States, Gaming Industry Planning for Regulated Sports Betting

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By David McAfee

The gaming industry and some state legislators are preparing for a scenario where sports betting is legal and regulated within the states while the U.S. Supreme Court mulls New Jersey’s challenge to the federal Professional and Amateur Sports Protection Act of 1992.

The high court heard oral arguments Dec. 4 in Christie v. NCAA, and seemed unsure how to balance power between state governments and the federal government. There should be a decision in the case before June, Lauren M. Blas of Gibson, a Los Angeles-based associate attorney with Gibson, Dunn & Crutcher LLP, said Dec. 11 during NCSL’s Capitol Forum in Coronado, Calif.

At issue in the case is New Jersey’s attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region. A ruling from the U.S. Court of Appeals for the Third Circuit found that the partial repeal violated the PASPA, which prohibits states from “authorizing” gambling related to professional and amateur sports leagues.

New Jersey has argued that the federal government can’t prohibit the state from repealing its own ban. That would violate the anti-commandeering doctrine, which says the federal government can’t conscript states into enforcing federal policy, the state has argued. However, the federal government and the sports leagues challenging New Jersey’s repeal have said the federal government can do that—it does it all the time when it preempts state laws that conflict with federal ones.

It’s possible the Supreme Court will conclude that the act commandeers the states by telling them how to regulate sports betting, and that the rest of the statute doesn’t make sense if you get rid of that prohibition, Blas told attendees.

“One outcome is that the entire statute just falls away,” she said. “Another option is that the court says most of the statute is fine, but we have to let New Jersey do its partial repeal of prohibitions on casinos and racetracks.”

The Supreme Court could also greenlight full repeals and examine partial repeals on a case-by-case basis, which could lead to further litigation, or affirm the Third Circuit’s ruling against New Jersey. If the PASPA is stricken or a partial repeal is allowed, however, that could give other states a “blueprint” to follow for legalization, Blas said.

Adopting Legislation

Sara Slane, senior vice president of public affairs at the American Gaming Association, told NCSL conference attendees that the gaming industry researched the issue and issued a statement a few years back endorsing a PASPA repeal, citing the $150 billion to $400 billion sports wagering market it says is taking place illegally. Gaming groups said they could provide sports betting in a legal, regulated fashion similar to what Nevada has done, Slane said.

She further said the association was happy the Supreme Court decided to hear the New Jersey case, but that it never placed all its eggs in that basket.

“We started dual-tracking this, first by working with all the stakeholders who would be impacted by a legalized sports betting regime” including the leagues, the broadcast companies, the law enforcement community, and the gaming industry itself, Slane told attendees.

She added that the Supreme Court could affirm the Third Circuit’s decision, but that it’s more likely that the opinion “opens the floodgates” for states to create their own laws regulating sports betting. Slane said that four states have already adopted legislation to “hit the ground running” once sports betting is legalized.

New Jersey, Connecticut, Pennsylvania, and Mississippi have already enacted legislation on the issue, and Pennsylvania has gone as far as to put a tax rate in place, she added.

“And then you have 11 other states just beginning to have the conversation, the contemplation, of what this would mean to their state,” she said. “We certainly anticipate that more states will hit the ground running again in January when sessions convene.”

To contact the reporter on this story: David McAfee in Los Angeles at dmcAfee@bloomberglaw.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

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