The National Collegiate Athletic Association could rake in millions from the potential legalization of sports betting thanks to a proposed integrity fee circulating within pending legislation in four states.

But more money could mean more problems for the already controversy-ridden NCAA.

"Even though though it would be a huge windfall for the NCAA in terms of revenue, it's also directly contrary to its stated purpose of the student athlete first," Justin Sievert, founding partner of Sievert Werly LLC, which specializes in collegiate sport cases, told Bloomberg Tax.

The integrity fee, which is spearhead by the National Basketball Association (NBA) and Major League Baseball (MLB), would require sports betting venues to pay sports governing bodies, such as the NCAA, 1 percent of the total amount wagered. An estimated $10.4 billion was illegally wagered in 2017 on the NCAA men's basketball tournament, also known as "March Madness," according to the American Gaming Association—so that a 1 percent cut would bring in an extraordinary amount of revenue for the NCAA.

However, an integrity fee, if adopted by states and paid to the NCAA, would add additional scrutiny to the association's bedrock model of student-athlete amateurism.

Awaiting the High Court
States, professional leagues, and the NCAA are awaiting the U.S. Supreme Court's ruling in Murphy v. NCAA—New Jersey's attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region. The Supreme Court agreed to review the case after a lower court ruled that the partial repeal violated the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits states from "authorizing" gambling related to professional and amateur sports leagues.

To get ahead of the ruling, a total of 18 states are actively considering sports betting legislation that would permit statewide sports wagering pending a potential ruling overturning PASPA, according to the American Gaming Association.

Most bills contain policy details that permit wagering at certain licensed venues and seek to establish safeguards in the industry, such as the prevention of underage gambling. However, legislation in four states—Indiana, Illinois, Missouri, and New York—incorporates a 1 percent cut for sports governing bodies that sports betting operators would have to pay based on the amount wagered on a particular game. Legislation in New York would require a 0.25 percent fee.

MLB and the NBA are pushing this initiative, advocating through lobbying efforts and participating in state hearings. Representatives argue the fee is needed to help offset the costs of establishing data monitoring and other security measures to prevent match fixing. The fee also would be a source of insurance if the leagues become embroiled in any scandal due to game manipulations.

The integrity fee is also considered a royalty payment to compensate the leagues for the use of their product in sports betting venues, Dan Spillane, senior vice president and assistant general counsel for the NBA, said during a Connecticut Public Safety and Security Committee hearing on sports betting March 1.

"It is about compensating us for that value we provide, for the IP right. For those reasons we wouldn't support a structure that isn't a reimbursement of those," Spillane said.

Keeping Hush
The NCAA's official position on sports gambling has remained unchanged: the group is adamantly opposed. "The NCAA opposes all forms of legal and illegal sports wagering, which has the potential to undermine the integrity of sports contests and jeopardizes the welfare of student-athletes and the intercollegiate athletics community," the association states on its website.

Yet the collegiate governing body has remained relatively quiet in the ongoing, state-level legislative process, denying an invitation from Connecticut's Legislature to participate in this month's hearing. Even in Indiana, home of the NCAA, the governing body has remained tight-lipped.

"The NCAA has been clear on their position on this issue in the past but has not been aggressive publicly at this point," said Chris Grove, managing director of sports and emerging verticals at Eilers and Krejcik gaming, a gambling industry research firm based in southern California.

"So the question of where are they in this process and what are they waiting for, if anything, is a curious one for me," Grove told Bloomberg Tax.

The NCAA didn't respond to a request for comment.

Opt Out, Opt In
However, in their preferred legislative model, the NBA and MLB have recommended that each sports governing body, including the NCAA, have the ability to prohibit betting on their sports and the choice to opt in or out out of the integrity-fee model.

A handful of states, such as West Virginia, are swiftly pushing legislation that defies the NBA and MLB's requests by not including restrictions on the types of bets placed and denying any form of an integrity fee. West Virginia's S.B. 415 was sent to Gov. Jim Justice (R) March 3, and, if signed, would join New Jersey, Connecticut, Pennsylvania, and Mississippi, who have already passed sports betting legislation.

In a state where NCAA games are eligible for sports betting and also part of an integrity-fee model, there most likely will be corruption, Kate Lowenhar-Fisher, a Nevada-based gaming attorney with Dickinson Wright PLLC, told Bloomberg Tax.

"For amateur players to be put in the position who don't have the lure of the multi-million dollar contracts to be playing in games where the oversight authority is getting a piece of the action, I can think of a million scenarios that could do grave damage to the integrity of amateur sports," she said.

Amateurism Woes
The model of student-athlete amateurism, where players are unpaid for their athleticism, is a core principle for the NCAA and a doctrine consistently under attack by critics who contend student athletes are exploited.

Sports gambling with the inclusion of an integrity fee "would essentially give additional arguments to people who say that the NCAA does nothing but exploit athletes and a potential example of the NCAA making money while the revenue stream doesn't trickle back down to the athletes themselves" Sievert said.

The NCAA's participation in an integrity-fee model would erode the governing body's defense dating back to the NCAA v. Board of Regents of the University of Oklahoma case—that collegiate sports are a separate entity from professional sports because student athletes are unpaid, Paul Haagen, co-director of the Center for Sports Law and Policy at Duke University, told Bloomberg Tax. In the 1984 case, the court ruled that the NCAA violated the Sherman and Clayton antitrust acts by engaging in price fixing related to a football television plan.

An integrity fee "would subject them to antitrust and additional security and make it harder and harder for them to claim that this is a separate business enterprise," Haagen said.

However, the fee would generate millions in revenue for the NCAA. On average, at least $150 billion a year is bet on sports illegally, according to the American Gaming Association. The estimated $10.4 billion wagered on March Madness in 2017 marks a nearly 13 percent increase from 2016, when an estimated $9.2 billion was wagered.

"Right now as it stands, I don't see the NCAA getting on the ground floor of any type of integrity fee. I just don't think that would be a move they would make based on their stances and numerous legal cases, and their overall organizational mission," Sievert said.

"I think there is a smell test problem. The NCAA doesn't need this on top of all of their issues now," Haagen said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.comTo contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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