What does NJ setback mean for US sports betting?

David Schollenberger of law firm Healys explores the implications of New Jersey losing its appeal over its partial repeal of the law prohibiting sports betting.

A recent court ruling by a US federal appeals court creates another massive setback for online and land-based sports betting in New Jersey and the prospect of expanded legalised sports betting in other US states.

On Tuesday, 9 August 2016, the 3rd Circuit Court of Appeals in Philadelphia struck down a 2014 New Jersey law legalising sports betting operated in casinos and racetracks in the state.

New Jersey passed the law in the hope of assisting its casino and racetrack industries and raising tax revenues.

New Jersey had passed a similar law in 2012, which was also struck down by federal courts. New Jersey voters supported legalised sports betting in a state referendum in 2011 on the issue, with 64% of voters supporting amending the New Jersey Constitution and enabling state laws to permit sports betting.

PASPA
The  Court based its judgment on the 1992 US federal Professional and Amateur Sports Protection Act (PASPA), 28 USC § 3701-3704.

PASPA provides that it is unlawful for a governmental entity to authorise by law a betting, gambling or wagering scheme based on one or more competitive games in which amateur or professional athletes participate, or one or more performances of such athletes in such games.

The law prevented states that didn’t have existing sports betting legislation from enacting new laws legalising sports betting. It exempted states that already had sports betting laws on its books.

Nevada was the only state exempted for single-game sports betting, and it remains the only state where the same is permitted.

The leagues
The legal action striking down the New Jersey sports betting law was brought by the leading sports leagues in the US, the National Collegiate Athletic Association (NCAA), the National Basketball Association (NBA), the National Hockey League (NHL) and the Office of the Commissioner of Baseball (“MLB”).

The sports leagues have historically held the strong view that legalising sports betting will corrupt sports and lead to match-fixing and criminal activity.

The opinion
The State of New Jersey argued that the 2014 law was a partial repeal of the law prohibiting sports betting and not an authorisation by law of sports betting.

The majority of the Court judges held that a partial repeal of a sports wagering ban amounts to an authorisation.

There were strong dissenting opinions by members of the court that the majority inferred the authorisation by law, and did not see how a partial repeal of prohibitions is tantamount to authorising by law a sports wagering scheme in violation of PASPA.

A further dissenter wrote that PASPA was intended to compel the states to prohibit wagering on sporting events, in violation of US Constitutional provisions regarding commandeering.

The judge writing the majority opinion of the court stated that the anti-commandeering principles were not violated and that the court need not specifically describe a line that must not be crossed to avoid legal scrutiny, but it concluded that the New Jersey law overstepped it.

However unhelpful this may be, it does leave the door open that a law could conceivably be crafted that did not violate PASPA.

The court’s opinion in the previous court case striking down New Jersey’s 2012 law was that sports betting could be legal if the state did not specifically authorise it.

The 2014 law was redrafted  as a repeal and to grant regulatory authority to the tracks and casinos but the court held it still violated PASPA.

The court in its opinion conceded that critics have pointed out that outlawing sports betting will lead to an increase of illegal bookmaking, both in New Jersey and from illegal offshore websites, and that sports betting is neither immoral or dangerous.

The court said that it could not consider the merits, but that its task was to enforce the will of Congress set out in PASPA.

What impact will this ruling have on existing sports betting operations in New Jersey?
As sport betting operations in New Jersey never commenced, there is no effect on operators other than those casinos or racetracks that invested in sports betting in reliance on the New Jersey law.

Is there any hope of support for legalised sports betting from the sports leagues?
There appears to be a gradual softening from some professional sports leagues, with NBA Commissioner Adam Silver writing in the New York Times: “In light of domestic and global trends, the laws of sports betting should be changed. Congress should adopt a federal framework that allows states to authorise betting on professional sports, subject to strict regulatory requirements and technological safeguards.”

MLB Commissioner Rob Manfred is apparently also moving towards support of legalised sports betting. With the success and popularity of casinos in many US states and Daily Fantasy Sports, there is clearly a large appetite for sport betting.

What can New Jersey and other states do?
New Jersey is likely to appeal to the Supreme Court, as it did previously when the 2012 law was struck down, but the petition will most likely not be heard. The Supreme Court would not hear the appeal with the first law, and there is little indication that it will hear a further appeal.

What is needed is a repeal of PASPA by Congress. It is anachronistic and out of step with the modern tastes of a large percentage of the American public, who enjoy gambling responsibly, and the trend among industrial countries of the world.

States could put pressure on Congress by completely repealing their gambling laws or at least threatening to do. Federal judges have stated that it would be within the rights of the states to do so and it could not be stopped by Congress.

This would create a situation where gambling, including sports betting, would be completely unregulated or lightly regulated (with age restrictions) and could be offered by anyone legally without a licence.

While obviously not a long-term viable solution, it would certainly make a strong statement and avoid application of PASPA.

The support from the New Jersey public in its 2011 referendum was overwhelmingly in favour of sports betting, and came in part due to the decline of the casino business in Atlantic City and the wish of the public to revitalise it and add investment, jobs and the excitement that it once held.

Now that the casino gambling business has expanded over the years from two states (Nevada and New Jersey) to 23 states, the public in those states may over time develop a similar stance to the New Jersey voters.

State and federal lawmakers will accordingly need to follow suit and modernise gambling laws, repealing PASPA and allowing states their own discretion whether or not to permit sports betting.

David Schollenberger is partner and head of gaming and leisure at Healys.