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Volume 21 No. 5

Law and Politics

FREEMAN
The day after the Supreme Court heard arguments on the suddenly percolating topic of whether states should be allowed to lift their bans on sports betting, American Gaming Association head Geoff Freeman traded texts with a casino lobbyist about the prospect that bets placed on games could be regulated by the federal government, rather than state-by-state, like casinos and lotteries.

“Lunacy,” is how both described the proposition.

Neither saw any path for the framework the pro leagues would be most likely to embrace.

“What comes next?” was the natural question to posit after last week’s hearings in Christie v. NCAA, a case that could lead to widespread adoption of sports wagering, especially in states that already host casinos or horse tracks.

Most observers emerged with the conclusion that a majority of the justices now look skeptically upon the manner in which Congress chose to stem the growth of sports betting 25 years ago, when it passed the Professional and Amateur Sports Protection Act, which required states to freeze their own prohibitions in place but fell short of laying down an outright federal ban.

It is that approach — a federal policy against sports wagering, but applied through state law — that now has attracted the interest of a Supreme Court that sees states’ rights issues arising on various fronts, including the enforcement of federal policies on immigration and marijuana.

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The court’s ruling, likely to come in the spring, will largely determine not only whether sports wagering is allowed, but how it is regulated and by whom.

Though the pro leagues have softened their opposition to sports wagering, they almost certainly would prefer a model that includes federal oversight, a position that an NBA spokesman reiterated last week. Based on the tenor of the hearing, and the states-rights-oriented Republican majority in Congress, Freeman said he thinks that unlikely.

“It seemed to me as a lay person that there were some deep concerns about the role of the federal government here,” said Freeman, who attended the hearing. “I think, like others, I walked out of there feeling that the court is favorably disposed to changing PASPA in one form or another.”

While it’s difficult to tell how the court will rule, the scenario produced by each of the more likely outcomes is easier to predict.

If the court rules favorably on New Jersey’s constitutionally framed, original claim — that the federal government overstepped the bounds of the 10th Amendment when it dictated that states keep in place prohibitions on sports wagering — the path from there is a clear one.

With PASPA struck down, there would be nothing to keep states from sanctioning sports betting, regulating and taxing it as they do other forms of gaming. Where, when and how would be left entirely to each state.

New Jersey almost certainly would enact the law that it passed in 2012, allowing for sports books in its Atlantic City casinos and racetracks, but prohibiting bets on college sporting events held in New Jersey or on games played by New Jersey schools.

Standing alongside New Jersey Gov. Chris Christie outside the court after the hearing, the state senator who led the push for sports books at New Jersey’s casinos and horse tracks predicted victory, then declared that he would be the first of its residents to place a bet.

“This is going to be the lifeblood of Atlantic City and our racetracks,” said State Sen. Raymond Lesniak, a Democrat who will leave office at the end of the year. “Both these industries are dying. This will bring people into Atlantic City, and not just to bet but to stay there for long weekends. Super Bowl week. Golf tournaments. The World Series. All of them.”

New Jersey Gov. Chris Christie speaks to the media prior to last week’s hearing.
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One of the world’s larger sports book operators, William Hill, opened a sports bar at Monmouth Park four years ago in anticipation that it could be converted into a sports book if U.S. law allowed for it. After the hearing, Christie said books could be up and running within two weeks of a ruling.

At least three other states would quickly follow New Jersey, with another half-dozen likely not far behind.

This year, Pennsylvania and Connecticut both passed bills clearing the way for sports wagering if PASPA were lifted or struck down. New York also has allowed for sports betting in its casinos if PASPA falls, though it likely would put that on hold while considering bills that would do the same for its racetracks and off-track-betting facilities.

Legislators in South Carolina, West Virginia, Michigan, Kentucky and Oklahoma have introduced sports wagering bills. The California State Assembly is considering bringing the matter of sports betting to referendum. Mississippi is sorting out whether it needs additional legislation after opening the door to daily fantasy earlier this year.

A recent report by research firm GamblingCompliance predicts that more than 20 states would sanction sports wagering by 2025 if the court nullifies PASPA.

“If that’s the route they go, it will move pretty quickly and it will be difficult to put the genie back in the bottle for those that may want to see any type of federal standards,” Freeman said. “For what it’s worth, and contrary to what I’ve heard from some of the leagues, I certainly don’t think that is a bad outcome.

