Mark Whitepaper May 2015

May 2015
Regulation of sports wagering in the United
States: a solution that enables US sports to
control and benefit from a regulated market.
Mark Locke CEO
Sport Integrity Monitor Limited
& Betgenius Limited
“Regulation of sports wagering in
the United States is inevitable.”
This statement is based on recent events and predictions made
by legal and industry experts. This paper does not seek to either
verify or justify this statement, it is a blueprint that sets out how
US sports must set the sports wagering agenda to ensure that
regulation is implemented in a way that best benefits and protects
both sports and its governing bodies. Furthermore, it details how
US sports might best capitalise on the vast opportunities such
regulation offers.
“
The New York Times
…the laws on sports
betting should be changed
NBA Commissioner Adam Silver
What does successful sports wagering in the US look like?
Eight key objectives will define the success of a regulated future:
† 1
“
What would successful wagering regulation
for US sports look like?
Federal and not state regulation
An effective licensing body
An environment where the integrity of the sport is maintained
An environment where partners, stakeholders and operators are clean and
bona fide organizations
Long term sustainable revenue for sports
Long term sustainable revenue for government
An environment where regulated US sports books are allowed to succeed, are protected
and the illegal market is eradicated
An environment where customers are protected
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Why US sports should lead the way
† 2
ILLEGAL
$380
BILLION
REGULATED
$3.45
BILLION
The opportunity
The opportunity for US sports to benefit from regulation of
wagering activity is entirely unique and not mirrored anywhere else
in the world. The US sports market is dominated by the NBA, NFL,
MLB, NHL and NCAA, who collectively control an enormous
share of the national sporting interest and, more importantly, an
estimated 80% of the wagering undertaken by US customers is
made on these US sports.
Without the events that these organizations provide, popular
sports wagering in the US cannot exist. This gives US sports the
potential to have control over wagering that is unrecognisable
from other sports overseas – where the governance of those
sports varies enormously.
“
The Washington Post
We need a debate in
Congress...
Sen. John McCain on sports betting
† 3
“
It is for this reason that the US market opportunity is unique and
why US Sports bodies should act now to secure their future.
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May 2015
Why US sports should act now
US sports should act today to support a regulated model that works
best for US sports. The following sections outline how this can
be achieved.
Back a federal approach
Only a federal approach would successfully shut out the
unregulated offshore sports books. A state by state solution or any
other approach would leave the door open for these unregulated
entities and their suppliers to continue to target unregulated
states where illegal gambling would continue.
“
...do it the right way
and go through
Congress.
Dan Spillane
NBA Vice President & Assistant General Counsel
It is only a federal approach and the resulting national framework
that will secure the three critical requirements: integrity,
transparency and protection of US customers.
† 4
“
What should a successful licensing regime include?
Probity test for operators and their supply chain
Clear regulatory framework for payments to sports and tax obligations
Robust enforcement against illegal operators, including advertising bans
Central reporting and distribution hub that is integrated into all sports, operators
and the IRS
Complete transparency on wagering and customer behaviour
Mandatory use of official sports data controlled by the sports
Customer protection measures (know your customer, prevention of underage gambling
and combating match fixing)
Anti-money laundering and fraud prevention
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The integrity of sports
Without sporting integrity the key principles of
sports are undermined and the fair competition
within sports cannot exist. The vast amount of
money wagered on US sports in the illegal market
threatens that integrity
This threat means that US sports should be doing everything
that it can immediately to understand and protect the integrity
of their events.
Once regulation is in place, all officially sanctioned data and
wagers placed with licensed US operators would pass through
a centralized technology hub. This would allow all wagers to
be time stamped and validated and wagering activity would be
monitored on a second by second basis, with any anomalies
identified in real time monitoring of wagering patterns. Sharing
of that information with regulators and US sports via the hub
would be a mandatory licence condition.
