U.S. sports betting: is the Professional & Amateur Sports Protection Act still fit for purpose?

Published 14 July 2015 By: Cameron Jean

Odds Boards USA

A third of Atlantic City’s casinos are closed—blank screens and blacked-out windows replacing the dancing neon lights and dazzling signs.1 Atlantic City casino revenues have plummeted nearly 50% in the past eight years.2 New Jersey racetracks are operating at losses into the multi-millions of dollars.3 New Jersey is desperate for the money that legalized sports betting could bring into the state.

On January 17, 2012, New Jersey Governor Chris Christie signed into law the Sports Wagering Act (SWA),4 which created a “comprehensive licensing and regulatory regime authorizing sports wagering.5 But federal courts struck down the SWA,6 finding that it violated the Professional and Amateur Sports Protection Act (PASPA),7 a 1992 federal law that made sports betting illegal in all but four states (Nevada, Oregon, Montana and Delaware).

New Jersey lawmakers remained determined though, believing that the “economic impact that sports betting could have on New Jersey [was] far too important to simply shrug [their] shoulders and move on.”8 Accordingly, on October 17, 2014, Governor Christie signed into law Senate Bill 2460 (S2460).9 S2460 explicitly states its intention to repeal certain, not all, state sports gambling laws rather than create a new regulatory regime that permits state sponsorship of sports betting10 in hopes that this method would avoid a similar fate to the SWA.

The new strategy failed at the district court level; United States District Judge Michael Shipp, again at the behest of America’s major professional sports leagues and the NCAA, granted summary judgment in favor of the leagues and enjoined New Jersey from violating PASPA by giving any effect to S2460.11 But New Jersey appealed this decision to the Third Circuit appeals court and the case is ongoing at the time of this writing.12 Full details of the case, including the nature of the technical arguments, can be found here.13

Many states are poised to copy New Jersey should the state provide a roadmap around PASPA. This is in part owing to the fact that negative stigma surrounding sports betting has weakened—over half of Americans think sports betting should be legal.14 Even Adam Silver, the commissioner of the National Basketball Association, has spoken in favor of enacting federal legislation to legalize sports betting.15 If the commissioner of an American major sports league can advocate for change, perhaps PASPA should no longer be the law of the land.

This article details the historical context of anti-gambling laws in the US and the motivations behind the enactment of PASPA; discusses whether or not PASPA remains fit for its purpose; and describes popular alternatives to the current PASPA regime.

 

A brief history of US sports gambling and the enactment of PASPA

Gambling has been generally recognized as a state concern.16 Gambling laws across American history have “vacillated between permissive and prohibitive.17 Courts encourage this; the Supreme Court of the United States has suggested that states should experiment.18

The history of sports betting specifically is more turbulent than traditional gambling regulation in the United States. As professional baseball gained popularity, so did betting on the sport.19 However, because gambling was outlawed at this time, sports wagers were handled by underground crime syndicate bookies.20 The general public had little problem with this until the 1919 World Series when a notorious gangster paid members of the Chicago White Sox to purposefully lose games in the Series.21 Realizing the disastrous effects of match-fixing scandals, professional baseball team owners appointed the first commissioner of baseball—who promptly restored the public’s faith in baseball with the creation of the “lifetime ban” against the White Sox players involved.22

The threat of a lifetime ban for match-fixing brought legitimacy to all sports, helping to usher in the “Golden Age of Sports,” where fan viewership and attendance greatly increased.23 Unfortunately, the rise in popularity of sports in turn led to a rise in gambling and large interstate organized crime syndicates controlled the majority of underground sports-books.24 Again, scandal struck: this time in the form of a one of baseball’s greatest players, Pete Rose. It was reported that, while playing, Rose had bet $8,000 to $16,000 daily on baseball games during the 1987 season. On August 24, 1989, then-commissioner of baseball, Bart Giamatti, announced that Rose was banned from Major League Baseball for life:

"One of the game's greatest players has engaged in a variety of acts which have stained the game, and he must now live with the consequences of those acts."25

The scandal led to outcries over sports betting, and contributed to a momentum that finally allowed Congress to enact PASPA in 1992. PASPA is a short act of four sections. The principal operative section (3703) states:

