Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.[i]
Nearly a decade after New Jersey first took aim at the federal ban on sports betting,[ii] the United States Supreme Court finally struck down the Professional and Amateur Sports Protection Act (“PASPA”) in a 6-3 decision released on Monday.[iii] The monumental ruling is expected to have far-reaching implications for stakeholders in a variety of industries.
Enacted in 1992, PASPA is a relatively simple statute. It prohibits any governmental entity from sponsoring, operating, advertising, promoting, licensing, or authorizing by law any “lottery, sweepstakes, or other betting scheme based . . . on one or more competitive games in which amateur or professional athletes participate.”[iv] It also makes it unlawful for a person to sponsor, operate, advertise, or promote those same gambling schemes if done “pursuant to the law or compact of a governmental entity.”[v] But PASPA does not make sports gambling itself a federal crime. Rather, it provides that a civil action may be brought in federal court by either the U.S. Attorney General or a professional or amateur sports organization to enjoin any violations of the law. It also contains “grandfather” provisions, which allow forms of sports gambling to continue in states where such activities already existed – Nevada, Delaware, Montana, and Oregon were the only four states that fit under this exemption – and a provision that would have permitted New Jersey to set up a sports gambling scheme in Atlantic City within a year of PASPA’s enactment.
Although New Jersey failed to enact legislation within the permissible timeframe provided by PASPA, seeking to boost its struggling economy and to stanch the sports-wagering black market flourishing within its borders, the New Jersey legislature enacted the Sports Wagering Law in 2012. The 2012 law permitted New Jersey authorities to license sports gambling in casinos and racetracks, and casinos to operate “sports pools.” After the Sports Wagering Law was passed, the major professional and amateur sports organizations in the United States — the National Football League, National Basketball Association (NBA), National Hockey League (NHL), Major League Baseball, and National Collegiate Athletic Association (collectively, the “Leagues”)— sued New Jersey Governor Chris Christie, New Jersey’s Racing Commissioner, and New Jersey’s Director of Gaming Enforcement to enforce PASPA and preempt New Jersey’s sports gambling initiative. Both the U.S. District Court for the District of New Jersey and the Third Circuit Court of Appeals agreed: PASPA was constitutional and New Jersey’s 2012 law violated the federal statute.
Seizing on language in the Third Circuit’s majority opinion, New Jersey attempted a PASPA end-around. In 2014, the state passed another law pertaining to sports betting activities. Rather than approving legislation that would “authorize” sports betting, as it had done in 2012, the 2014 law partially repealed its current state law prohibitions against sports gambling, thereby allowing sports gambling only in casinos and racetracks that were licensed and regulated by the state. In October 2014, the Leagues challenged the recent law, filing a complaint for declaratory and injunctive relief against Governor Christie. According to the Leagues, the 2014 law was “nothing more than a de facto authorization of sports gambling.” While the Leagues complained the legislation repealed “all existing prohibitions, rules, and regulations that are specific to sports wagering,” it did so “only at Atlantic City casinos and horse racetracks throughout the state—in other words, only at venues that are already state-licensed and regulated.” As such, the Leagues argued that the effect of the 2014 law was to authorize and license sports gambling and therefore, like its 2012 predecessor, was in violation of PASPA.
Again, the district court held that New Jersey’s law violated PASPA, a decision that was subsequently affirmed by the Third Circuit. According to the appellate court, New Jersey could not simply use “clever drafting” to sidestep PASPA. Because the 2014 Law provided specific instructions on who may legally place a bet and selectively dictated where a bet could be placed and on what sports, the court concluded that the practical effect of the law was more than a repeal, but rather it “affirmatively authorized” sports betting such that it constituted an “authorization” in violation of PASPA.
Thereafter, New Jersey filed an appeal with the U.S. Supreme Court. Although only about one percent of all such petitions are granted, the state’s Hail Mary was answered last summer when the Supreme Court granted certiorari, agreeing to hear the case.
The Court’s Ruling
On May 14, 2018 the Supreme Court issued its much anticipated decision. In a resounding victory for many interested parties, the Court ruled not just that New Jersey’s 2014 law was permissible but struck down PASPA in its entirety, declaring the federal law unconstitutional.
In a majority decision penned by Justice Samuel Alito, the Court held that PASPA’s provision barring state authorization of sports gambling schemes violates the anticommandeering rule. Derived from the Tenth Amendment to the U.S. Constitution, the anticommandeering principle precludes Congress from ordering states to adopt a specific regulatory scheme when the federal government itself has not adopted a relevant scheme. Put another way, “Congress may not simply commandeer the legislative process of the States by directly compelling them to enact and enforce a federal regulatory program.” According to the Supreme Court, because Congress cannot issue direct orders to state legislatures and PASPA “unequivocally dictates what a state legislature may and may not do,” PASPA’s anti-authorization provision was unconstitutional. For similar reasons, the Court found that PASPA’s prohibition on state licensing was also unconstitutional, as Congress may not order a state legislature to refrain from enacting a law licensing sports gambling.
