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The (Mad) Fight to Legalize Sports Betting in New Jersey

March 24, 2017

THE (MAD) FIGHT TO LEGALIZE SPORTS BETTING IN NEW JERSEY

By: Bradley Machov, Volume 101 Staff Member

New Jersey wants to legalize sports betting within its borders.[1] In 1992, Congress, with the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), made it clear that despite the potential revenue legalized sports betting could generate, “the risk to the reputation of one of our Nation’s most popular pastimes, professional and amateur sporting events, is not worth it.”[2] Undeterred, New Jersey has been continuously challenging PASPA since 2012.[3] In multiple cases before the Third Circuit Court of Appeals, as well as in two petitions for certiorari to the Supreme Court, New Jersey has argued that PASPA is unconstitutional because it violates the anti-commandeering doctrine outlined in New York v. United States and Printz v. United States.[4] Each court that has heard this case has rejected that argument.[5]

Considering the overwhelming results against New Jersey in the lower courts, the lack of a circuit split, and the fact that the Supreme Court denied a petition two years ago, it would be surprising if the Court granted certiorari to New Jersey. So where does the state go from here? The Third Circuit en banc ruled that New Jersey’s efforts fail because its law, while taking the language of a partial “repeal” of an existing New Jersey law banning sports betting—an action not precluded by PASPA—amounts in practice to a state-sanctioned authorization of sports betting within New Jersey casinos, which is expressly prohibited by PASPA.[6] However, the court suggested that a full repeal would not violate PASPA, and it left open the question of whether a different partial repeal could be enacted within the limits of PASPA.[7] Specifically, it suggested that New Jersey could legalize wagering between “friends and family.”[8]

Currently, the country is in the midst of the National Collegiate Athletic Association Basketball Tournament (“March Madness”)—an event that sees millions of dollars wagered legally in Las Vegas sportsbooks, and millions more illegally wagered in betting pools between friends, family, or coworkers.[9] This Post will discuss the potential legality of friends and family wagering, the appeal it would have to New Jersey, as well as a brief discussion of potential future developments.

The type of “friends and family” betting to which the Third Circuit refers is best exemplified by March Madness betting pools. Usually members of an office, or some other friend or family group, will each fill out a bracket: predicting the winners of a 68-team, single elimination college basketball tournament. This can be done for no money, but many pools require a monetary entry fee to participate.[10] However, every pool that costs money to enter is illegal.[11] The Third Circuit suggests that a state law legalizing, or at least decriminalizing, this type of betting would not run afoul of PASPA.[12] The court uses this example to justify its dismissal of anti-commandeering argument forwarded by New Jersey.[13]

However, it is unclear why this would appeal to New Jersey.[14] While the “friends and family” betting is de jure illegal, it is de facto accepted practice.[15] PayPal has recently started policing transactions it reasonably believes to be payments to settle sports wagers of this type, but that has not proved to be much of a deterrent.[16] It is unclear what a state would have to gain by legalizing this type of wagering. Money exchanged between friends and family is axiomatically of a type that is closely held—a transaction more likely to be completed via cash or quid pro quo services. This would not be every transaction, but even for the ones done through a payment processor like PayPal, how does the government collect tax revenue? Unlike a casino, a physical space in a specific location through which all wagers ultimately pass, there is no central collection mechanism for online transactions that could fall under the exclusive jurisdiction of one state. This makes collection harder, as well as limits other indirect revenue generators, like tourism, from taking effect. This suggests that New Jersey should not hope for a Delaware or Las Vegas style “race to the bottom” advantage for informal wagering facilitation businesses.[17] However, even if they did gain an advantage, the enforcement of a law like this would seem to cause a larger headache than the revenue likely to be gained from it. While a “friends and family” law may lead to a symbolic victory for New Jersey, the practical implications of regulating and collecting significantly curtail the benefits of any such law.

Despite this analysis, it is unclear that New Jersey will need to engage with alternative solutions, provided it can be patient for possibly even just a couple years. The main opponents to legal sports betting are the major sports leagues themselves.[18] Sports betting is a gigantic business, with the American Gaming Association estimating that upwards of 153 billion dollars was spent on sports betting in 2016, almost all of it spent illegally.[19] Yet, cracks in the unity of the major leagues have begun to show. Despite initially resisting fantasy sports, the MLB, NFL, NBA, and NHL all now embrace fantasy sports as part of the sport’s appeal.[20] Akin to the NCAA March Madness tournament, fantasy leagues can be played for no money, but between money wagered and money spent on services and expert advice, current estimates figure fantasy sports is a four billion dollar industry.[21] Further, most teams in each of the leagues party to this case have formed official partnerships with daily fantasy leagues.[22] These daily fantasy companies maintain that daily fantasy is not gambling, but after initial success, daily fantasy has received pushback from both legislators and courts based on its close resemblance to more recognized forms of gambling.[23]

Further, Adam Silver, the Commissioner of the NBA, penned a New York Times Article in November 2014 calling for a legalized, government-regulated sports betting framework.[24] Despite this, all leagues mentioned, as well as the NCAA continue to support PASPA and oppose New Jersey’s efforts to legalize sports betting within its borders, yet there may come a time in the near future when that position changes.

