The landmark Supreme Court decision striking down the federal ban on most sports gambling rightly restores state legislatures' right to decide whether to legalize the multibillion-dollar sports-betting market.
In anticipation of the decision, West Virginia, Mississippi, and four other states passed laws legalizing the practice. Many more states are likely to follow in their footsteps. But they should be on guard against special interests clamoring for a piece of the action.
Professional sports leagues have been sending lobbyists to dozens of state legislatures asking that they institute an "integrity fee" that would entitle the leagues to 1 percent of all the money bet at sportsbooks.
The scheme, which has never been implemented anywhere in the United States, could involve a tax on bets or even a compulsory transfer of money from sportsbooks to sports leagues. Either way, it is an egregious example of corporate welfare—of using political connections to financially benefit one company or industry at the expense of others.
Corporate welfare rewards those who lobby for government favor, rather than those who earn money by giving consumers what they want. It stifles progress and innovation, and it distorts the economy by letting government pick winners and losers. It is an abuse of the trust taxpayers place in government.
Instead of introducing a costly "integrity fee," state legislators should try to eliminate existing corporate welfare programs—say, subsidies for professional sports stadiums.
Note that the leagues are not asking for 1 percent of sportsbooks' revenues. They want 1 percent of the total amount of money bet. The market research firm Eliers & Krecjik Gaming estimates that if sports betting were legalized in the 32 states most likely to permit it, the nationwide handle would come to roughly $200 billion annually. In that case, a 1 percent integrity fee would net sports leagues $2 billion each year.
What could possibly entitle these multibillion-dollar organizations to such a massive yearly windfall?
The fees sought by the leagues are ostensibly meant to fund "integrity" initiatives that would help prevent match-fixing and other fraudulent behavior. But that doesn't hold up to scrutiny. A very robust illegal sports betting market—an estimated $150 billion a year—already exists. It's unclear why suddenly legalizing this existing market would lead to widespread fraud. If anything, match-fixing is likely to be more common in the black market, where regulatory oversight is nonexistent.
Nevada, which was always exempt from the federal sports gambling ban, imposes no integrity fee. Yet there is no rampant insider or fraudulent betting there. Those who do engage in bad behavior, like Pete Rose, are punished according to the rules that sports leagues already have in place to deter cheating.
Ultimately, integrity fees benefit no one except the sports leagues who want them. And they would benefit handsomely indeed. Assuming a $2 billion annual integrity fee, Legal Sports Report calculates that $600 million would go to the National Collegiate Athletic Association, $480 million to Major League Baseball, $440 million to the National Football Leage, and $300 million to the National Basketball Association.
Don't be taken in by calls for "integrity fees" or any other form of government-granted privilege. This is just a case of special interests trying to rig the law in their favor—and there's no integrity in that.
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