Editor's note: This story appeared in ESPN The Magazine's Feb. 16, 2015 Gambling Issue. Subscribe today!
THE NBA'S DARKEST hour can actually be marked by a single moment, concentrated down to the uttering of a sentence. "I can tell you that this is the most serious situation and worst situation that I have ever experienced either as a fan of the NBA, a lawyer for the NBA or a commissioner of the NBA." That was the lament of then-commissioner David Stern during a July 24, 2007, news conference announcing that referee Tim Donaghy was under federal investigation for betting on games.
The Donaghy revelation became the ugliest gambling scandal to hit an American professional sport since at least Pete Rose's banishment from baseball in 1989 and perhaps since the Black Sox threw the 1919 World Series. In that dark moment, the NBA could very well have hunkered down and waited for the dawn. It could have continued to treat sports betting as the enemy that for as long as anyone could remember had threatened the very fabric of the game. And publicly, it did. A 2007 letter signed by all general counsels of the major sports leagues and the NCAA, including NBA vice president Rick Buchanan, stated, "The harms caused by government endorsement of sports betting far exceed the alleged benefits."
Privately, though, the league was watching -- closely -- as the Vegas market and legal daily fantasy sites were growing exponentially. It saw how all that interest, as well as action from illegal offshore betting sites, fueled NBA fandom, and it realized it needed to have a seat at the table -- the better to monitor and monetize those burgeoning passions. It studied and researched and planned behind closed doors before it made its move. And when it did, it was not subtle.
The NBA's pivot point on legalized gambling appeared in a Nov. 13, 2014, editorial in The New York Times, penned by new commissioner Adam Silver: I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.
SPORTS IS AN ongoing contest between two forces: tradition and innovation. On the one side are those who tell you that's the way it's always been done, and on the other are those who urge you to change and adapt.
The bald 52-year-old man in glasses and a conservative dark suit doesn't look like an agent of change -- especially with the 1970s soul music playing in the background on the set at a recent photo shoot for The Mag. But Adam Silver has proved otherwise. Just 88 days into his tenure as NBA commissioner, on April 29, 2014, Silver banned Clippers owner Donald Sterling in a four-minute proclamation on national TV, his willingness to stand alone in full view.
"I have talked to the other commissioners about it. All of them have assigned people to study the issue intensively."-- NBA commissioner Adam Silver
Nine months later, on a cold January afternoon on the 19th floor of league headquarters in Midtown Manhattan, with Hot Chocolate's "You Sexy Thing" playing, Silver is loose and joking, all the while being prepped for his cover shoot. He's relaxed, though not unguarded. "One of my concerns is that I will be portrayed as pro sports betting," he says. "But I view myself more as pro transparency. And someone who's a realist in the business. The best way for the league to monitor our integrity is for that betting action to move toward legal betting organizations, where it can be tracked. That's the pragmatic approach."
The evolution of Silver as gambling realist in many ways began in 2006, after he took over the league's international operations as deputy commissioner. He spent time overseas growing the NBA's brand, giving him a vantage point to see how legalized gambling worked in other countries. "As we began to stage exhibition games in Europe and China and jurisdictions where sports betting was legal, it caused me to focus more on this than I had historically," Silver says. "Then we began getting approached by sports-betting companies outside of the United States, where it's legal, to do business with them. As we became more of a global company, I began to think about what our policy should be here."
His time overseas coincided with the Donaghy scandal and the revelation, as Silver puts it, "of how important it is to have a way of monitoring irregular activity in our games." He adds, "None of the systems we had in place had captured any betting by Donaghy."
Stern began thinking along the same lines. In 2009, the then-commissioner told Sports Illustrated, when asked if legal sports betting would be in the NBA's best interest, "It has been a matter of league policy to answer that question no. But I think that league policy was formulated at a time when gambling was far less widespread -- even legally."
With the proliferation of casinos and state lotteries, the instant gratification of the Internet and the boom in daily fantasy sports, betting was becoming part of mainstream America. "As someone who attends an enormous number of games, I'm often hearing fans talking about it," Silver says. "Even if they're not betting, they're highly aware of the betting line and over/unders."