While it seems unlikely that the Supreme Court will grant certiorari to New Jersey’s appeal of the constitutionality of PASPA, it likely will not be the final word over the fight for legalizing sports betting. New Jersey, or another state, may find a way to partially legalize sports betting, via a “friends and family” law or some other method. Yet regardless, cracks are starting to show in the unity of the major American sports leagues, and it may only be a matter of time before the leagues themselves favor legalization.

  1. See Darren Heitner, Is Sports Betting About To Become Legal Outside of Nevada?, Forbes (Feb. 15, 2016), https://www.forbes.com/sites/darrenheitner/2016/02/15/is-sports-betting-about-to-become-legal-outside-of-nevada/#3e77e43f2467. ↑
  2. S. Rep. No. 102-248, at 7 (1991), reprinted in 1992 U.S.C.C.A.N. 3553, 3558. ↑
  3. Brief in Opposition at 7, Christie v. NCAA, No. 16-476 (U.S. Supreme Dec. 14, 2016). ↑
  4. Petition for a Writ of Certiorari at 4, Christie v. NCAA, No. 16-476 (U.S. Supreme Oct. 7, 2016). ↑
  5. Brief in Opposition, supra note 3, at 17. ↑
  6. Nat’l Collegiate Athletic Ass’n v. Governor of New Jersey, 832 F.3d 389, 396–97 (3d Cir. 2016). ↑
  7. Id. at 401. ↑
  8. Id. ↑
  9. See David Purdum, 70 Million Brackets, $10.4 Billion in Bets Expected for March Madness, ESPN (Mar. 14, 2017), http://www.espn.com/chalk/story/_/id/18901384/70-million-brackets-104-billion-bet-ncaa-tournament. ↑
  10. The average entry fee expected for 2017 is 29 dollars. See id. ↑
  11. See Marc Edelman, The Legal Risk of Operating NCAA Tournament Pools, Forbes (Mar. 13, 2017), https://www.forbes.com/sites/marcedelman/2017/03/13/the-legal-risk-of-operating-ncaa-tournament-pools. ↑
  12. Nat’l Collegiate Athletic Ass’n, 832 F.3d at 401. ↑
  13. Id. ↑
  14. There is strong indication that it does not. See Will Green, Will New Jersey Take a Third Swing at Legal Sports Betting Via “Friends and Family” Approach?, Legal Sports Rep. (Aug. 22, 2016), http://www.legalsportsreport.com/11157/nj-sports-betting-possiblities. ↑
  15. See, e.g., Marc Edelman, PayPal Does Not Accept Funds for NCAA Tournament Pools, but Others Are Willing to Incur the Risk, Forbes (Mar. 16, 2015), https://www.forbes.com/sites/marcedelman/2015/03/16/paypal-does-not-accept-funds-for-ncaa-tournament-pools-but-others-are-willing-to-incur-the-risk. ↑
  16. See Erik Malinowski, If You’re Gambling on March Madness with your PayPal Account, You Might Want To Stop Now, Deadspin (Mar. 15, 2012), http://deadspin.com/5893470/if-youre-gambling-on-march-madness-with-your-paypal-account-you-might-want-to-stop-now; see also Purdum, supra note 9. ↑
  17. Cf. Robert E. Wright, How Delaware Became the King of U.S. Corporate Charters, Bloomberg (June 8, 2012), https://www.bloomberg.com/view/articles/2012-06-08/how-delaware-became-the-king-of-u-s-corporate-charters. ↑
  18. See Brief in Opposition, supra note 3; see also Dustin Gouker, What the NFL, NBA and MLB Have To Say About Daily Fantasy Sports and Sports Betting, Legal Sports Rep. (Nov. 4, 2015), http://www.legalsportsreport.com/5798/nfl-nba-mlb-on-dfs-and-sports-betting. ↑
  19. Am. Gaming Ass’n, State of the States 2016 at 38 (2016), https://www.americangaming.org/sites/default/files/2016%20State%20of%20the%20States_FINAL.pdf. ↑
  20. See, e.g., Fantasy, NFL.com, http://www.nfl.com/fantasyfootball (last visited Mar. 24, 2017). ↑
  21. Fantasy Sports Services in the U.S., IBISWorld (Sep. 2016), https://www.ibisworld.com/industry/fantasy-sports-services.html. ↑
  22. See DFS Partnership / Sponsorship Tracker, Legal Sports Rep., http://www.legalsportsreport.com/dfs-sponsorship-tracker (last visited Mar. 24, 2017). ↑
  23. See, e.g., Joe Drape, Nevada Says It Will Treat Daily Fantasy Sports Sites as Gambling, N.Y. Times (Oct. 15, 2015), https://www.nytimes.com/2015/10/16/sports/gambling-regulators-block-daily-fantasy-sites-in-nevada.html. ↑
  24. Adam Silver, Legalize and Regulate Sports Betting, N.Y. Times (Nov. 13, 2014), https://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silver-legalize-sports-betting.html. ↑
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