Going even further, the Supreme Court held that PASPA’s provisions preventing states from operating, sponsoring, or promoting sports gambling schemes could not be severed from the unconstitutional portions of the statute. The Court likewise determined that PASPA’s provisions prohibiting the “advertis[ing]” of sports betting was not severable. Explained the Court, if such ancillary provisions were allowed to stand, the law “would forbid the advertising of an activity that is legal under both federal and state law, and that is something that Congress has rarely done.” As a result, the Court ruled that PASPA, in its entirety, must be struck down.
New Jersey is the clear winner following the Supreme Court’s ruling. The Garden State’s casinos and horse tracks, which have been preparing for a favorable decision, may be ready to take the state’s first legal sports bet within a matter of weeks. New Jersey is not the only potential beneficiary. The decision is undoubtedly welcomed news for a number of stakeholders across a variety of industries.
The Court’s ruling makes it possible for individual states to legalize and regulate sports gambling on their own. Additional states will likely follow New Jersey’s lead. States such as Delaware, Connecticut, Iowa, Mississippi, New York, Pennsylvania, and West Virginia already have enacted laws to allow sports betting or have fast-tracked legislation, with hearings already having taken place and, in some cases, advanced beyond the committee stage. A host of others – including California, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Oklahoma, Rhode Island and South Carolina – have each introduced preliminary legislation or publically announced plans to do so.
It’s important to note, however, that the Supreme Court’s ruling does not mean sports betting is now legal at a national, federal level. Entrepreneurs cannot simply launch a website or mobile app and offer sports gambling activities to the public. Doing so would likely constitute a violation of standing state and federal laws that may still prohibit such schemes.
Moreover, it remains unclear just how sports betting will be allowed to be offered to the public. For example, even New Jersey’s 2014 partial repeal law had the effect of only permitting sports wagers at state-licensed casinos and horse racetracks. Regulations are expected to be enacted on a piecemeal, state-by-state basis. The rules and restrictions associated with such regulations will still need to be determined and could vary significantly by jurisdiction. Questions such as whether the newly-enacted laws will permit businesses to offer mobile betting opportunities directly to consumers, rather than only at “brick-and-mortar” venues, will require resolution prior to public offering.
Nevertheless, new business opportunities are expected to open up for not only sports betting operators, but also for companies operating in connection with such operators. Data providers, gambling compliance companies, tech developers, and sports media entities – among a host of others – all stand to benefit by moving sports betting out of the shadows and into the 21st Century. With the Court also lifting restrictions on sports-gambling advertising, strategic partnership, and sponsorship opportunities open up new revenue streams that had previously been closed.
To be sure, a number of issues remain unresolved in the days after the Supreme Court’s historic ruling. State constitutional constraints and exclusive tribal compacts may slow the implementation of sports betting laws in some states. Political considerations and stakeholder disagreements, including emerging debates between the pro sports leagues and various groups over data rights and integrity fees, may also require resolution prior to the enactment of legislation. Additionally, how any such sports betting revenue will be apportioned between the leagues and its players will be a critical issue once sports betting is more widely legalized.
Congress, at the behest of the pro leagues, will also likely introduce federal legislation designed to provide a framework for potential state laws. The Supreme Court makes clear that while PASPA’s prohibitions were not constitutional, the U.S. government still has the power to enact overarching regulations if it chooses to do so. Such federal regulations, however, will not be instantaneous. In the meantime, in aftermath of the Court’s decision the state-by-state legal landscape may look a lot like recent marijuana policy: rapidly changing, controversial, and not always clear and consistent.
With laws and regulations in the areas of sports gambling and fantasy sports constantly evolving, the need for experienced counsel becomes increasingly important for industry stakeholders. If you would like further information regarding the Supreme Court’s recent opinion or other sports gambling or fantasy sports matters, please do not hesitate to contact us.
[i] Justice Samuel Alito
[ii] See Interactive Media Entm’t & Gaming Ass’n v. Holder, 2009 WL 4890878 (D.N.J. Mar. 23, 2009).
[iii] Justice Alito delivered the opinion of the court, in which Chief Justice Roberts and Justices Kennedy, Thomas, Kagan, and Gorsuch joined, and in which Justice Breyer joined as to all but Part VI–B. Justice Thomas filed a concurring opinion. Justice Breyer filed an opinion concurring in part and dissenting in part. Justice Ginsburg filed a dissenting opinion, in which Justice Sotomayor joined, and in which Justice Breyer joined in part.
[iv] 28 U. S. C. §3702(1).
[v] 28 U. S. C. §3702(2).