Control and regulation of wagering activity by regulators and
US sports would mean clear visibility on wagering activity taking
place on US sports in the US. This is a key advantage over the
currently unregulated model which exists completely out of
sight of regulators and US sports. Enhanced control and total
transparency would be a major weapon in the fight to maintain
sports integrity and keep out corruption. Information received
could be used within new technologies to monitor wagering
activity. These technologies use sophisticated analytics to
identify wagering anomalies in real time.
Information must be backed by investigation. In a regulated
framework, US sports would be supported to thoroughly
investigate any wagering anomalies and minimize corruption.
This opportunity does not exist currently as US sports are
unable to see the wagering activity taking place on the sports
that they control.
These robust integrity measures would ensure that the sports
on which customers wager remain beyond reproach, and that
public confidence in sporting contests remains unchallenged.
Are your partners fit & proper?
Many companies working within the global wagering market have
an apparently legitimate background, however, once analyzed in
detail will often have a questionable history based on the position
they have taken against sports bodies, as well as the operators
they have chosen to supply.
For example, the unregulated US wagering market is targeted by a
number of illegal operators. It is not only them but their supposedly
legitimate suppliers, based outside the US who between them
benefit greatly from exploiting the illegal US market. It is vital that
US sports know their supplying partners and ensure that they
have maintained a clean track record when it comes to future
regulation and compliance in the US and elsewhere.
Other areas of caution include international operators, especially
wagering exchanges where gamblers bet against other gamblers
and the exchange takes commission on every wager. These are
often legitimate wagering operators, however their business model
means they do not have the best interests of sports at their core.
In fact, for this reason they often facilitate corruption by allowing
wagering on sporting events that other sports wagering operators
have long since ceased to offer due to integrity concerns.
A key objective of robust regulation is the
eradication of the illegal sports wagering market
While the existence of an attractive regulated offering will diminish
demand for the ilegal market, it must be backed by strong
enforcement of the rules. Otherwise a key incentive for wagering
operators to obtain a US license will be lost.
Stamping out the illegal market does not just mean targeting
the sports books themselves, it means targeting the suppliers of
lines and data, and other essential suppliers that allow them to
operate.
US regulated operators should be prohibited from partnering with
any unregulated sports book or data suppliers that have served
them – and any such entity should be prevented from taking any
US business.
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May 2015
Sustainable revenue for sports
US licensed wagering operators would be legally obliged to
make a financial contribution directly to US sports. However, this
contribution comes with a responsibility on the part of US sports
to provide regulated operators with a superior product. This would
take the form of official data, that is the best available to drive
sports wagering and that is not made available to unregulated
operators. In addition, a balance must be struck to ensure that
the contribution required of regulated operators still allows them
to be commercially successful in a competitive market.
Even a small contribution from regulated
operators would generate billions of dollars
of revenue for sports.
The benefits to US sports in participating in gambling revenue
are obvious. This gives US sports an opportunity to divert funds
back into their sports by embarking on ambitious investment
programmes for the benefit of sports.
A punitive percentage of wagering profit being taken by
government will arguably hinder US licensed operators’ ability
to compete with their unregulated (non-tax paying) rivals. If
revenue and profits are too diminished, wagering operators will
be deterred from becoming licensed which clearly defeats the key
aim of countering the illegal market – so a balance must be struck.
Nonetheless, a proportionate tax rate would obviously bring huge
revenues into government which would be coupled with countless
job opportunities and other associated economic benefits created
in the newly regulated wagering market.
If the US were to adopt a rate of taxation in line
with the United Kingdom (15% of net revenue),
based on industry estimates of the unregulated
market government revenue from sports
gambling would be $57 billion.
† 2.1
In addition, US sports will also be able to fund and support a powerful
integrity campaign including an education program, monitoring
and investigation to ensure that corruption is permanently shut
out of US sports. This increased spending power will strengthen
US sports’ control and maintain and enhance the image and status
of their sports both nationally and internationally.
Sustainable revenue
for Government
Protecting US customers
With regulation comes consumer protection and responsible
operations. Regulated sports wagering in the US should be a
legitimate leisure activity which means that those taking part
should be protected. To achieve this aim, conditions of licensing
should include strict player protection requirements such as
age verification, ‘know your customer’ measures and combating
match fixing.