Fans weren't the only ones talking about it. So were politicians. Specifically, New Jersey Gov. Chris Christie, who in 2012 began pushing to legalize sports betting in his state by challenging the Professional and Amateur Sports Protection Act (PASPA) of 1992, the federal ban on state-sponsored sports betting. That's when Silver says he began to realize the need for a response. "My greatest concern," he says, "is that there will be, in essence, a hodgepodge of regulations controlling sports betting that will vary from state to state, jurisdiction to jurisdiction, and will make it increasingly difficult to monitor betting on our very own sport."
And so after taking over for Stern last February, Silver wasted little time implementing his approach. In March, two NBA attorneys attended a mock sports-betting trial put on by gaming attorney Jeff Ifrah at iGaming North America at Planet Hollywood in Las Vegas. The title of the exercise? "As Close as You Ever Want to Get to a Federally Prosecuted Sports Betting Trial." In it, Assistant U.S. Attorney Harris Fischman examined major U.S. gaming laws, including PASPA and the Wire Act, which prohibits any betting activity that includes wire transmissions. The "defendant," "Ginger McKenna," was accused of facilitating illegal sports bets. She was represented by Ifrah, while David Deitch, a former Justice Department attorney, represented the government. Deitch prevailed.
In September, Silver told an audience at a Bloomberg sports business conference that expanded legalized sports betting in the U.S. was "inevitable" because cash-strapped states need the revenue.
THEN CAME SILVER'S op-ed. In 516 words, he diagnosed the reality of sports betting in the U.S.: Federal and state laws are not stopping anyone from betting. Billions of dollars are being illegally wagered on sports, almost all online. In England, bets can be placed on a smartphone, at a stadium kiosk or even using a TV remote control. "In light of these domestic and global trends," he wrote, "the laws on sports betting should be changed. Congress should adopt a federal framework that allows states to authorize betting on professional sports, subject to strict regulatory requirements and technological safeguards."
The timing of the column, of course, was calculated. One week later, the NBA was due back in court as part of its ongoing fight to prevent New Jersey from making sports betting legal. "I felt the need to explain why I had made other statements acknowledging that I thought sports betting should be legalized," Silver says. "Yet at the same time, we were opposing the New Jersey legislation in multiple court actions. I needed a forum to make it clear."
In November 2011, New Jersey voters had overwhelmingly approved a referendum to legalize Las Vegas-style sports betting at racetracks and casinos across the state. The move made sense to many in New Jersey, where ailing gaming and racing industries were causing financial strain. (One study by Nevada gaming company Club Cal Neva projected a possible windfall of $50 million for Atlantic City casinos if betting was legalized.) But the leagues -- the NBA, NFL, NHL and MLB -- and the NCAA sued, claiming that the state was in violation of PASPA and that the perception of the integrity of the games would be damaged if New Jersey began taking legal bets.
U.S. District Judge Michael Shipp ruled in favor of the leagues. But the state didn't give up. In September 2014, citing a loophole in the Department of Justice's language about violations to PASPA, Christie issued a directive to legalize. Once again, the leagues sued and won. The case is headed to the Third Circuit Court of Appeals this spring.
Through it all, Silver has remained steadfast that legal sports gambling should be addressed first on the federal, not state, level. But the timing of the op-ed allowed him to address another seeming hypocrisy: Just one day prior to its publication, the league announced a deal with a successful daily fantasy operator called FanDuel, which boasted some $621 million in entry fees last year alone. The NBA deal also included an equity stake in the company. "The league and many of our teams are actively engaged in the so-called daily fantasy business," Silver says. "And while I wouldn't categorize that as sports betting, on the continuum of no betting at all and legalized betting, it's certainly on the spectrum."
