Tuesday August 25th, 2015

In a significant legal defeat for advocates of sports betting and for New Jersey Gov. Chris Christie, a three-judge panel on the U.S. Court of Appeals ruled Tuesday that New Jersey is prohibited from implementing a state law that would have enabled casinos and racetracks to offer sports waging. For those who had hoped to travel to Atlantic City’s casinos to place sports bets, those dreams are now dashed—at least for the time being.

The New Jersey sports betting litigation stems from the U.S. Department of Justice joining hands with the major pro sports leagues and the NCAA to argue that, if implemented, New Jersey’s intended law would violate the Professional and Amateur Sports Protection Act of 1992 (PASPA). PASPA prohibits 46 states from licensing, sponsoring or authorizing sports betting. (Nevada, Delaware, Oregon and Montana were exempt due to existing sports betting practices.)

In a 2-1 decision today, U.S. circuit judges Marjorie Rendell and Maryanne Trump Barry ruled that the federal ban on sports betting is clear and determinative, and it precludes New Jersey from implementing its law. In a spirited dissent, U.S. circuit judge Julio Fuentes argued that his two colleagues failed to see that PASPA did not intend to regulate private sports wagering at casinos. The ruling is the second time in two years that a three-judge panel on the U.S. Court of Appeals has rejected New Jersey’s sports betting legislation.

A victory for the major professional sports leagues and the NCAA

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In 1991, Major League Baseball and other leagues were the primary advocates for the passage of PASPA. Fresh off the heels of the Pete Rose gambling controversy, these sports organizations reasoned that legalized sports betting could lead to the corruption of athletes and coaches. They also feared that legalized sports betting would increase the possibility of players and coaches “throwing games” to win bets.

Had New Jersey won Tuesday’s ruling, it might have triggered a wave of states legalizing sports betting. According to Daniel Wallach, a partner at Becker & Poliakoff, P.A., and a leading expert on gaming law, “a victory by New Jersey would have had an immediate and dramatic impact on the sports betting industry—namely, there would be unregulated sports betting in New Jersey and other states would pass similar legislation to mimic New Jersey’s approach.”

Instead, today’s ruling will make it harder for 46 states to adopt any form of sports betting. A federal court of appeals has now spoken twice on the legality of PASPA and affirmed that it trumps at least one type of state law. While the ruling is only binding precedent in the three states within the Third Circuit (New Jersey, Pennsylvania and Delaware) and technically only addresses New Jersey’s law, it will constitute persuasive authority in other U.S. jurisdictions.

A victory for fantasy sports companies

In recent years, there has been increased competition between the fantasy sports industry and the sports betting industry. Although these two industries are often grouped together since they generally revolve around the same basic activity—a consumer betting, sometimes with money, on a sports-related outcome—federal law treats them quite differently.

PASPA, as explained above, prohibits state-sponsored sports betting in 46 states. In contrast, the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) exempts fantasy sports games from the federal ban on sports betting. At the time of UIGEA’s passage, Congress and President George W. Bush reasoned that exempting fantasy sports from the ban made sense because of clear distinctions between fantasy sports and sports betting. Fantasy sports involve skill rather than chance, and skill-based games generally fall outside gambling prohibitions. Of course, those who are skilled at sports betting would argue that their success has much more to do with skill than chance, but federal law nonetheless treats sports betting and fantasy sports as separate creatures. This distinction still exists in spite of more recent forms of fantasy sports—especially daily fantasy sports—that seem to resemble sports betting more than the types of fantasy sports games that were popular in 2006.

Tuesday’s ruling by the Third Circuit will make it more difficult for the sports betting industry to compete with the fantasy sports industry outside of the four states exempted by PASPA. “Hands down,” Wallach stresses, “the biggest winner in today’s ruling is the daily fantasy sports industry. They now have the sports gambling market all to itself.”

The other winner from today’s ruling, Wallach asserts, is the eSports industry, which centers on competitions between professional video game and computer game players. “eSports companies,” Wallach observes, “are also beneficiaries of the federal ban on sports betting since eSports competitions increasingly capitalize on wagers on which player will win.”

Possibility of additional review of New Jersey’s case

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Tuesday’s ruling by the three-judge panel does not necessarily mean the New Jersey sports betting litigation is over. New Jersey is expected to seek an “en banc” review of the case, and the state will have 45 days to file a request. To be granted an en banc review, a majority of active judges who sit on the U.S. Court of Appeals for the Third Circuit and who are not disqualified from voting would have to agree to rehear the case. If granted, an en banc review would entail all of the Third Circuit judges hearing the case.

Keep in mind, petitions for en banc reviews are granted only in exceptional circumstances. Such circumstances usually involve the three-judge panel misunderstanding the law or ignoring precedent. Unfortunately for New Jersey, such an exceptional circumstance may not exist in this litigation. Wallach, however, notes that some factors suggest an en banc review could be granted for New Jersey. “You have statements by judges [who have heard the New Jersey litigation] during oral argument wondering if this case should be considered en banc,” Wallach notes, “and you have an irreconcilable conflict between an earlier decision in this litigation about whether a partial ban on sports betting would be lawful.”

If an en banc review fails, New Jersey can petition the U.S. Supreme Court for review.

The Supreme Court, however, only grants cert to approximately one percent of petitions and routinely declines to review cases that attract national media attention and seem important. The Supreme Court also declined an opportunity to hear New Jersey’s sports betting arguments in 2013. Further, the methodology typically used by the Supreme Court in selecting cases is a drawback for New Jersey. The Court often declines to hear a legal controversy until there is a so-called “split” between federal circuits on a matter of federal law. It may take a state governed by a different federal circuit court attempting to legalize sports betting and winning at the appellate level—thus causing a split in federal circuits on application of PASPA—before the Supreme Court would consider the issue.

Potential opportunities for Congress to revisit sports betting law

NBA commissioner Adam Silver has gone on record advocating that Congress legalize sports betting—at least so long as sensible restrictions and safeguards accompany any legalization. Silver’s view seems consistent with the views of many in the sports world that Congress should at least revisit the merits of sports betting legislation passed 23 years ago. Whether Congress does so remains to be seen, as sports betting is probably not among the highest priorities for lawmakers. Still, the sports gaming industry has grown dramatically and changed considerably since PASPA’s passage and perhaps warrants the reconsideration of Congress.

New Jersey sports litigator Alan Milstein, chairman of the litigation department at Sherman Silverstein, believes it would be appropriate to reassess the legal issue of sports betting. “The problem I have,” Milstein charges, “is the hypocrisy of the NFL and the other sports leagues, including the NCAA, for arguing that legal gambling on their games outside Nevada would threaten the integrity of their respective sports, as if gambling is not now ever present.” Wallach, however, doesn’t expect Congress to take this issue up any time soon. “There’s no urgency now,” Wallach insists, “since New Jersey losing means states can’t legalize sports betting.”

Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. In the fall 2015 semester, he will teach an undergraduate course at UNH titled “Deflategate.” McCann is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law and he will teach “Intellectual Property and Media in Sports Law” at the 2015 Oregon Law Sports Law Institute.

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