New NJ Sports Wagering Bill Arrives Just in Time, Includes Integrity Fee with a Twist

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Sometime in the next two months, the Supreme Court will make a ruling on a landmark case which could open the door for New Jersey, as well as other US states, to legalize sports wagering within their borders.

While the SCOTUS decision might not be as cut and dry as some sports betting proponents countrywide would like, a pair of New Jersey lawmakers are preparing for a reality where the Professional and Amateur Sports Protection Act (PASPA), the law banning sports wagering outside Nevada, is fully repealed.

Assemblyman Eric Houghtaling and Assemblywoman Joann Downey recently introduced a bill which creates a clear framework should the industry become legal, and includes details on how it would be regulated, where it could be offered and how much operators would need to pay to get in the game.

Regulation and rules

First and foremost, the bill would put the sports betting industry under the purview of the NJ Division of Gaming Enforcement (DGE), a natural decision considering that the agency already oversees the state’s land-based and online casinos.

This is much preferred to a scenario in which PASPA is only partially repealed, a decision that would put the state in the unusual position of not being able to legally police the industry. The DGE has a strong track record of protecting New Jersey gamblers, so leaving it on the sidelines could put players at unnecessary risk.

A few more of the finer points:

  • Racetracks which choose to open sports books would not only deal with the DGE, but also need to get approval from the New Jersey Racing Commission.
  • Sports bettors must be 21 years of age, the same age required for betting at brick-and-mortar and land-based casinos in NJ.
  • Wagers could not be placed on any collegiate sporting events which occur in New Jersey, or on New Jersey college teams participating outside the state. Likewise, high school events would be off-limits.

Online sports betting

The bill allows NJ online gambling operators to offer sports betting via Internet terminals and mobile apps. However, there is a caveat – to offer Internet/mobile sports betting, providers must also own a physical sportsbook. The bill states:

“No casino or racetrack permitholder shall be permitted to operate or accept wagers via an online sports pool unless a sports wagering lounge is established and has commenced operation in its facility; provided, however, that a sports wagering permitholder may petition the division to commence operation of an online sports pool during the pendency of construction of a sports wagering lounge in its facility.”

This likely won’t be an issue for any of the state’s online casino licensees or racetracks, which by all accounts are chomping at the bit to get involved in sports betting.

Borgata, the state’s current most popular brick-and-mortar casino has already made its plans clear to establish its own book, should PASPA be struck down. Its parent company, MGM Resorts International, has pledged $7 million to the project. Monmouth Park has taken upon itself to construct its own betting lounge and is ready to flip the switch at any moment.

Every other iGaming certificate holder would likely follow suit, eager to cash in on the torrent of money which will surely start flowing when the sports betting tap is turned on.

Integrity fee rears its head

Taxes and fees are always a contentious topic, especially when dealing with an industry that has the potential to generate hundreds of millions of dollars per year in revenue. Needless to say, the state will be looking to get its cut.

However, the major professional sports leagues want to wet their beak a little too. They feel that, as the operators of the actual games, they are entitled to a percentage of the action in the form of a so-called “integrity fee.”

Lobbyists for the NBA and MLB have been traversing the country in attempt to insert language into sports betting bills which would allow them around 1% of total handle. This equates to around 20% of effective revenue, a massive and likely unsustainable burden for operators.

The Houghtaling/Downey bill does propose an integrity fee, but one which differs from those we have seen recently in several respects. Operators would pay a more reasonable 2.5% of gross gaming revenue, not handle. The fee would be capped at $7.5 million

What’s more, leagues will not simply receive the money as a no strings attached payment; they would seemingly need to make a case that it’s needed for actual investigations into game integrity. As per the bill:

“a sports governing body whose sports events are wagered upon in New Jersey casinos or racetracks may seek reimbursement for expenses incurred relative to ensuring the integrity of its sports events with respect to sports wagering operations in New Jersey by submitting a claim for such compensation to the Attorney General. Such claims shall be paid exclusively from available funds in the Sports Wagering Integrity Fund”

This would be a more thoughtful and measured approach to the issue, which many view as a naked money grab by the leagues.

Taxation

Operators would be responsible for a bevy of fees, some of which would recur annually:

  • Sports wagering revenues at casino and racetracks will be taxed at 8%
  • Online sports revenue is subject to a 12.5% tax
  • Initial permit fee won’t be less than $500,000
  • Annual renewal fee will not be less than $250,000
  • A nonrefundable deposit of $100,000 must be posted for each application
  • Annual payment of $500,000 to the State General Fund required

For comparison, New Jersey charges operators $400,000 for an online gambling license and tacks on a $250,000 annual fee. Virtual slots and table games are taxed at 17.5%.

Sports betting is generally a low profit margin business, so a reasonable tax rate is essential for keeping the industry healthy.

More on PASPA and the Supreme Court case

PASPA is a law enacted in 1992 which essentially limited sports betting to the state of Nevada. When the bill was written, lawmakers gave New Jersey a chance to create a carveout for itself, but the Garden State declined to do so.

Later regretting that decision, residents voted in a 2009 referendum to legalize the industry anyway. In 2014, former Gov. Chris Christie signed a bill which would allow sports wagering by removing penalties from operators who chose to do so.

The country’s major sports leagues opposed the decision and sued, claiming that legalized sports betting would erode the integrity of their games. However, many of the leagues have subsequently warmed up to the idea.

The case made its way all the way to the Supreme Court, which will make a ruling on the issue by no later than the end of June.

Many legal experts and analysts believe that SCOTUS will repeal PASPA in some capacity, giving states the green light to offer sports betting in their territories. However, the court could decide on what some call a “skinny repeal,” which would uphold PASPA but allow NJ proceed with implementing its sports betting law.

Curiously, if that were to happen, by law, the state would not be allowed to have any hand in regulating the industry. In that scenario, the Houghtaling/Downey bill, which puts sports betting under the DGE, would not apply, and wagering would likely be regulated by The Independent Sports Wagering Association (TISWA).

Either way, it was high time that lawmakers covered their bases and got something on the books, as the Supreme Court decision is imminent.

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Bill Grinstead

Bill has over a decade of experience working in diverse aspects of the online gambling space. He is currently focused on legal, US online gaming, which he has reported on since the industry first became regulated in the country.

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