So it is, then, that for now, at least, Silver seems comfortable standing alone as the only acting U.S. commissioner to publicly support legalized sports gambling. But that's not to say he and the NBA are the only ones re-examining their approach. Regardless of public positioning, all the leagues are actively planning for a new gambling reality. In September 2012, the NFL convened a forum in collaboration with other pro leagues, the International Olympic Committee and the NCAA to discuss best practices, law enforcement resources and the gambling industry. Included in the forum, which wasn't open to the public, were talks with law enforcement officials, gaming regulators, addiction specialists and even a former student-athlete caught up in sports gambling. There also have been other, more private confabs involving high-ranking advisers to the leagues. In those meetings, sources with direct knowledge say, contingency plans were formed in preparation for the day sports betting is legal outside of Nevada.
When asked about the support he's getting from other leagues, Silver says, "I have talked to the commissioners in the other leagues about it, and I leave it to them to make any public statements they want to make on it. I will say that certainly all of them ... have assigned people in their organizations to study the issue intensively."
PERHAPS THE BEST Silver can hope for from other commissioners is a new view of sports betting as a possible "frenemy." It is tricky, after all, for the leagues to embrace something they've long denounced for its impact on the "integrity of the game." It would also be naive to think that this is all about the sanctity of the results. In 2013, $1.05 billion was wagered legally on basketball, combining the professional and college levels. The illegal market across sports? Try 132 times that -- an estimated $138.9 billion, according to the American Gaming Association. You don't have to be a cynic to think that the leagues and their owners want a piece of that very big betting pie.
Leave it to Mark Cuban to be frank about that aspect of the NBA's support for legalization. "We have always known betting, fantasy leagues and daily [fantasy] sports have driven interest and viewership," wrote the Mavericks' owner in a recent email exchange with The Magazine. "We did everything possible to encourage it while publicly condemning gambling. I'm glad Adam is putting the hypocrisy behind us and putting it all up front."
Cuban has suggested that one way of monetizing that interest is to charge sportsbooks and casinos licensing fees to use the league's data. In some areas of Australia, for example, sportsbooks pay fees to leagues based on the gross revenue made off the wagering of the games. And in New Zealand, sportsbook giant TAB paid more than $5 million last year in commissions to the leagues it takes wagers on.
The opportunity for additional streams of capital from sports betting can't be lost on U.S. team owners. Or on Silver, who gained extensive knowledge of foreign revenue models during his time overseas. "We have studied the New Zealand model and other models in other jurisdictions," he says.
Studying models is one thing. Actually establishing a legal framework is another. While the NBA is still fighting in the courts to keep New Jersey from setting up its own sports-betting operation, three other states (New York, Indiana and South Carolina) have introduced similar bills this year, and a Minnesota state representative, Phyllis Kahn, has told ESPN that she'll be introducing a sports-betting proposal early in this legislative session.
A united front among all the leagues would certainly help Silver's cause for a federal solution. The other leagues have -- at least publicly -- not wavered from their anti-legalization stance after the op-ed. MLB declined to comment for this story, and the NFL refused to even reiterate its anti-legalization stance. Gary Bettman, the longtime commissioner of the NHL, told CNN in November after Silver's op-ed was published: "I think there needs to be some attention paid to what sports is going to represent to young people. ... Does it become a vehicle for betting, which may in effect change the atmosphere in the arenas?"
But multiple sources with direct knowledge of meetings between the leagues believe the NHL is much more open to legalization than Bettman's comments indicate. And the NHL and MLB are both currently partnered with daily fantasy sports operator DraftKings.
In the meantime, Silver is willing to take the lead on an issue that some liken to the legalization of marijuana -- socially acceptable but mostly illegal. "I am very sensitive to people thinking that I'm not understanding of the downsides," he says. "I recognize that it can be very damaging to a person or a person's family, just like other substances of potential abuse taken to extremes. That's yet another reason I think it needs to be closely monitored."
Silver says he hasn't set a timetable for the day when we can legally bet on a Cavaliers-Heat game. "We're still in the monitoring stage," he says. But you can bet all interested parties -- the other leagues, the states, the bookmakers, the bettors -- are following the developments as closely as they would a point spread.