"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, or 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."26

Congress managed to pass PASPA27 despite as many as thirteen states considering policies that would allow some form of sports betting in order to battle mounting state deficits.28 The legislative record reflects Congress’s major concerns about state-sponsored sports betting:

"(1) that children would become unnecessarily exposed to this potential harm, thus making them more susceptible to engage in this undesired activity, and (2) that any increase in sports gambling, be it regulated or not, would increase the likelihood of corruption and the possibility of destroying the integrity crucial to professional and amateur sports."29

Congress was not exempt from outside pressures. The commissioners of professional baseball, basketball, and football all supported PASPA under the notion that the prevention of state-sponsored sports betting would reduce the overall activity of sports betting, thus decreasing the chance that another scandal could shake consumer confidence.

Four states can still legally participate in state-sponsored sports betting. This is because legislators carved out a “grandfather clause30 exception to PASPA: all states with sports betting regulatory schemes in place between 1976 and 1990 or with licensed casino gaming who legalized sports betting within one year of PASPA’s enactment would be exempt.31 The “legislation in one year” provision inside this exemption was clearly intended for New Jersey because it was the only state at the time that met this requirement.32 However, New Jersey decided not to create legislation to meet this PASPA exception because it held a monopoly on the east coast.33 New Jersey legislators put New Jersey on a crash course with PASPA, and now many states are waiting to see if the Third Circuit allows S2460 to circumvent PASPA, or fails like the SWA.

Is PASPA still fit for purpose?

New Jersey’s current actions aimed at circumventing PASPA are the focal point for a wider debate in the US over whether the federal legislation still adequately serves the purpose for which it was enacted: to protect the legitimacy of sport.

Many now believe that general attitudes towards betting have changed, and that in this sluggish economy, the potential revenues that legalized, regulated sports betting would bring to businesses and states alike outweighs the risks of corruption. The principal arguments of those in favor of legalizing sports betting (in some form) are as follows:

PASPA No Longer Meets Its Goals

The principal rationale behind PASPA was that legalized sports gambling would damage the integrity that is crucial to sports. However, the truth of this proposition is not straightforward. For example, legalized gambling has actually helped maintain the integrity crucial to sport in the past. One example is the Arizona State University point-shaving scandal of 1993-1994, in which members of the men’s basketball team collaborated with organized crime figures and purposefully missed free throws.34 Nevada bookmakers discovered the changing betting patterns on Arizona State games and alerted the FBI.35 Additionally, $500 billion is already being spent on both legal (for example, in Nevada) and illegal sports betting, and yet there are no widespread allegations that sports are fixed.36 Would this change if the value of the market was increased?

Public opinion has changed

Public opinion on the matter is now split: 49% of Americans feel that legalized sports gambling would damage sport integrity, and 47% believe that referees influence the outcomes of games. However, 55% of Americans believe sports betting should be legal, and 72% believe sports betting is a popular form of entertainment.37 So while Americans still question the effects on the integrity of sport, they simultaneously desire sports betting an indication that PASPA’s total ban reflects an antiquated, and now disproportionate, legal position.

States and businesses could benefit from additional revenue

Legalized betting in Nevada creates a sports betting market worth $3.66 billion annually. New Jersey businessmen estimate that the sports betting market in their state alone would be worth $11billion, and capable of generate $600 million in annual revenues for the state’s struggling racetracks and casinos.38 As referred to above, New Jersey lawmakers also see significant benefits flowing from the additional tax revenues that could be generated with the legalization of sports betting; a view that other states seemingly share an interest in.

Taking a very rough calculation, dividing Nevada’s total gambling market of 3.66 billion by its adult population of around 2.128 million39 equates to $1,719.92 per resident. Applied to California’s adult population of around 29.25 million, this equates to a sports betting market worth around $50.3 billion. With forty-two out of fifty states in America currently running a budget deficit,40 the largest being California’s at $28 billion,41 one can see the mounting political pressure to legalize sports gambling.

 

Proposed Alternatives to PASPA

In addition to New Jersey’s attempts to repeal state laws (touched on above), there are also other alternatives open to states looking to legalize sports betting, including: decriminalization; a full repeal of anti-sports betting statutes, leaving markets to regulate themselves; or a comprehensive new federal regulation scheme that mirrors the United Kingdom’s gambling laws.

