New Jersey’s legal battle to add sports betting rumbles on
Published 03 May 2013 By: John Wolohan
It is well documented that New Jersey is ooking to expand into sports betting, which projects that sport betting would raise an additional $30.6 million in tax revenue annually for the state. This article examines the professional sport leagues attempt to use the Federal Professional and Amateur Sports Protection Act (PASPA) to block New Jersey’s effort and the two sides’ ongoing legal challenge.
With the current recession causing havoc with local and state budgets, it is not surprising that a number of states have started looking at legalized gambling as a way to offset some of their budget shortfalls. For example, the state of Minnesota projected that adding electronic bingo games, it could generate an addition $35million a year in taxes to help with a new stadium project. The projections have since been was been reduced to only $1.7million.1 While the majority of these states are looking to add legalized gaming are looking at casino-style games and state-run lotteries, a small minority of states would also like to expand into sports gambling to raise additional tax revenue. For example, a study by Deloitte on behalf of the Association of British Bookmakers, found that in England, where betting on sporting events is legal, bookmakers paid 900 million pounds in taxes (about $1.36 billion)2, 24 percent of it, or roughly $343 million, on sports and horse racing.3
One of the states looking to expand into sports betting is New Jersey, which projects that sport betting would raise an additional $30.6 million in tax revenue annually for the state.4 The purpose of this article is to examine the professional sport leagues attempt to use the Federal Professional and Amateur Sports Protection Act (PASPA) to block New Jersey’s effort and the two sides’ ongoing legal challenge.
In the United States, more than $3.4 billion was bets legally in Nevada’s sports books on sports last year, generating $15 million to $20 million in tax revenue for the state of Nevada.5 Nevada is the only state that allows betting on specific games, Oregon, Montana and Delaware do allow limited betting on sportsvia a lottery. In addition to the money that was bet legally,the National Gambling Impact Study Commission says $380 billion is bet illegally annually.6 The most popular sporting event to bet on is the NCAA Basketball Tournament. According to the Nevada Gaming Control Board, over $200 million will be wagered on the tournament at sports books across the state. While large, that amount is only a small amount of the total money bet during the tournament, the FBI estimates that an addition $2.6 billion is illegally wagered annually on March Madness.7 Besides the NCAA Tournament, the NFL’s Super Bowl also attracts heavy betting, with approximately $98.9 million wagered on the 2013 Super Bowl at sports books across the state.8
In an effort to cash in on a portion of the billions of dollars that are gambled legally and illegally on sporting contest annually across the country, and to help the state financially recover, in November 2011, New Jersey voters approved a referendum to amend the state constitution and allow sports betting. On January 17, 2012, New Jersey enacted the Sports Wagering Law. N.J. Admin. Code § 13:69N-1.11, et seq. Under the proposed new law, betting on sports would be legal in Atlantic City casinos and at the state’s horse racing tracks. The proposed new law, however, prohibits any betting on any sporting events involving New Jersey colleges and university teams regardless of where they played, as well as all collegiate sporting events held within New Jersey.
Claiming that the Sports Wagering Law would have a negative impact on their sports, in August 2012, the National Collegiate Athletic Association (NCAA), the National Basketball Association (NBA), National Football League (NFL), National Hockey League (NHL) and Major League Baseball (MLB) filed a lawsuit seeking to block the new law from going into effect, National Collegiate Athletic Association (NCAA), et al., v. Christie, 2013 U.S. Dist. Lexis 27782. In their lawsuit, the NCAA and the professional sports leagues contend that expansion of sports betting beyond the four states which currently allow it, Nevada, Delaware, Oregon and Montana, threatens the integrity of the games and is a violation of the clear mandates of Professional and Amateur Sports Protection Act (PASPA), and therefore, in violation of the Supremacy Clause of the United States Constitution. U.S. Const. art. VI., cl. 2 ("[T]he Laws of the United States . . . shall be the supreme law of the land.").
In reviewing whether New Jersey could add sports betting, the first thing the Federal District Court did was examine the authority of the Federal government to pass the Professional and Amateur Sports Protection Act (PASPA), 28 U.S.C. §3701, et. seq.. Designed to stop the spread of State-sponsored sports gambling and to protect the integrity of professional and amateur sports, the United States Congress passed PASPA in 1992.
The Sports Protection Act states that: It shall be unlawful for:
(1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or
(2) a person to sponsor, operate, advertise, promote, pursuant to the law or compact of a governmental entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.
