New Jersey Likely Not Done Trying To Legalize Sports Betting
Legal Sports Report

The Problems With The New Jersey Sports Betting Decision, And NJ’s Next Steps

NJ sports betting problem
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Last week, the U.S. Third Circuit Court of Appeals, sitting en banc, decided 9-3 to uphold a decision to invalidate New Jersey’s sports betting law.

In my view, the court made a decision based more on policy than the law, the policy being that it is better for the federal government to regulate legal sports betting than the states.

While the policy may be sound, it makes for bad law. I will discuss below why the decision was legally problematic and what NJ’s options may be going forward. It is assumed the reader is familiar with the context of all three decisions in the NJ sports betting case.

The Wire Act should be controlling

This was the crux of Justice Thomas Vanaskie’s dissents in both Christie I and the en banc decision. Basically, Vanaskie’s analysis was as follows:

  • The Wire Act applies to interstate sports betting only.
  • Congress could have “preempted the field” by applying the Wire Act to all sports betting involving telecommunications, interstate and intrastate, but didn’t.
  • Gambling, and the regulation and proscription thereof, have traditionally been state law issues, sports gambling included.
  • Ergo, states should be free to regulate legal sports betting.

Constitutional law & policy analysis

Generally speaking, when interpreting a statute for its constitutionality, the more convoluted the analysis, the more likely it is to be unconstitutional. The less steps you have to take, the better the chances are that your argument will prevail.

The Third Circuit has had three cracks at interpreting PASPA and it’s obvious, at least to me, that they had a lot of trouble with it, in terms of holding it as being constitutional, as perhaps well they should.

Breaking down the NJ cases

Let’s take a look at each decision:

  • Christie I: NJ’s original sports betting law violates PASPA, PASPA constitutional; partial repeal may be ok.
  • Christie I dissent: Wire Act should control, PASPA should be held to be unconstitutional.
  • Christie II: Even though we said a partial repeal may be ok, we didn’t really mean it. Partial repeal = authorization, which is a no-no under PASPA.
  • Christie II dissent: NJ did what we said was ok, now we’re saying it’s not?
  • Christie en banc: We know we made a seven-course meal out of interpreting PASPA in Christie I, but just forget about all that.
  • Christie en banc dissent: Reiteration of dissents in Chirstie I and II.

So, as least to me, it’s clear the court wanted to go a certain way on this, but had trouble making the parts fit legally. Compare that with Justice Vanaskie’s dissent, which is clean, crisp, direct and, most importantly, 100 percent on point.

SCOTUS in play?

Moreover, PASPA has been discussed in dicta in at least one US Supreme Court case, Greater New Orleans Broadcasting Company v. United States, 527 U.S. 173 (1999).

Consider this statement from Justice John Paul Stevens, who wrote the opinion:

“A separate statute, the 1992 Professional and Amateur Sports Protection Act, 28 U. S. C. § 3701 et seq., proscribes most sports betting and advertising thereof. Section 3702 makes it unlawful for a State or tribe “to sponsor, operate, advertise, promote, license, or authorize by law or compact” – or for a person “to sponsor, operate, advertise, or promote, pursuant to the law or compact” of a State or tribe-any lottery or gambling scheme based directly or indirectly on competitive games in which amateur or professional athletes participate.

However, the Act also includes a variety of exemptions, some with obscured congressional purposes: (i) gambling schemes conducted by States or other governmental entities at any time between January 1, 1976, and August 31, 1990; (ii) gambling schemes authorized by statutes in effect on October 2, 1991; (iii) gambling “conducted exclusively in casinos” located in certain municipalities if the schemes were authorized within 1 year of the effective date of the Act and, for “commercial casino gaming scheme[s],” that had been in operation for the preceding 10 years pursuant to a state constitutional provision and comprehensive state regulation applicable to that municipality; and (iv) gambling on parimutuel animal racing or jai-alai games. § 3704(a); see also 18 U. s. C. §§ 1953(b)(1)-(3) (regarding interstate transportation of wagering paraphernalia).

These exemptions make the scope of § 3702’s advertising prohibition somewhat unclear, but the prohibition is not limited to broadcast media and does not depend on the location of a broadcast station or other disseminator of promotional materials.

Thus, unlike the uniform federal antigambling policy that prevailed in 1934 when 18 U. s. C. § 1304 was enacted, federal statutes now accommodate both progambling and antigambling segments of the national polity.”

