December 14, 2023

For the Love of the Game: The Importance of Market Access Agreements

Holland & Knight Alert
Da'Morus A. Cohen | Michael R. Peacock | Matthew Rubino

Highlights

  • The sports wagering market has proliferated across the United States at an expedited pace: more than 35 states and the District of Columbia have authorized sports wagering in some form, and 48 states in the aggregate have already (or are expected to) authorize sports wagering in the next several years.
  • Multistate online/mobile sportsbook operators (Operators) are entering market access agreements with certain professional sports teams, sporting events, sporting venues and other land-based entities to ensure that the Operators can enter certain states' gambling markets in accordance with state legislation.
  • This Holland & Knight alert provides a general overview of market access agreements, explains the benefits of professional sports teams having such agreements in place and highlights key terms to keep in mind as professional sports teams consider entering into such market access agreements.

In the aftermath of a 2018 U.S. Supreme Court ruling that repealed the federal ban on state-sponsored sports wagering, the sports wagering market has proliferated across the United States at an expedited pace. Since the court's ruling, more than 35 states and the District of Columbia have authorized sports wagering in some form, and 48 states in the aggregate have already (or are expected to) authorize sports wagering in the next several years, with Utah and Hawaii being the only exceptions. Per a Statista report, in 2022 alone, the sports betting industry generated $7.56 billion in revenue across the United States.

As legalized sports wagering continues to solidify itself as an essential component of American sports culture, multistate online/mobile sportsbook operators (Operators) are entering market access agreements with certain professional sports teams, sports organizations such as NASCAR and the PGA Tour, sporting venues and other land-based entities that are either authorized to hold sports betting licenses or are designated as preferred recipients of such licenses, pursuant to state law. Such market access agreements ensure that these Operators can enter certain states' gambling markets in accordance with state legislation.

This Holland & Knight alert 1) provides a general overview of market access agreements, 2) explains the benefits of professional sports teams having such agreements in place and 3) highlights key terms to keep in mind as professional sports teams consider entering into such market access agreements.

What Are Market Access Agreements?

Market access agreements provide Operators with access to a state's sports betting market via a contractual relationship with a land-based entity that is authorized to hold a sports betting license under state law. For example, in New Jersey, an Operator must execute a market access agreement with either a land-based casino or racetrack located in New Jersey in order for the sportsbook to lawfully operate in the state. This is because only land-based casinos and racetracks can hold "internet sports wagering permits" under the New Jersey Sports Wagering Law. Market access agreements are subject to license availability, state law and regulatory approvals/licensure. In states such as New Jersey and Indiana, each land-based entity may contract with up to three Operators, whereas in Pennsylvania, each land-based entity may partner only with one Operator.

Market access agreements serve as the exclusive means by which an Operator can enter a state's sports betting market. Since most states authorize only a finite number of sports wagering licenses, Operators cannot legally launch their sportsbooks in those states without entering into a market access agreement with an authorized entity such as a professional sports team or venue. Certain states such as Arizona, Illinois, Maryland, North Carolina, Ohio and Virginia include professional sports teams and their respective venues as one of the few categories of businesses (along with other entities such as Native American tribes, casinos or racetracks) that are permitted to hold sports wagering licenses.

Benefits to Professional Sports Teams

The gambling industry, like most industries, cannot escape the advent of digitalized economies. With billions of dollars invested into professional sports teams and millions of individuals employed in primary, secondary and tertiary sports-related markets, it is imperative that professional sports teams preserve the profitability of those markets and the jobs that such markets have created. Through market access agreements, professional sports teams are granted exclusive or preferred rights to sports betting and ensure a measure of local control over sports betting operations. Market access agreements provide a contractual relationship that enables a professional sports team to act as a local partner to out-of-state Operators who are less concerned with the development of the team's "fan experience" and the well-being of in-state residents. Moreover, Operators will pay a premium to the businesses that are permitted to hold such sports wagering licenses to lawfully access that state's market.

Key Considerations

There are four key buckets of economics in market access agreements:

  1. signing/exclusivity fees that are paid by Operators to host sports teams or venues upon the execution of the market access agreement
  2. legislative or "Market Go-Live" fees that are paid by Operators upon the launch of internet sports wagering in a state
  3. percentage of gaming revenue/minimum annual guaranteed payments, which are keyed to Operators' gaming revenues garnered from a particular state
  4. sponsorship fees

Negotiations involving these economic buckets are often dependent on facts such as the variance in state law as it relates to how many land-based entities an Operator can contract with in a particular state. Other economic considerations include capital contributions and charitable contributions. Market access agreements also include a term typically ranging from 10 to 30 years and include standard representations, warranties and covenants from both the Operator and the land-based entity.

There are also several public policies that are advanced by statutorily designating professional sports teams and their respective venues as the holders of sports wagering licenses. For example, designating professional sports teams and their respective venues as the exclusive holders of sports wagering licenses rewards those entities that invest hundreds of millions of dollars into their respective state economies and likewise employ thousands of residents. Further, sports teams and venues would have a direct line of communication with Operators to voice the concerns of constituents, thus holding the Operators more accountable than if the Operators were permitted to hold the licenses independently.

Conclusion

Market access agreements are a product of legislation and therefore compulsory in nature. That said, it is hard to ignore the benefits that can be realized by professional sports teams from monetary and intangible ("goodwill") perspectives. Given the finite number of market access agreements that Operators can enter into, it is imperative that professional sports teams seriously consider whether such contractual relationships would be a suitable fit for their organizations as they look for ways to adapt to the digitization of the industry and as sports wagering continues to spread throughout the nation.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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