Will New Jersey Take A Third Swing At Legal Sports Betting Via ‘Friends and Family’ Approach?

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The New Jersey sports betting case saw another defeat for the state — a 9-3 ruling from a Third Circuit Court of Appeals en banc panel earlier this month. An appeal to the US Supreme Court appears likely.

Getting a SCOTUS review on sports betting

While a few discrepancies between past rulings in the case could pique the interest of a higher court, such an appeal could still face long odds of being heard. The Supreme Court hears roughly one percent of the 7,000-8,000 cases appealed to it per year, and it has not suggested any appetite for judging the legal merits of America’s sports betting laws.

Then again, the case’s odds of an en banc rehearing at the appellate court level were longer than that. In the three-year period from October 2012 through September 2015, government statistics show the court awarded a full 12-judge panel rehearing to just five out of 7,235, or .07 percent, of cases appealed.

Other approaches for sports betting

Another potential outcome of the Aug. 9 ruling could involve lobbying the federal government to amend or repeal the Professional and Amateur Sports Protection Act.

That’s something American Gaming Association president Geoff Freeman recently spoke about. The AGA will formally lobby Congress on this very issue beginning early next year.

Both approaches would take place at the federal level and would likely have federal implications.

There is also an alternative, state-based approach for New Jersey — or perhaps more aptly, for other states with different gambling and regulatory environments. That could involve finding wiggle room within the Third Circuit’s most recent ruling to somehow still offer sports betting, namely in the form of informal wagers on sporting events between friends.

All about intent on sports betting law

Both the US District Court for the District of New Jersey as well as the Third Circuit have explicitly stated that the intent and the resultant effect of any law regarding sports betting, as opposed to the bill’s surface language, matters a great deal.

Two months after the state’s Sports Wagering Act passed a referendum in the November 2011 elections, Gov. Christie signed the bill into law. “We intend to go forward and allow sports gambling to happen,” he said.

As sports gaming attorney Christopher Soriano notes, a subsequent amendment to the Casino Control Act gave state gaming officials the authority to approve licensed casinos’ applications to operate sports betting. By October of 2012, the state’s Division of Gaming Enforcement even drew up regulations that fall to govern sports betting.

But after the leagues filed an injunction to stop New Jersey in the summer of 2012, the District Court in 2013 found the law reflective of the state’s “intention to sponsor, operate, advertise, promote, license and/or authorize sports gambling.”

The Third Circuit affirmed a few months later, “(New Jersey’s) Sports Wagering Law, in purporting to permit individuals to skirt (PASPA), ‘authorizes [private parties] to engage in conduct that the federal act forbids’… and accordingly conflicts with PASPA and is preempted.”

Both courts also found that the state was still free under PASPA to simply repeal parts of its sports betting prohibitions.

Let’s try this again on NJ sports betting

In light of this opinion, New Jersey took an amended approach in 2014, when Gov. Christie signed a new sports betting bill into law. Unlike its 2012 predecessor, SB 2460 did not perpetuate any regulatory scheme for sports betting.

The law also intentionally invoked both the language of PASPA and the courts’ opinions, repealing any rules and regulations requiring or authorizing state agencies to license, authorize, permit sports betting, to the extent that said regulations applied to Atlantic City casinos.

The law’s text said it was not intended to be construed as “causing the State to sponsor, operate, advertise, promote, license, or authorize by law” any wager.

That did not matter to Third Circuit Judge Marjorie Rendell or to eight of her colleagues, however. Writing earlier this month, the court again spoke to the law’s actual intent:

“The presence of the word ‘repeal’ does not prevent us from examining what the provision actually does, and the Legislature’s use of the term does not change that the 2014 Law selectively grants permission to certain entities to engage in sports gambling,” Rendell wrote.

“While artfully couched in terms of a repealer, the 2014 Law essentially provides that, notwithstanding any other prohibition by law, casinos and racetracks shall hereafter be permitted to have sports gambling. This is an authorization.”

Why a ‘friends and family’ approach could work

In the wake of the Third Circuit’s rejection of this second legislative effort, New Jersey state Sen. Raymond J. Lesniak told ESPN’s David Purdum that the state could pursue another repeal of its sports wagering prohibitions.

While it is unlikely to occur, a newer, carefully worded appeal could allow for one type of wagering to occur that might not violate PASPA or anger the leagues.

Citing comments made by NFL attorney Paul Clement, Rendell wrote:

“As the Leagues noted at oral argument before the en banc court, not all partial repeals are created equal. 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.”