Wagering profit would be taxed by Federal Government and as is
the case with the contribution to US sports, the key consideration
in getting this right is balance.
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Eradicating the illegal market
For a regulated model to succeed against the existing illegal market
it must be the most attractive proposition for wagering operators
and US customers alike. For this to happen, the regulated
offering, meaning the wagering product offered by operators to
US customers, must be superior to any offering accessible via an
unregulated route. This can be achieved by the US sports having
an obligation to provide regulated operators with data products
and services that are the best in the market and are not available
elsewhere.
To achieve these goals, US sports need to create a market
leading data product that cannot be provided by anyone else.
It must be the fastest, the most accurate and the most available.
Every advantage should be
taken of new technologies to
leverage the US
sports’ unique position
of control to create
an unrivalled offering
for licensed operators
to use. In addition,
licensed operators must
be regulated and
licensed in such a way to
ensure that they offer
the most user-friendly,
† 5
safe and enjoyable product.
It must be the only product that US customers want to use. In
addition, regulated operators must be allowed the considerable advantage
of marketing their own services and illegal operators must be
prohibited from doing so.
Ultimately, market forces supported by effective and robust regulation
is the only sure-fire way to make a regulated model a success
and to eradicate the illegal operators.
In summary
Regulation is inevitable; US sports must seize the opportunity now
to make that regulation work for them. As this paper outlines,
US sports need to create a regulated framework that ensures
regulated operators will have a huge starting advantage over their
unregulated rivals and shuts down the illegal market. This would
acheive the fundamental aims of maintaining integrity, protecting
US customers and creating revenue for sport and government.
This thought piece presents a model for a
newly regulated wagering market that would
primarily exist for the good of sports – a model
and an opportunity that currently does not exist
anywhere else in the world.
Copyright © 2015 Sport Integrity Monitor Limited
† 1 Adam Silver
http://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silverlegalize-sports-betting.html?_r=1
† 2 & 2.1 The National Gambling Impact Study Commission estimated that up to $380
billion is wagered illegally each year in the United States. American Gaming industry
report that regulated sports betting in Nevada totalled $3.45 billion in 2012. It is safe
to assume that the size of the unregulated betting market in the United States has
grown significantly in recent years and that research today would result in higher
estimates.
http://www.americangaming.org/industry-resources/research/fact-sheets/
sports-wagering
NATIONAL GAMBLING IMPACT STUDY COMMISSION FINAL Report at 2-14
http://govinfo.library.unt.edu/ngisc/reports/2.pdf
† 3 Sen. John McCain
http://www.washingtonpost.com/blogs/early-lead/wp/2015/02/02/sen-johnmccain-says-congress-needs-to-re-examine-u-s-ban-on-sports-gambling/
† 4 Dan Spillane
GiGse Conference 2015
†5 ESPN
ESPN The Magazine - February 16, 2015
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May 2015
Sport Integrity Monitor works with sports governing bodies and
sports betting operators to prevent and manage the integrity
concerns associated with match fixing and betting related
corruption.
By providing the full range of betting integrity services (consultancy,
education and prevention programmes, technology based wager
monitoring systems and investigations) Sport Integrity Monitor has
become a valuable partner for sports bodies seeking to protect
their competitions from corruption.
Sport Integrity Monitor draws on over 15 years’ experience in the
sports betting industry, working with both sports governing bodies
and betting operators to provide effective measures to protect
betting markets and sports events from corruption. It has never
worked with nor derived revenue from any US facing operator and
continues to operate a zero tolerence approch to parnerships with
illegal operators.
Sport Integrity Monitor works with several of the largest
international sports bodies including the English Premier League
and the Football Association.
For more information on Sport Integrity Monitor and our services
please feel free to contact:
Mark Locke
Email : mark.locke@sportim.com
Cell : +44 7796 171 959
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Sport Integrity Monitor Limited
25a Soho Square,
London,
W1D 4FA
Call us on +44 207 851 4070
www.sportim.com
Sport Integrity Monitor Limited is a subsidiary of Betgenius Limited.