Legalized gambling is close. So is a big decision for NCAA schools.



For an organization predicated on the ideal of amateurism — choosing to compensate athletes in scholarships and small stipends alone — pursuing profits generated from gambling means entering murky, uncharted waters, with a new revenue stream that runs counter to the image of purity the NCAA projects.

Tom McMillen, a 6-foot-11 former Rhodes Scholar, NBA player and U.S. congressman, saw this day coming. In 1992, the same year McMillen voted to pass the Professional and Amateur Sports Protection Act, which effectively outlawed sports betting for most of the country, he also authored a book, titled “Out of Bounds,” and included in it a prescient prediction:

“I wonder how long the sports establishment resists the temptation of gambling revenues,” he wrote. “Within the next decade or two, when the sports juggernaut needs new revenues, the sports leagues may well switch sides, banding with the states to push for sports gambling.”

Twenty-six years later, McMillen’s conclusion — that league commissioners would support legalized sports betting once they were promised a slice of the revenue pie — has been realized. The Supreme Court struck down PASPA in May, ruling the federal ban unconstitutional, and opened the door for individual states to decide whether to allow regulated sports wagering.

The Supreme Court’s landmark decision, widely applauded by professional leagues, has put the NCAA and its member institutions in a precarious position. For an organization predicated on the ideal of amateurism — choosing to compensate athletes in scholarships and small stipends alone — pursuing profits generated from gambling means entering murky, uncharted waters, with a new revenue stream that runs counter to the image of purity the NCAA projects.

As some states begin drawing sports-gambling legislation, school administrators are forced to grapple with whether they deserve a cut of the revenue, and whether they should accept it at all.

“Collegiate sports long ago crossed the line of being commercial entities for practical purposes,” said Chris Grove, editor of Legal Sports Report and managing director of Eilers and Krejcik, a gaming research and consulting firm in Santa Ana, Calif. “But there’s still an optical divide between professional sports leagues being close with gambling … [and] colleges, universities or the NCAA doing those same things. How they balance the opportunity there versus the reputational harm is a question I’m sure that’s being discussed in many a dean or AD’s offices.”

Last October, Gov. Tom Wolf signed a law allowing online gambling in Pennsylvania. It meant daily fantasy sports became regulated and taxed, and, more important, it cleared the way for casinos to offer sports wagering on-site or online once PASPA was overturned. With legalized betting now on the horizon in Pennsylvania, school administrators differ on how to proceed.

In response to the Pennsylvania Gaming Control Board’s request for public input on sports gambling, Penn State President Eric Barron recommended for a temporary carve-out, prohibiting betting on college sports in Pennsylvania for at least two years to “reduce the likelihood of issues arising before our institutions can put into place the policies and procedures and educational programs to appropriately manage the risks associated with sports wagering on their athletic contests.” Penn State athletic director Sandy Barbour did not return a request for comment.

Pitt athletic director Heather Lyke, on the other hand, in her letter to the Pennsylvania Gaming Control Board, emphasized the importance of “impact fees” to cover the cost of hiring and training new staff to “greatly enhance [its] educational and compliance efforts.” In a later interview with the Post-Gazette, Lyke said she didn’t yet have a dollar figure or percentage in mind for the impact fees.

“We can’t really put a price tag on the integrity of the game,” Lyke said.

The law signed by Wolf included no royalty fees for leagues or schools, but they could still be put in place if the Pennsylvania Gaming Control Board sees fit. The board is accepting applications from casinos to open sportsbooks. Because regulations are still being written in Pennsylvania, gaming experts said legalized sports betting likely won’t begin in the state until early 2019.

Lyke asked the board to consider limiting prop bets, which allow bettors to put money on the results of individual players or events within a game, and suggested it appoint representatives to serve as liaisons, working with schools on education and monitoring initiatives. Given her compliance background, Lyke isn’t a proponent of legalized sports gambling. ”It’s hard to protect everybody,” she said, “and it’s hard for everybody to do the right thing all the time.”

“Everyone says, ‘Well, it's just gonna be the same. People have been [betting on sports] forever,’ ” Lyke said. “But the reality is, I’m most concerned just about the integrity of the game and the safety and well-being of our student-athletes, and them not getting mixed up in things.”

Lyke’s position is one McMillen — now CEO of Lead1 Association, which represents 131 Division I athletic directors — says he’s seen a lot recently. When Lead1 surveyed all Division I athletic directors last year, 80 percent opposed legalized sports gambling. McMillen will conduct a similar survey again later this year, but he already expects that number to drop. Many athletic directors are “resigned to the fact [legalization] is going to happen,” he said.

“Athletic directors look at this as one more headache,” McMillen said. “They've got sexual misconduct issues. They’ve got paying players. They've got all these issues. They've got to get millennials to go to games. Now they’ve got to worry about point shaving?”

While the NBA, MLB and PGA Tour have requested a cut of wagering revenue, pressing most states to include a 1 percent “integrity fee” in their gambling legislation, the NCAA declared this month it will not pursue integrity fees. But that decision does not apply to its member schools, some of which already are in line to collect a portion of gambling proceeds in their state.

In December, NCAA President Mark Emmert floated the idea of a “carve-out,” a federal statute that would eliminate college games from sports betting menus. Emmert’s idea, to wash the NCAA’s hands of gambling and its profits, was ridiculed by gaming experts, who argued it would carry the side effect of driving money from betting on college games back to the illegal market.

“People do believe in the Easter Bunny and Santa Claus,” said Daniel Wallach, a prominent gaming attorney. “[A federal carve-out] just simply is not going to happen.”

