NJ Sports Betting Case Demonstrates Federal Online Gambling Issue

John Mehaffey June 17, 2013 997 Reads

Many gambling proponents in the United States are hoping that New Jersey prevails in its defense of legalized sports betting in the State.  New Jersey appealed after losing the first round of the battle, but has responded to briefs filed by the Department of Justice (DOJ) and five sports leagues.  If New Jersey ultimately wins through the points made in its latest brief, it could be a concern for online gamblers hoping for regulation in the U.S.

Background

New Jersey passed regulations in 2012 that would allow Atlantic City casinos and the State’s racetracks to offer sports betting comparable to what is currently only found in Nevada.  The Professional and Amateur Sports Protection Act of 1992 (PASPA) forbids states from regulating sports betting if a state had not offered some form of legalized sports wagering in the 20 years before it became law.  States with ten years of casino experience that did not already allow sports betting, which was only New Jersey at the time, had one year to legalize it in 1993.  New Jersey failed to do so at the time.  It eventually passed legalized sports betting in 2012 and was then blocked by a court order sought by the NCAA, NFL, NBA, NHL and MLB.  The DOJ later joined the side of the plaintiffs, which won the first round of the legal fight.

Issues Affecting Potential Federal Online Gambling Law

New Jersey responded to a brief filed by the sports leagues on Friday.  The main rebuttal of the points made by the DOJ and sports leagues revolve around the constitutionality of PASPA, which bans sports betting in 46 states, while exempting four others.

The points made by New Jersey include:

Congress can impose its own regulatory scheme on sports wagering and preempt contrary state law, but, as DOJ conceded before the district court … it has not done so here.

This interpretation accords with PASPA’s text, which makes it unlawful for a “governmental entity” to “authorize by law or compact” sports wagering, … and which, read naturally, prohibits legalization. This straightforward interpretation of PASPA is also a plain violation of the Tenth Amendment. Congress could not, consistent with the Tenth Amendment, require a State to enact a prohibition of sports wagering.

But these citations only emphasize what is absent here—a federal statute that displaces state regulation.

In other words, New Jersey contends that since no federal law or agency regulates sports betting, then it cannot forbid a state from regulating the activity itself.

New Jersey then points out how states could collude through a federal law that protected its interests, comparable to the exemption enjoyed by four states under PASPA:

Legislators with an interest in obtaining a monopoly could easily collaborate with legislators from States with no interest in entering the market. California could team up with cold-weather States to exclude new entrants from the market for wine or citrus, or Nevada could invoke the aid of legislators from States with no desire to legalize sports wagering.

Reid/Kyl Would Have Contradicted New Jersey’s Position

It remains to be seen if New Jersey holds the correct legal position on PASPA, but if the State prevails, then Reid/Kyl would have been unconstitutional.  That is because states were forbidden from legalizing online casino games unless the action was taken before the bill became law.  This would have given Delaware and New Jersey an exemption.  This is identical to the exemption Delaware, Montana, Oregon and Nevada enjoy under PASPA, which is much of the defense taken by New Jersey to demonstrate its unconstitutionality.

Banning states from regulating online casino games or sports betting, when no such regulation exists on a federal level, is a dangerous position to take not knowing how the New Jersey case will end.  It may be years before that outcome is known.

Solutions to Constitutional Concerns

Congress must take these issues into consideration if they pass federal legislation before the New Jersey sports betting case is resolved.  The easiest solution is to include only online poker, while outright ignoring casino games and sports betting, leaving those games up to the States.  Poker may require a national player pool to be successful, while casino games and sports betting are not in need of this liquidity.

Poker could still be regulated on a federal level because there would be framework in place, which would make the points argued by New Jersey moot.  Casino games could also be included as long as framework was in place, or if states are not locked out if they fail to act in time, as they were under Reid/Kyl.

Sports betting is a potential issue that should be avoided in any federal online gambling law.  At this time, PASPA covers sports betting.  If it is later repealed or ruled unconstitutional, then omitting it from a federal bill today makes the most sense.  That way it can be addressed when the time comes where states may allow it within their borders.

It is easy for online poker players to agree that Congress should just legalize online poker and move on with it.  Unfortunately for the online poker lobby, it is not that easy.  There are 535 lawmakers on Capitol Hill, and some lawmakers may not be willing to move forward until the courts have ruled on the New Jersey sports betting case, while some may want to include language that is similar to what is currently being challenged by New Jersey without understanding its ramifications.  If legalizing online poker on a federal level was that easy then we would not be having this discussion seven years after the UIGEA passed.

Other Potential PASPA Issues

The DOJ and sports leagues contend that New Jersey could repeal its sports betting laws without regulating the industry and not violate PASPA. The DOJ even goes so far as to suggest that New Jersey simply not enforce the law.  The State responds by saying:

The suggestion by DOJ that New Jersey might avoid costs associated with enforcement by“leav[ing its] prohibitions on the books but declin[ing] to enforce them,” DOJ … displays a shocking, especially for the United States Department of Justice, lack of regard for the parallel constitutional obligations of state officials.

This could be a symptom of a poorly written PASPA law, but raises concerns that down the road an online gambling bill could run into the same legal issues if it forbids states from enacting their own regulation of activities banned by a federal online gambling bill, but potentially allowed unregulated activity.  The suggestion by the DOJ that a State should just ignore its constitutional requirement to enforce laws it decides are not in its best interest to enforce is also a slippery slope.

Another issue not specifically addressed in PASPA, according to the New Jersey brief, is whether it applies to both state lotteries and private enterprises.  This ambiguity must be addressed in a federal online gambling law to avoid an identical challenge in the future.

These situations may not become issues in a federal online gambling bill, but they must be addressed to avoid confusion down the road.

All of this just goes to show how complicated a federal online gambling bill will be.  The rights of states cannot be ignored.  A legal battle over federal online gambling could delay its action for years, which is an outcome no online gambling proponent wants.

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