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The Supreme Court Sports Betting Case and its Aftermath

The Supreme Court Tackles Sports Betting

The Supreme Court ruled on May 14ththat the Professional and Amateur Sports Protection Act (PASPA) is unconstitutional. Immediately, speculation centered on which states would move to legalize sports gambling. Further speculation involved the role of the major pro sports leagues and the NCAA. Those leagues could lobby Congress to introduce and attempt to pass new legislation that can survive judicial review. Two months’ time has provided early answers to the initial questions that arose from the Court’s decision in Murphy v. NCAA.

The Professional and Amateur Sports Protection Act (PASPA)

PASPA was passed in 1992 to alleviate concerns in respect to sports gambling, with support from major professional sports leagues such as the NBA. The law protected sports betting in Nevada as well as sports lotteries in three other states. A one-year window was created within the law for certain states that met criteria of having existing casinos to opt into the law and join Nevada. New Jersey was specifically envisioned to take advantage of the window in 1993. However, the state failed to do so and permanently extinguished its right to legalize sports betting.

Fifteen years after losing its opportunity to legalize sports betting, New Jersey state legislators began to challenge PASPA and search for ways around the law. The state held a referendum on sports gambling which indicated overwhelming support for its legalization. In 2012, the state legalized sports betting and was immediately challenged by the four major sports leagues and the NCAA. That chain of events eventually brought the State of New Jersey before the Supreme Court, leading to the Court’s decision to invalidate PASPA.

Murphy v. NCAA

The Court’s decision did not legalize sports gambling, nor did it truly relate to sports gambling at all. Instead, the Court had to decide whether Congress improperly directed state action, and if so, whether the remaining sections of PASPA could be severable and maintained as law. From the start, New Jersey had conceded it was violating PASPA. New Jersey contended that PASPA was unconstitutional, so the State was lawful to ignore it. The Court had to determine whether the law as written was improperly stripping state power to enact laws. To analyze why the Court found that the law did encroach state power, an understanding of federal power versus state power is required.

New Jersey’s argument was that Congress, in enacting PASPA, was commandeering states to enact federal legislation in a particular way. The 10thAmendment specifies that the government does not have the power to do so. The government may have the power to enact legislation to ban sports gambling nationwide and to control private action. Such legislation would not specifically command the States to act in a certain way, although they would have to respect the federal law. PASPA does not explicitly ban sports gambling but specifically instructs the States to act (or not act) in a certain manner to abide the law.

PASPA effectively restricted New Jersey’s will to repeal its own state law, not simply to abide by a federal law. The Constitution denies Congress the power to issue orders to the states. PASPA explicitly did just that. Again, it must be made clear that federal law may preempt state law where the two conflict, but federal law cannot directly dictate state action. The Court found that PASPA was not actually regulating sports gambling but regulating the states’ individual power to regulate sports gambling.

Justice Ginsburg’s Dissent

The majority found the entire law to be unconstitutional because without the first part of the law the other parts would not meet their intended objectives. A compelling dissent was authored by Justice Ginsburg, with Justice Sotomayor joining and Justice Breyer joining in part. The dissent in New Jersey v. NCAA involved the severability doctrine. More specifically, the issue was whether the entire law should be invalidated or only the section that commandeered state power to regulate sports betting.

Justice Ginsburg addressed the remaining two parts of PASPA that she believed could remain intact. Those sections involved state and private promotion of sports betting. She opined that even if the law improperly commandeered state action to regulating sports betting operations, PASPA was properly written in regards to state and private promotion of that sports betting activity. Those remaining sections could be severed from the unconstitutional portion of the law and kept intact.

Justice Ginsburg’s opinion was that congressional intent was clearly to prohibit most sports gambling. Applicably, there was no rational basis to conclude Congress would have preferred to have no law at all instead of a law that continued to ban the sponsorship or promotion of those activities.

Immediate Speculation

Speculation immediately began as to which states would enact pro-sports betting legislation and whether Congress would enact new legislation that could survive judicial review. Obviously, New Jersey was favored to officially finalize its sports betting regime. Delaware, West Virginia, and Mississippi were in position to do the same. Relevant legislation was also actively pending in California, New York, Illinois, and Michigan.

Here in Massachusetts one can travel to the boundary of Boston, to Everett, and see the finishing touches being put on a Wynn Casino. I imagine both the casino and the state wanting a cut of potential sports betting revenue. The state has already authorized the formation of the casino, so taking one additional step is not likely to trigger much pushback. Assumedly the same may be true in other states that have legalized casinos in recent years.

States Begin to Legalize Sports Betting

Two months later, early returns are in on some of the speculation in the aftermath of Murphy v. NCAA. On June 5th, roughly three weeks after the Court’s decision, Delaware become the second state (after Las Vegas) to legalize sports betting. Delaware sports betting is organized by the state lottery and is available in the state’s three casinos. A research firm projected that sports betting could be worth up to $50 million annually to the state of Delaware.

On June 11th, New Jersey became the third state to legalize sports betting. In addition, New Jersey’s Monmouth Park Racetrack commenced litigation against the sports leagues and is seeking to recoup $150 million in estimated revenue lost since 2014, when those leagues filed suit to block sports betting in the state.

Other states are in various stages of the legislation process. Mississippi is on deck and sports betting will commence within the state in late July. West Virginia is expected to legalize sports betting by late summer or early fall. Rhode Island legalized sports betting within its state budget, with 51% of the revenue flowing to the state. Sports betting activity within the state is expected to go live on October 1st. Pennsylvania has also begun sports betting legislation and legalization is anticipated this year.

Which States are Next?

New York hit some roadblocks in implementing its sports betting legislation. The state passed a law in 2013 that would allow sports betting. Last month the legislature failed to pass a comprehensive sports betting program for 2018. The issue is likely to be re-examined next year.

In all, approximately half the states will be legislating in some form on sports betting in the near future. The remaining states have current laws that expressly prohibit sports betting, so more comprehensive legislation would be required. Utah is only state with no likelihood to tackle the sports betting issue, as gambling is expressly disapproved within the state’s constitution.

Just as with marijuana regulation in recent years, states will research the potential revenue from legalizing sports betting. The likely conclusion is that they will gain significant revenue versus off-shore companies and Las Vegas monopolizing the market. One research firm predicted that 32 states could soon enact legislation legalizing sports betting.

Will Congress Get Involved Again?

The elephant in the room is yet again Congress, along with the sports leagues. Justice Alito, in concluding the Court’s majority opinion, made Congress aware of its right to regulate directly on sports betting. The NFL has already called on Congress to act again and Senator Orrin Hatch of Utah has stated his belief there should be federal legislation.

Passing new legislation would face multiple roadblocks. First, this issue is probably not a priority for Democrats in Congress nor Democratic voters. Most Republicans favor states retaining power to regulate and avoid federal overreach. Those Republicans will not want state law to be preempted where they feel it does not need to be. From the start there will be hurdles in building a coalition to legislate. With the midterm elections arriving in the Fall, building that coalition to enact legislation between both parties should prove difficult. Neither party nor the country as a whole seems impassioned on the issue.

The power of the pro sports leagues and the NCAA should never be underestimated. Whether it be PASPA, MLB’s antitrust exemption, or the NCAA restricting its athletes in the name of “amateurism,” the sports leagues have been effective in lobbying Congress over many years. However, early returns are that sports betting legislation will continue to pass throughout the United States. Obstructing that process or undoing it should prove difficult once those laws have taken hold in a multitude of states.