While I think it’s doubtful the Supreme Court will grant certiorari, it’s a little surprising (or perhaps telling) that the majority didn’t want to discuss either the Wire Act or Greater New Orleans Broadcasting in its opinion.

The pro sports leagues’ involvement

Here was the NBA’s reaction to the ruling:

“The Third Circuit reaffirmed that the appropriate path to legal sports betting is through Congress. We remain supportive of a federal legislative framework that would protect the integrity of the game and allow those who bet on sports to do so in a legal and safe manner.”

While there’s some truth to this, the case was supposed to decide whether PASPA was constitutional and if so, whether NJ’s framework could fit into it.

While the NBA’s point has quite a bit of merit to it, that’s not the question the court was asked.

What is equally problematical was the Court’s ignorance of the NBA’s, NFL’s and MLB’s partnership with daily fantasy sports sites DraftKings and FanDuel. There’s an implication here, since their conduct didn’t rise to support an unclean hands defense to the injunction, that DFS is not sports betting in the Third Circuit.

The leagues invested in a product that would compete with a legal sports betting product, and filed a lawsuit to prevent that competitive product from being offered. If that’s not conduct rising to an unclean hands defense, then what is?

This is highly problematic. Consider a leading sports law attorney’s thoughts on this, with which I concur. The dollar amount shouldn’t matter: if you are risking money to win money, it’s gambling.

As the reader can see, and this is just the tip of the iceberg. If the application of PASPA is this problematic already, then it becomes clearer that the decision was not made based on the law, but on policy.

My final thought on this was that the Court was very much aware that this was not just about New Jersey, but the entire country. Consider the effects of a reversal would be. You would likely see legislation pop up overnight in at least a dozen jurisdictions, perhaps more.

If it were just about New Jersey, I think the state would probably prevail. In this light, let’s consider some possible options for New Jersey going forward.

What should NJ do?

I doubt that NJ is going to throw in the towel. The primary reason is that the state has been vested in making itself a leading —  if not the world’s leading — gambling regulatory jurisdictions.

For starters, NJ is the US home of Gaming Labs International, the leading gaming testing company in the world. It is the only US jurisdiction that has online casino gambling. It has long been one of the leading land-based gaming regulatory bodies in the world.

So, it’s natural that the state would take its experience and expertise and use that skill set to adapt to the times. The problem is, without sports betting, it’s hard to achieve that goal.

So, the strategy here is not so much for NJ to win a court decision. The Third Circuit has appeared to make it clear (unless by luck of the draw, they get two of the three dissenting justices on a panel) that it will uphold PASPA no matter how convoluted the reasoning.

The strategy is to get Congress to act on repealing PASPA. I don’t think the state will go with the “nuclear option” — doing a full repeal of its sports betting prohibition — though.

While it’s the one solution that would be best positionted to get Congress to act quickly, it’s also for the most part impracticable.

Here are three possible options, which I suppose you could call “tactical nuclear.” Some of these tactics may be used in combination with each other, making it possibly palatable to the legislature:

Full repeal, but internet-only betting

This gives the state some control over potential licensees, because the licensees would have to demonstrate they could keep betting within state lines.

It should have the effect of limiting the field of entities to those with previous experience in online or mobile sports betting. It would also have the effect of putting the Wire Act front and center when the expected legal challenge to such a statute comes.

Geographic repeal

The state could establish zones for legal sports betting to occur.

These zones would likely be limited within a certain distance of a casino or a racetrack, much in the vein so-called “adult entertainment zones” are constructed.

Esports

A bill involving eSports might work for three different reasons:

  • The US Attorney’s office would necessarily be involved. Some of esports’ popularity comes from esports betting, and it seems unlikely that any esports organization would ask for injunctive relief.
  • Is an esports participant, who is essentially a video game player, an “athlete” for PASPA purposes? Probably so, but it’s new ground which has yet to be litigated.
  • Consider this Christie II en banc comment: “For instance, a state’s partial repeal of a sports wagering ban to allow de minimis wagers between friends and family would not have nearly the type of authorizing effect that we find in the 2014 Law.” The vast majority of eSports wagers are less than $5 and many are $1 or less. This would certainly fit into the context of what the court suggested here.

Again, the idea is to win one round, whether it be in District Court or on appeal and hope that will get Congress to act.

David Gilder / Shutterstock.com

Vincent Oliver
- Vincent Oliver is an attorney whose primary area of practice is gaming law with emphasis on development and emerging markets. He is a member of the California bar and consults with clients in CA, NV and FL. He is based alternatively in Los Angeles and Las Vegas, and can be reached at [email protected]
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