those who ride the trains, which I just rode in from New Jersey today, if you don’t know that you can gamble online through Draft Kings, you must be blind. (laughter) Every ad on every billboard coming into Manhattan talks about Draft Kings and FanDuel and being able to gamble online. But what we have done is very simple. We now have eight operations, what I call retail, brick and mortar operations in the state, two racetracks, six casinos, we have eight mobile wagering sites, FanDuel, Draft Kings are two, there’s six others, we have a lot more in queue. I expect there’ll be two more casinos that will come up and live and probably another half dozen mobile sites. We have some of the largest international mobile sites coming in. Sports wagering, you have to understand, is in a worldwide setting, it is a multi-billion dollar industry. United States, infancy stage. Europe, it’s a way of life, and it has been for probably 20 years on mobile, and 100 years in England from the sports books that they run. So, there will be massive expansion, what New Jersey is doing now, we feel like we’re the poster child for other states, we feel very nervous, I just came back from Nevada, there’s at least a half dozen states that are ready to strike in 2019 after the midterm elections, because if anybody remembers, your politicians in the audience, nobody wants to talk about sports wagering before they’re elected. After they get elected, they’re gonna move quickly. So the midwest, look out. (laughter) – So, if I get this straight, there are six casinos and two racetracks, and I can wager there, hm? – [David] Correct. – And I can wager online. – [David] Correct.

– And what does New Jersey get out of this? – Oh, we get revenue, of course, but the big argument right now– – Oh, you pass over that so quickly. – Nah, nah, nah. – Get what? – This is all commerce, everybody wants a piece of the pie. The federal government receives a tax today, the federal government who opposed us in sports wagering is taxing sports wagering, gets about five percent of the gross gaming revenue, tax. State of New Jersey, we get a lot more. We got eight and a half, plus another 1.25 kicker for locals plus the mobile side, we tax a little higher, just because we can get more money from them because there’s more money wagered mobile, online, than there is onsite. And the third group, the operators. They make a lot of money. They basically make five percent of what’s handled, handled is how much is wagered, five percent is gross gaming revenue, and the last group of this partnership is the leagues. They wanna monetize, the direct monetization somehow, to assist their corporate interests. And there’s a lot of debate on that, Rick can talk about the NCAA, I mean the NBA, what they’re asking for in their model legislation. So yes, four groups, they’re all getting a piece of the pie. – And what is it you’re asking for, Rick? Since the NBA is still among the more aggressive of the leagues. – So, we were fairly early into the effort to get model legislation put forward for states to consider, who are interested in legalizing sports gambling, we have a model bill that we have been working with legislators on ever since May, actually, before May, because I came back from the argument in December and said, we’re going down, so let’s get out there. So we were out there in January with what we thought made sense. And look, it starts from the proposition that sports gambling that we’re all talking about is happening by virtue of the product that our league produces, and other leagues produce, and the NCAA produces. And in speaking for the NBA, excuse me, that’s an enterprise that costs us an excess of seven billion dollars a year to produce, the games, and the competition that’s out there, and so, our view is that this isn’t a deck of cards, it’s not a piece of green felt that is easily rolled out, it’s something that costs a tremendous amount of money to produce, and if someone is then gonna go and earn money on wagering on those games, that we ought to at least be part of that, you know, as a royalty for the intellectual property and for the effort of expense that we have put in. Secondarily, there’s going to be and is ongoing in my office quite a bit of additional effort around integrity, standing up an integrity unit that’s more robust than we’ve had before, hiring more people, and having platforms for analyzing a lot of data. There’s a fair amount of expense associated with that that also is a justification for having some amount of this money come back to us, and then the third point is just is the risk factor when there’s a gambling scandal, if there’s a gambling scandal that relates to our games, I don’t think that the gambling operators are really, depending on the facts, of course, and what exactly we’re talking about, but I think the leagues are the ones that bear the risk of that issue, and so, for all of those reasons what we have said, we started out in our model legislation with a one percent royalty fee off of the handle, which means the amount bet on the contest, and discussions with the operators, discussions with the states, the place we are now is on a .25% fee, which we think is very reasonable and something that can be easily handled by the operators. – Are you still trying to get federal legislation? It’s a misnomer to say that the Murphy case legalized sports gambling, it didn’t. What could congress do, at this point? – Well, look, the main issue in the court, again, just not spending too much time there, but in lay terms, the problem was that the federal government passed a law that said sports gambling is illegal, and then left it up to the states to essentially enforce that, and that’s not fair or right, you can’t commandeer the apparatus of state governments to enforce federal policy, so what the federal government could have done, maybe should have done, back in the world when they were trying to ban sports gambling, was to create some office of gambling enforcement, creating some apparatus that would actually enforce that law and put resources behind it, which they didn’t do, they left that all to the states to handle. So, we certainly think that the federal government could adopt a set of regulations here that would require the kinds of integrity provisions that we’re looking for in state-by-state legislation that would provide consumer protections, which is part of what we’re going to the states for, and it would create a regulatory framework around this. Now there’s a ton of expertise in the states, gentleman who has got a ton of it sitting down on the end here, and I’m not sitting here saying that I think the federal government can do it better than he does it, I don’t believe that for a second, my main issue is, what I’d like to do is nominate him for the federal job so that he could then go and run the whole thing, and I wouldn’t have to– – Nah, nah, not gonna happen. Not in a Donald Trump and– – No, I don’t think, you know what? – He’d be fired in two weeks. – There may be an opportunity in a couple years, just take the long view here, okay, take the long view. So, but the point is, I’d love to have professionals who have that experience but doing it on fifty states, we’re gonna get a bunch of different approaches to this, we’re gonna get a bunch of different ways it’s gonna happen, and it’s gonna be very difficult for the leagues to deal in that environment. – And anyway, I share a lot of the statements made here with regards to integrity. I mean, when you look at the model legislation the NBA is providing, there’s two components. One is clearly how can they benefit with a commercial interest, and direct monetization that doesn’t exist today. Eight states have legalized sports wagering, and none have given them any direct financial benefits. – But hope springs eternal.