A carve-out may pass in some states — New Jersey, for example, now prohibits betting on any college game held in New Jersey or involving a New Jersey college team — but not all. As legalized sports gambling arrives, schools are scrambling to be ready. With no official direction from the NCAA regarding schools’ inclusion in new sports wagering legislation, schools are fighting for themselves as their states begin drafting agreements to allow sports betting.

(An NCAA spokesperson declined to be interviewed for this story.)

In May, West Virginia’s two Division I schools, West Virginia and Marshall, negotiated with lottery commission and state’s sports consortium to receive 0.25 percent of the handle — total amount bet — for all in-state wagers on their schools, according to ESPN. The athletic directors, West Virginia’s Shane Lyons and Marshall’s Mike Hamrick, told the Post-Gazette the funds will pay for increased compliance costs, oversight and athlete education regarding the pressures and risks of sports gambling. They stressed the money, however much that may be, will not go toward coaching staff salaries or capital improvements to athletic facilities.
NCAA president Mark Emmert's idea of a “carve-out” was ridiculed by gaming experts.(Darron Cummings/Associated Press)
Almost under the radar, West Virginia set a new standard for schools and sportsbooks. Consider the precedent: Betting on college sports has been permitted in Nevada since 2001. In that time, UNLV and Nevada have not profited from integrity fees. They have benefited, however, from licensing deals. McMillen said UNLV receives $100,000 per year from its partnership with sportsbook William Hill.

Hamrick spent six years as UNLV’s athletic director before returning to his alma mater Marshall in 2009, so he’s had experience in a state with legalized sports gambling. Hamrick said he had three extra bedrooms in his Las Vegas home, and during March Madness every year they were filled by out-of-town friends who’d rise at dawn and spend all day at the sportsbook.

Since Nevada schools so far have skirted scandal, despite not taking a direct cut of gambling profits, why not follow the same model and steer clear of an integrity fee in West Virginia?

“I think, first of all, [the fee] gives the whole process credibility,” Hamrick said. “They’re saying, ‘We want to work with the two universities here. We think sports betting is good for West Virginia, for the economy, for tourism. But we want to be able to help protect our two major Division I athletic programs.’ It sends the right message … that, yes, we know [the risk of scandals] could be a significant problem, and we’re going to attack it up front.”

At this point, it’s anyone’s guess how much money schools will actually pull in from integrity and sportsbook partnerships. Because most fees are brokered in percentages, not flat dollar amounts, the answer depends in large part on whether the general public’s habits change when sports gambling is legalized. There may be a surge of casual gamblers. There almost certainly will be more interest in live games, increasing ratings and making future TV contracts more lucrative.

“Who’s watching Alabama blow out a team 61-7 in the fourth quarter? Let’s face it, you can turn the television off, unless you’re an Alabama fan or just a masochist,” Wallach said. “With the introduction of in-play betting and in-game wagering, every second of a game, from pillar to post, represents a betable event.”

According to estimates from the American Gaming Association, about $150 billion is wagered illegally on sports each year in the United States — $10 billion during March Madness alone. Of the $4.7 billion bet on the Super Bowl last year, the group said, 97 percent was wagered illegally. If even a fraction of those become legal wagers, it’d seem there’s plenty of money to go around.

But Mark Conrad, director of the sports business program at Fordham’s Gabelli School of Business, said he expects states and sportsbooks to fight integrity fees hard. Here’s why:

As a general rule of thumb, sportsbooks retain an average of 5 cents per dollar bet. If the league takes 20 percent of that profit, tack on state and federal taxes and “the pie begins to shrink,” said Benjie Cherniak, managing director of Don Best Sports, which provides odds to sportsbook operators. A recent Oxford Economics study estimated a 1 percent league fee, across all 50 states, would slash state gaming tax revenue almost in half, from $2.4 billion to $1.4 billion.

During the first two weeks of legalized sports gambling in New Jersey, the three sportsbooks recently opened in the state reported $16.4 million in sports bets placed, of which they saw $3.5 million in gross sports betting revenue. The early rush generated nearly $300,000 in tax revenue for New Jersey.

In Pennsylvania, casino operators are required to pay a $10 million licensing fee to start sports gambling, and the state’s tax rate of 36 percent is the highest in the United States.

“That’s just too high for any sportsbook to make a profit,” said Jake Williams, legal director for Sportradar US. “Everyone thinks sportsbooks just churn money and it’s easy and that’s why they have big casinos, but the reality is at that tax rate, you’re probably going to run at a loss and the only reason you would come to Pennsylvania would be for brand purposes.”

Another revenue stream the NCAA may tap into is the distribution of league data, for instance. The demand for data “is going to explode over the next couple years,” Grove said, as bettors and sportsbooks race for the best information. But it raises questions about what data can be considered proprietary and what is public, and whether sportsbooks may stray from official data.

Lyons and Hamrick, the West Virginia and Marshall athletic directors, have been told the state’s sportsbooks will be operational by the start of the college football season this fall. Both said they don’t anticipate the revenue their schools draw from sports gambling will be game-changing. If there’s an unexpected excess, Lyons said, it will be reinvested in student-welfare programs.

“There have been comments made that this is a huge revenue stream,” Lyons said. “At least in our state and in the way it's being talked about and possibly set up, is it revenue coming in to us? Yes. But, out of a roughly $93 million [West Virginia athletics] budget, is it a huge revenue stream? Absolutely not.”

For now, their only option is to wait and see. But here’s the bottom line.

“If all this works, and it should for the most part,” Wallach said, “everybody will make money.”

Craig Meyer: cmeyer@post-gazette.com and Twitter @CraigMeyerPG. Stephen J. Nesbitt: snesbitt@post-gazette.com and Twitter @stephenjnesbitt

This article is a reprint from Post-Gazette.com.  To view the original story and comment, click here


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