Hedge your bets in the high-stakes NJ vs Congress contest

The Supreme Court is about to hear New Jersey’s case for sports betting. Its decision could open up this revenue stream to every state — or it might forbid it, maybe even in Nevada where it flourishes. Every state legislature needs to plan now for either verdict, says Christopher L. Soriano of Duane Morris LLP

As most readers are aware, since 2011 New Jersey has been fighting a battle against the professional sports leagues, the NCAA, and the federal government for the right to offer sports betting at its casinos and racetracks.

Although this battle has been closely watched, surprisingly few other states have taken any action to plan for the possibility that they, too, might be able to offer sports betting. Interest from a few state legislatures has surged recently because of the opinion that New Jersey has a chance of prevailing before the Supreme Court and having the Professional and Amateur Sports Protection Act (PASPA) overturned or modified so that sports betting, in some form, will be legal in New Jersey.

No fewer than 11 states have taken action to change their state constitutions or legislation to permit sports wagering, and 21 states, led by West Virginia, have signed on to a brief in the Supreme Court urging the Court to hold that PASPA is unconstitutional.

Conventional wisdom is that the Supreme Court is poised to make a change of some type to PASPA, given that the Court agreed to hear the case – which occurs in less than 1% of cases submitted to it.

The decision to hear the case is even more significant because the Solicitor General, the government’s top lawyer before the Court, recommended that the Court not hear the case. Moreover, there is no division among lower courts on the interpretation of PASPA – a factor that typically counsels against the Supreme Court hearing a case.

Taken together, therefore, it appears that the Supreme Court has some interest in clarifying or modifying the federalism principles underlying PASPA. The decision may well result in a finding that PASPA is unconstitutional – and, therefore, states will be free to adopt sports betting as they so choose.

State interest in the sports betting case can be divided into two categories: states interested in sports betting and states interested in the federalism aspects of the case. The states’ amicus brief says as much: “Amici States take no position on the wisdom of sports wagering, nor would all amici likely legalize sports betting even if permitted.”

For those states that do not intend to legalize sports betting even if permitted, the interest at stake is one of separation of federal and state power. According to the states, if PASPA’s method of regulating – prohibiting the states from enacting legislation – is sustained, Congress could act in many areas of traditional state concern, such as medical devices, firearms, lottery tickets, hunting and fishing licenses, alcohol sales, and credit arrangements.

The states argue that under PASPA’s logic, these states could simply pass statutes prohibiting the repeal of laws addressing these activities. These states, therefore, are less concerned about the narrow question of sports betting, and more concerned about whether the Supreme Court will set a broad precedent that implicates their authority as states in a host of other contexts.

More states are concerned not just about federalism, but about the ability to actually offer sports wagering in their states. States that have taken legislative action or are contemplating legislative action are, for the most part, states that already offer legalized gaming in some form and would look to add sports betting as an enhanced option for gaming customers.

Obviously, the impetus for this planning is the desire to take advantage of sports wagering as soon as possible should there be a change to PASPA. Thus far, Connecticut and Mississippi, two states with vibrant gaming industries, have adopted legislation that would authorize sports betting should it become permissible under federal law.

In Mississippi, its gaming regulator would still need to adopt regulations governing sports betting. In Connecticut, because casino gaming is conducted on tribal reservations, the legislation would authorize amendment of the tribal-state compacts to authorize sports betting. The tribal-state compact amendment process can sometimes be time-consuming, but the incentive of offering sports betting is there for both parties.

Other states have pending legislation that would either authorize constitutional amendments to allow sports betting, or would actually authorize sports betting. In many states, state constitutional authorizations for gaming are narrowly tailored and, as a matter of state constitutional law, an amendment to the state constitution is required before the state legislature can authorize sports betting by law.

This is the path that New Jersey had to follow in 2011, based on a court decision from the 1990s that held that if New Jersey wanted to expand gaming in the form of sports betting it had to do so by way of an amendment to the state constitution. Because state constitutions are often difficult to amend – many states require not just legislative approval but voter approval – states that want to take advantage of sports betting would be wise to continue the path of amending their state constitutions now.

Several other states have introduced bills that would require sports betting studies to be conducted, with an eye toward a legislative change to actually implementing sports betting. In a number of states, the expansion of gaming is difficult politically, and often requires incremental change, such as studies that evaluate the risks and benefits of sports betting.

The fact that sports betting has been successfully conducted in Nevada for many years, and is very prevalent in Europe, should make conducting such studies a relatively simple process.

Primarily, sports betting in and of itself is not a huge source of revenue – but its availability increases the number of visits and that results in the monetization of other opportunities, such as sports bars, hotel rooms, and the opportunity to have sports betting-related events.

Of course, all of this could be for naught if the Supreme Court declines to strike or modify PASPA. In that event, these new laws and amendments would be nullities because the state implementation of sports betting would still be precluded by federal law. In that case, it remains to be seen whether federal lobbying efforts would be successful in an effort to change PASPA, or whether there will be some other avenue attempted through the courts.

Finally, states need to be alert to the outside chance that the Supreme Court shuts down sports betting on a nationwide basis, including in Nevada.

One argument made against PASPA is that it unfairly discriminates against states by grandfathering in Nevada’s allowance of sports betting. The Court could conceivably conclude that the constitutional deficiency in PASPA is that Nevada is grandfathered in, and strike the grandfather provision.

This would functionally result in a shutdown of Nevada’s sports betting industry as well, unless a legislative change intervened. The loss of sports betting in Nevada would be a likely catalyst toward a federal legislative change.

Again, although this is an unlikely outcome, it is one the Supreme Court could choose. If it were to happen, states may be able to take advantage of a to-be-determined federal authorization of sports betting, perhaps with states given the opportunity to opt in to sports betting if minimum standards, such as age and problem-gambling protections, are implemented.

Any time a case addressing the federal/state balance of power goes before the Supreme Court, states pay careful attention. States that offer gaming are paying even closer attention now because not only is the balance of power at stake, but the potential revenue benefits offered by sports betting are in play.

The outcome could result in a significant shift in the US gaming landscape, and states are well advised to prepare for the possibility now.

This article is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

Chris Soriano is a partner in the Cherry Hill, NJ office of Duane Morris LLP. He concentrates his practice in gaming law, where he represents casino operators, gaming equipment manufacturers, igaming companies, financial institutions and other participants in the industry in all aspects of their operations.