– Right. But the second part of their legislation, I would agree with, and that is how we begin to work together to share information to reduce the risk of match fixing, because match fixing is real, we have a whole history through illegal sports wagering, where there have been terrible situations of match fixing, and we need to find ways to work together, and the only way we can do that is by working with some of the ideas they have, negotiate, put behind these adversarial relationships, which were real, and now move forward. And there’s two areas they’ve asked for that I would kinda disagree with but would negotiate with, and that is one of the factors they’ve asked for is absolute veto power over any event that’s gonna be gambled on. We’re not gonna give them absolute veto power. But we are giving them a good mechanism, we’ve gotta communicate, because they have information that we need, where they can come to us and say, as a state, we’re very suspicious about this event, can you pull it off the board? Absolutely, they have full authority to pull anything off the board at any time. Second thing is, they’ve asked for unimpeded access to all gaming data. Unimpeded access to the entire record of everybody who’s ever gambled on any event for whatever reason. Very suspicious of that request, however, there is a desire to work together with them, and there should be a mechanism where they get access to all the data that we have that allows them to deal with integrity issues associated with an event or something that’s unusual or suspicious where they can talk to us and say, something about tonight’s Nix game, not really happy about that, could you pull the records on everybody that’s gambling on that, and we can analyze it. We’ll work with them on that. – So, just since I know this will live forever on the internet in the world where there’s no right to be forgotten anymore, and because I’m a lawyer, I will only say that a couple of those descriptions were not actually what we’re asking for, but that’s fine. (laughter) We’re asking for a more limited set of data from people, we don’t need to see every single thing, it can be anonymous, et cetera. But, generally speaking, I would say that we are trying to work with states and we share common interests on integrity, we share common interests on consumer protection, trying to figure that out, we differ on whether the leagues should be able to receive any compensation for this at all. – So I would just point out that there’s a useful blueprint for how the federal government might regulate, and even how the states might regulate in a statement that our senator, Chuck Schumer, put out over the summer after the Murphy decision came down. Protecting the Games We Love after Murphy, a Federal Framework for Consumer Protection and Sports Integrity, and it covers a lot of the issues that were just raised, it’s basically a three part statement which prioritizes protecting young people and people who suffer from gambling addiction, protecting the integrity of the game, and protecting consumers, and a key point which bears repeating is that information exchange and coordination amongst the various stakeholders is essential for avoiding match fixing, and that’s what goes on in Europe. I don’t know if any of you follow European sports, but there have been scandal after scandal in cricket, rugby, soccer, tennis, you name it, there’s actually a European-based newsletter called Law in Sport, which gives a bi-monthly, this is how frequently this is happening, bi-monthly, they report on all the latest match fixing and what’s known as spot fixing scandals, and it’s nonstop. Now I’m not sure that the reason they’re aware of so much integrity threats to their games is because gambling is legalized, there is the argument that the situation is worse when gambling is illegal, we just don’t know about it, and that legalized gambling generates the data that allows us to make the connections, put the puzzle pieces together, and find the integrity threats. But the fact is that those are very real, and that the European model is a useful one in designing how we avoid those threats in the United States. – If I were a gambler, this is purely hypothetical, and prized my privacy, I’d rather gamble illegally and be anonymous than have these two data freaks know everything about me. Ari, do you have this problem? – Well, I’ll let Ari answer, but only to the point, again, I wouldn’t get into the weeds here, but I’m not interested in knowing your name, in this hypothetical world in which you gamble. (laughter) This very unusually strained hypothetical– – You should know, Rick is a former student of mine, and is now getting even. – Payback’s a bitch. (laughter) So in this world of hypothetical gambling, and I’ll recite your social security number now, I don’t wanna know any personal details, I just need, what I’m interested in is anonymized stuff that would allow us to see trends. So we’d see a spike in interest on a certain thing, not necessarily that you’re doing it, particularly. – And I think we’ll have a system in play for that, and they should have access when needed. We’re not gonna give it to them upfront. Data elements that we’re talking about are hundreds of thousands of wagers, anything in New Jersey now, we had a 186 million handle in the month of September, 110 million was through the internet, or mobile, the transactions are massive, and that doesn’t include the illegal sites that the professor, sorry, I have to call you that, was talking about.

Law enforcement reports to me, they’ve identified 108 illegal websites that are currently operational in the United States. Every state, they’re operational in. Every state. And we can monitor them, why can we monitor them? They’re right on the internet. Check your phone now, how can you place a bet in the state of New Jersey? First site on Google that pops up, It’s illegal. You can go create an account, gamble on that, probably in a minute, two minutes, and you can start wagering. And you have complete privacy protection, because no one’s gonna ever find out about you. – But we prefer you go to New Jersey and wager on FanDuel. (laughter) – Yes. – As for the privacy thing, I think, look, I have friends who’ve said the same thing to me, why, I have a bookie, why don’t I just go to him, I won’t get a tax return. I think this is an emerging market, and one of our duties as a new operator in that market is to provide a fun and also a safe place, and I know that sounds a bit cliche, but the truth is, as a regulated entity, you have consumer obligations to hold up to. And if you as a user run into an issue with a bookie, like, good luck, I don’t think it’s someone you’d particularly wanna chase after to get your money if they’re not paying you out.