At the time the law was passed, four states (Nevada, Oregon, Montana, and Delaware) had or previously had state statutes allowing sports betting, the four were exempt from the Act. As a result, Nevada was allowed to continue to offer legalized sports betting and the other three states were allowed to continue their sports lotteries. In addition to including a grandfather clause exempting the four states with preexisting sports wagering laws, PASPA also granted New Jersey a one year window to legalize wagering on sports. New Jersey did not exercise that option.
Since New Jersey’s current attempt to add legalized sports gambling directly conflicts with PASPA, the court must determine whether PASPA violates the federal Constitution and/or violates New Jersey's sovereign rights and cannot be used by the Leagues to prevent the implementation of legalized sports wagering by New Jersey . In particular, New Jersey argues that PASPA violates:
- the Commerce Clause;
- the Tenth Amendment; and
- the Due Process Clause and Equal Protection Principles.
The Court begins its analysis of these issues with the presumption that PASPA, enacted by a co-equal branch of government, is constitutional. Moreover, the Court is required to adopt an interpretation that would deem the statute constitutional so long as that reading is reasonable. Pursuant to this mandate, the Court has determined that PASPA is a reasonable expression of Congress' powers and is therefore constitutional.
As for New Jersey’s first argument, that PASPA is an unconstitutional and improper use of Congress' Commerce Clause powers. Under the Commerce Clause, Congress has the authority to "regulate Commerce with foreign Nations, and among the several States . . . ." and "[t]o make all Laws which shall be necessary and proper for carrying into Execution" the powers it has under the Commerce Clause. U.S. Const. art. I, § 8, cl. 3, 18. Specifically, New Jersey challenges the exceptions made for states which conducted legalized sports gambling prior to the enactment of PASPA as unconstitutionally discriminatory.
In ruling that PASPA was a rational expression of Congress' powers under the Commerce Clause, the court held that illegal gambling has been found by Congress to be in the class of activities which exerts an effect upon interstate commerce. According, the court held that since Congress has chosen to protect commerce and the instrumentalities of commerce, it was not the role of this court to substitute its’ judgment or even review the congressional findings. The Court also held it need not determine whether the spread of legalized sports gambling would have an effect on interstate commerce in fact, but merely whether a "rational basis" existed for Congress to reach that conclusion. Therefore, the court concluded, PASPA is a rational expression of Congress' powers under the Commerce Clause. The fact that PASPA allows legalized sports wagering to continue in those states where it was lawful at the time of its enactment does not deprive the statute of constitutionality because Supreme Court precedent permits "grandfathering."
Next, the court moved to New Jersey’s claim that PASPA violated the Tenth Amendment. Most importantly, it neither compels nor commandeers New Jersey to take any action. Moreover, the federal officials who passed PASPA, and continue to support it, are clearly accountable to the citizens of the several States. PASPA, therefore, does not violate the Tenth Amendment. The Tenth Amendment to the United States Constitution provides that "[t]he powers not delegated to the United States [Federal government] by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
In ruling that PASPA, by prohibiting New Jersey from enacting state sponsored sports betting, does not violate the Tenth Amendment, the court held that under the Tenth Amendment Congress is prohibited from requiring of the States to engage in affirmative activity. The Tenth Amendment, the court held, does not prevent Congress from prohibiting a State from enacting legislation in an area in which Congress had made its will clear. In the current case, the court found that Congress has chosen through PASPA to limit the geographic localities in which sports wagering is lawful. It does no more or less. The Court, therefore, did not conclude that PASPA usurps State sovereignty. The fact that gambling might be considered an area subject to the States' traditional police powers does not change this conclusion. This construction of PASPA is both constitutional and reasonable. As such, the Court finds no reason to hold that PASPA violates the Tenth Amendment.
Next, the court reviewed New Jersey’s argument that PASPA violates the Fifth Amendment protections of the Due Process Clause and Equal Protection Principles. The Fifth Amendment Due Process Clause provides, in relevant part, that "[n]o person shall be . . . deprived of life, liberty, or property, without due process of law." In addition, the Fifth Amendment Due Process Clause "contains an equal protection component prohibiting the United States from invidious discrimination between individuals or groups."
In rejecting New Jersey’s Due Process argument, the court found that it was clearly established that the State of New Jersey, as a governmental entity, is not a "person" and therefore is not afforded the protections of the Due Process Clause. The word person, the court held, in the context of the Due Process Clause of the Fifth Amendment cannot, by any reasonable mode of interpretation, be expanded to encompass the States of the Union, and to our knowledge this has never been done by any court.