Decriminalization and state regulation

In an effort to circumvent the district court’s injunction against S2460, New Jersey has also

decriminalized sports betting on the state level. This approach seems problematic. Although this action would be through a state’s attorney general’s office rather than legislation—thus avoiding a preemption argument—this route seems precarious.

Perhaps the closest analogy to this strategy would be California’s decriminalization of medical marijuana and the Department of Justice’s tacit compliance. Though the Department of Justice is not currently arresting Californian residents for medical marijuana possession, this does not mean that they could not begin a campaign to do so at any time. In fact, recently a Department of Justice official stated that California will need to strengthen its regulations, lest the Department of Justice start prosecuting users.42 Though states may enjoy the federal government’s tacit compliance at first, there would always be the looming threat of prosecutions brought against their citizens should the Department of Justice change its mind. Unless potential gamblers know that they will also be free from federal prosecution, the potential market for sports betting may well deflate if consumers do not feel confident enough to gamble.

Decriminalization and self-regulation

Another possible strategy would be to fully repeal all state legislation related to sports betting and effectively leave the market to regulate itself. This may also seem like a precarious route. With a cultural climate in the US that consistently questions the effectiveness of the checks and balances of self-regulating markets (e.g. banking), potential gamblers might not have much faith in the casino and racetrack operators to self-monitor the sports betting industry with the highest fervor.

New Jersey and other states could use its taxing power to force sportsbook operators into compliance. A state might be able to raise corporate taxes for casinos and racetracks unless these operators change their sports betting rules to only allow of-age gamblers and to disallow the wagering on a state institution. On a federal level, the United States could hold funding for the public roads and other initiatives hostage until these sportsbook operators complied with the State’s wishes on sports betting regulations, much like it did for drinking age restrictions in 1984.

Federal regulation based upon the United Kingdom’s model

In his article, Commissioner Silver advocates for a strong federal approach to the regulation of sports betting.43 There is a view that sports betting is only successful at present because Nevada effectively has a functioning monopoly. One could argue that with the increase of competitors in the marketplace, a regulatory “race to the bottom” could occur in order to secure market share. A strong federal approach to sports betting is the most viable way to achieve uniformity. Silver denotes in his article that a comprehensive federal regulatory scheme should ensure the integrity of sport44 and references the United Kingdom’s gambling laws as a model: “mandatory monitoring and reporting of unusual betting-line movements; a licensing protocol to ensure betting operators are legitimate; minimum-age verification measures; geo-blocking technology to ensure betting is available only where it is legal; mechanisms to identify and exclude people with gambling problems; and education about responsible gaming.” All of these regulations make great sense and are quite feasible. Sports gambling proponents argue that robust and comprehensive federal regulation is a viable alternative to PASPA.45

 

Comment

There is growing opinion that PASPA reflects an outdated and outmoded view of sports betting, and that American culture has now evolved to accept such activities as a legal form of entertainment and a legitimate and beneficial source of revenue for businesses and states alike, provided they are properly regulated. Despite the existence of sports betting in certain states, complaints of match fixing are virtually non-existent, and foreign regulatory schemes have shown that a nation-wide regulatory regime can limit the potential for corruption.

All eyes are currently on the litigation surrounding the legality of New Jersey’s partial repeal of its gambling laws. Currently, the opinion seems to be that this partial-repeal strategy will not survive a preemption argument in the Third Circuit;46 although, if New Jersey is successful, it should provide other states an effective roadmap for other states.

In the event that S2460 does not succeed, this author would like to see states lobbying Congress to end the overly restrictive and economically burdensome regime under PASPA, and enact legislation that safeguards the legitimacy of U.S. sport while allowing citizens to enjoy the entertainment and financial prosperity that sports betting can provide.

 

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Author

Cameron Jean

Cameron Jean

Cameron graduated Pepperdine University School of Law in May 2015. He hopes to specialize in commercial litigation upon completion of his clerkship with Magistrate Judge Christine Nowak of the Eastern District of Texas. Cameron loves to watch and play all sports, but American football will always hold a special place in his heart.

He is particularly interested in the economics of sport and the underlying consumer behavior.

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