“We now have 25 years of [a gaming] track record of how the states proceed. And they and the tribal governments proceed very carefully and cautiously and they produce very good regulations. I’ve heard from some of the leagues that they’re worried that the regulations won’t be consistent across state lines. I share that concern. But that’s the gaming industry’s problem. That’s not the leagues’ problem. We’re the ones regulated.”

The impact would be similarly predictable if the court sides wholly with the NCAA and the leagues, leaving PASPA in place and ruling that New Jersey’s proposed workaround is, in fact, a backdoor version of authorization. That would move the conversation across the street to Congress, where the gaming industry has ramped up its lobbying interest of late, driven by increased interest in many states.

Hours after the hearing, U.S. Rep. Frank Pallone (D-N.J.) unveiled a bill to repeal PASPA that lays out a general structure for the regulation of sports wagering in states that choose to authorize it — identifying a litany of areas requiring consumer safeguards — but that does not yet include any specifics on regulation.

“There is tremendous interest on the Hill and we’re certainly pleased to hear that,” Freeman said. “At the same time, I think it’s fair to acknowledge that a lot of those that are interested would like to see how the Supreme Court [rules]. The interest is there, but it’s in a little bit of a holding pattern for most until they hear the result from the court.”

Another possibility that appears increasingly likely based on the tone of the hearing is a narrow ruling that grants New Jersey what it has asked for, but nothing more, preserving PASPA but clearing the way for states to drop their prohibitions on sports wagering, so long as they don’t regulate or tax it.

Interestingly, it is that loss that might fit best into the playbook of those who have warmed to the idea of sports betting, but in a heavily regulated fashion, with the industry involved in the crafting of that framework.

While New Jersey has made it clear that it is willing to forgo a tax windfall if that’s what it takes to open sports books that attract visitors to Atlantic City, that likely is not the position of the other states, which allow gaming only because it drives tax revenue. All of their bills hinge upon a reversal or repeal of PASPA. A ruling that opens the door in New Jersey, but in a way that’s not appealing to those other states, likely would bring both sports interests and gaming interests to the table for a compromise.

“Something akin to unregulated gaming puts the leagues and the industry in a position to work together with Congress to figure out the way forward,” Freeman said. “We still believe the way forward is simply to repeal PASPA. But if there are minimum standards that make sense for the federal government to consider, we’re ears wide open to that discussion if it’s one the leagues want to have. We’ve started those discussions and we need to learn more.”

There’s also a way the court could rule in New Jersey’s favor that even New Jersey might not like. It could, as the federal government argued, allow for sports wagering in New Jersey so long as the state leaves its hands entirely off of it — doesn’t say where, when or how betting can occur, or even how old one had to be to place that bet.

“Well is that serious?” Chief Justice John Roberts asked incredulously when the justice department’s attorney, Jeffrey Wall, suggested New Jersey was free to repeal gambling restrictions in their entirety. “You have no problem if there’s no prohibition at all and anybody can engage in any kind of gambling they want? A 12-year-old can come into the casino and — you’re not serious about that.”

“I’m very serious about it, Mr. Chief Justice,” Wall said. “The problem that Congress was confronting was state sponsored and sanctioned sports gambling schemes. It didn’t care if I bet with my buddy on the Redskins game or we had an office pool. It wasn’t going after all sports gambling.”

“When you put the state in a position that that’s the only thing they can do,” Roberts replied, “That’s not a real choice.”

If there was any question about where Roberts might land in this case, that probably answered it. The precedent on commandeering comes from New York v. United States, a 1992 case in which the federal government gave states two choices on ways to handle low-level radioactive waste produced within their borders. States that accepted neither option would be held liable for damages suffered by the generator of the waste.

The court ruled that since not following the policy wasn’t a viable choice, the federal government had commandeered New York.

Asked whether New Jersey would go so far as to allow sports wagering if it meant no regulation at all, Lesniak responded, “I’m not going to be in the legislature, so that’s not my call. But I think that would be a tough one to do. As Justice Kennedy said, ‘You can’t be serious.’

“I don’t expect to have to go there, because we’re going to win.”


In our First Look podcast this week, SBJ’s Abe Madkour, Bill King and Michael Smith discuss this week’s issue, including our front-page stories: Sports betting and the Supreme Court, college hoops at our Intercollegiate Athletics Forum, and our annual feature on the 50 most influential people in sports business.