As for New Jersey’s Equal Protection argument, that by grandfathering in some states, the law treats New Jersey and other states not included differently, the court held that it must be reviewed under a rational basis review. Rational basis review requires a rational relationship between the disparity of treatment and some legitimate governmental purpose.
In finding that PASPA advances the legitimate purpose of stopping the spread of legalized sports gambling and of protecting the integrity of athletic competition, the court concluded that the grandfathering provision in PASPA does not violate the Equal Protection Clause, which was rationally related to Congress' aims. In conclusion, the court found that after careful consideration, PASPA is a constitutional exercise of Congress' powers pursuant to the Commerce Clause. PASPA does not violate the Tenth Amendment, Due Process Clause or Equal Protection Principles.
A month after the Federal District Court’s decision in National Collegiate Athletic Association (NCAA), et al., v. Christie, 2013 U.S. Dist. Lexis 27782, the state of New Jersey filed a Motion to Expedite to the Third Circuit Court of Appeals in Philadelphia. While the Third Circuit Court has not, as of the time of this writing, ruled on the motion New Jersey’s Governor Chris Christie, a former U.S. Attorney and a party to the lawsuit, has estimated a timetable of one year in the Appellate Court – and then another year for the Appellate-level loser to be heard by the U.S. Supreme Court.
Not satisfied to wait the two years it will take for the case to reach the Supreme Court, New Jersey in March introduced plans to allow casinos to offer daily fantasy sports games as an alternative. By offering fantasy sports tournaments for money, or partnering with existing companies like FanDuel or DraftDay that are already providing real-money daily fantasy sports online. As a result of the daily fantasy sports, betters will get a similar experience to betting on sporting events. Interestingly, fantasy sports have been explicitly legal since 2006, when the federal government exempted them from online gambling legislation, as long as they were games of skill whose outcome was not based on the outcome of any single sporting event.
With the parties now waiting for to the next stage of the legal battle and New Jersey introducing daily fantasy sports games as an alternative, it is difficult not to point out the hypocrisy of the leagues position. For example, while the NCAA and professional sports leagues continue to argue that any gambling on its games would damage the sports’ good will and integrity, it is impossible to ignore the link between sports and gambling. Some example of this include: the NCAA hosting basketball tournaments in Los Vegas; in the WNBA, one of its teams, the Connecticut Sun playing all of their home games in the Mohegan Sun Hotel & Casino; MLB allowing casinos sponsorship, so Harrah's Casino is a signature partner of the New York Mets and the Mohegan Sun Hotel & Casino operates a Mohegan Sports Bar at Yankee Stadium; the NBA allows the owners of the Sacramento Kings to own the Palms Casino in Las Vegas; and the NFL allows broadcast affiliates to broadcast betting information, betting lines, injury reports. In addition, NFL, NBA and MLB teams are allowing their team names to be used on state lottery games. For example, Massachusetts, not one of the four states exempt from the Sports Protection Act, is selling the instance scratch tickets with the New England Patriots team logo.
By going into court to prevent sport betting in New Jersey, the NCAA and professional sports leagues, therefore, seem to be more interested in guarding their own revenue streams, than protecting the good will and reputation for integrity of the sports. If the sports leagues were really worried about their good will and the integrity of the sports they would ban all associations with gambling and state lotteries. Instead of allowing it only when it is profitable to them.
This work was written for and first published on LawInSport.com (unless otherwise stated) and the copyright is owned by LawInSport Ltd. Permission is granted to make digital or hard copies of this work (or part, or abstracts, of it) for personal use provided copies are not made or distributed for profit or commercial advantage, and provided that all copies bear this notice and full citation on the first page (which should include the URL, company name (LawInSport), article title, author name, date of the publication and date of use) of any copies made. Copyright for components of this work owned by parties other than LawInSport must be honoured.
- Insight: New Jersey & US sports betting
- Taxing Online Betting: What are the odds?
- Sports Betting Integrity and the Olympic Movement – 10 key questions answered
- The United States and sports betting - the great sports hypocrisy
John Wolohan is an Attorney and Professor of Sports Law in the Syracuse University Sport Management program and an Adjunct Professor in the Syracuse University College of Law. In addition to being one of the lead editors of the book "Law for Recreation and Sport Managers" by Cotten and Wolohan, John has been teaching and working in the fields of doping, antitrust, gaming law, and sports media rights for over 25 years.