In the following sentence, however, the court not only gave no further specifics as to how such a construct could exist, but absolved itself of any obligation to illustrate the point at which a repeal becomes an authorization.

“We need not, however, articulate a line whereby a partial repeal of a sports wagering ban amounts to an authorization under PASPA, if indeed such a line could be drawn. It is sufficient to conclude that the 2014 Law overstepped it,” Rendell said.

Clement originally argued that casual sports wagers between friends of up $100 would potentially not violate PASPA. In oral arguments in February, he raised that theoretical limit to $1,000.

If New Jersey were to somehow allow for friends and family wagering, the intent of any law doing so could be more appetizing to the bench and in alignment with the on-the-record views of the leagues’ own attorney.

A state turning a blind eye to casual betting transactions happening in the privacy of one’s own home, with no restrictions on location and no involvement of any facilitating businesses, could contrast starkly with a law the Third Circuit contended would authorize an activity to occur at licensed, regulated casinos.

Why a ‘friends and family’ approach won’t work (in New Jersey)

Even if the state enabled a friends and family sports wagering construct, it would likely meet opposition from several interests, such as the casino industry. Such an outcome would not benefit gaming interests.

There’s also no indication that state lawmakers are behind the idea.

When asked about a potential “friends and family” wagering construct, Sen. Lesniak told Legal Sports Report that such an approach, “Doesn’t serve my goal of sports betting enhancing revenue for our casinos and racetracks and for the state, and generating and saving jobs.”  

Indeed, the forecasting of this intent, namely enumerating where betting could and could not occur in Atlantic City, helped fuel the Third Circuit’s argument that the 2014 law constituted an authorization of sports betting, and thus, violated PASPA.

Citing Sen. Lesniak and others, the court acknowledged the state’s purpose in passing the law was “to legalize sports gambling to revive its troubled casino and racetrack industries.”

Furthermore, it’s unclear if the sports leagues would abide by Clement’s comments, or seek to disallow a state from enabling such an activity.

“What New Jersey really seems to want is commercial sports gambling, not increased privacy rights within one’s home,” said Marc Edelman, a sports law professor at Baruch College’s Zicklin School of Business.

“A more prudent and cost effective solution would be for New Jersey to change its focus from arguing PASPA’s unconstitutionality in court to instead lobbying to repeal the statute via Congress,” Edelman said.

What about elsewhere for sports betting help?

Groups like the AGA set to work on the federal legislative front, and New Jersey is potentially set for a Supreme Court appeal and another legislative repeal (a full breakdown of the state’s options can be found here).

The question now arises as to what approaches other interested parties will take to effect legalized sports wagering.

The Leagues

The four professional sports leagues appear to be tamping down their traditional opposition to sports betting. Among the evidence points:

However, each of these parties are also highly unlikely to directly advocate for any legislative solution.

NBA spokesman Michael Bass reiterated earlier this month that while the league maintained its position in favor of a law regulating sports betting, it was not going to directly advocate at the federal level.

The states

New Jersey is not the only state that has made noise about legalizing sports betting:

It remains to be seen if other states with less established gaming industries will pursue the allowance of some forms of sports betting, perhaps invoking the perspective of a state’s rights and citizens’ individual freedoms, rather than an a state industry’s economic interests.

Private businesses

If trade groups, the professional sports leagues, New Jersey, and other states all decline to pursue the friends and family option, at least one gaming business might.

Sports wagering app Bait pairs two friends together to conduct sports bets. There is no obligation to pay, however, and Bait itself does not take a cut of any wager. Instead, it says it’s supported by ads.

The Illinois-based startup, which is still in beta but plans to launch before the 2016 NFL season starts in September, appears to facilitate exactly the type of activity Clement referred to in his remarks. But with the product still pre-launch, regulators or lawmakers have not yet commented on Bait’s legality.

Similarly, it’s unclear if a more traditional sports betting exchange, a construct that pairs bettors on opposite sides of a bet, would be directly violative of PASPA under Clement’s comments as long as it didn’t take a cut of a wager made between two people.

Perhaps a broader application of the friends and family idea, however, would come in the form of “sports pools,” such as those that dominate spectatorship of the NCAA men’s basketball tournament every March.

Traditionally low entry fees, prize pools of less than $1,000, and the noncommercial informality of a pool among close associates, would appear to fall under the friends and family construct.

Payment processors such as PayPal have in recent years cracked down on users it suspects of fulfilling March Madness pool payments.