By: James G. Gatto and Mark A. Patrick
Earlier this month, a federal appellate court struck down New Jersey’s sports betting law holding that the Professional and Amateur Sports Protection Act (“PASPA”), 28 U.S.C. §§ 3701-3704 (1992), prohibits states from authorizing sports gambling by law, and that the New Jersey law violates PASPA for doing just that. The court also upheld the constitutionality of PASPA, ruling that PASPA does not commandeer the states in a way that runs afoul of the Constitution. This is a setback for NewJersey in its efforts to revitalize its beleaguered casino and racetrack industries via sports betting. Ironically, this decision comes just days after New York Governor Andrew Cuomo signed into law a bill to legalize daily fantasy sports in New York.
This case—NCAA v. Governor of New Jersey, Nos. 14-4546, 14-4568, and 14-4569 (3d Cir. Aug. 9, 2016) (en banc)—is the latest decision in a long-running saga over the legality of sports betting in New Jersey. The NewJersey law in question, SB 2460, repealed certain prohibitions on sports betting in New Jersey. The NCAA and various professional sports leagues opposed its legality as a violation of PASPA. The United States District Court for the District of New Jersey ruled that the law was illegal for being in violation of PASPA. The United States Court of Appeals for the Third Circuit addressed the issue on appeal.
A primary issue in the case was whether repealing a prohibition on gambling was tantamount to authorizing gambling by law. The majority of the en banc panel said yes. Two dissenting opinions disagreed. To understand the nuances of this issue, a review of the long, winding history of PASPA and the New Jersey law is necessary.
Professional and Amateur Sports Protection Act of 1992
PASPA provides:
It shall be unlawful for [either] (1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or (2) a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly, . . . on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.
28 U.S.C. § 3702 (emphasis added). For purposes of PASPA, governmental entities include states. Id. § 3701(2). PASPA also includes a provision that permits any sports league whose games are, or will be, the subject of sports gambling to bring an action to enjoin the gambling. Id. § 3703.
In PASPA, Congress included exceptions for state sponsored sports wagering in Nevada and sports lotteries in Oregon and Delaware. Id. § 3704(a). Congress also included an exception for New Jersey, but only if New Jersey were to enact a sports gambling regulatory scheme within one year of PASPA’s enactment (i.e., October 28, 1992). Id. In this case, the court found that New Jersey did not do so, and thus missed its window. Slip op. at 8.
New Jersey Sports Betting Legislative Activity
The majority opinion of the en banc panel provided a detailed chronology of the history of the New Jersey sports betting law, stating:
Notably, sports gambling was prohibited in NewJersey for many years by statute and by the New Jersey Constitution. In 2010, however, the New Jersey Legislature held public hearings on the advisability of allowing sports gambling. These hearings included testimony that sports gambling would generate revenues for New Jersey’s struggling casinos and racetracks. In 2011, the Legislature held a referendum asking New Jersey voters whether sports gambling should be permitted, and sixty-four percent voted in favor of amending the New Jersey Constitution to permit sports gambling. The constitutional amendment provided: “It shall also be lawful for the Legislature to authorize by law wagering at casinos or gambling houses in Atlantic City on the results of any professional, college, or amateur sport or athletic event, except that wagering shall not be permitted on a college sport or athletic event that takes place in New Jersey or on a sport or athletic event in which any New Jersey college team participates regardless of where the event takes place . . . .” The amendment thus permitted the New Jersey Legislature to “authorize by law” sports “wagering at casinos or gambling houses in Atlantic City,” except that wagering was not permitted on New Jersey college teams or on any collegiate event occurring in New Jersey. An additional section of the amendment permitted the Legislature to “authorize by law” sports “wagering at current or former running and harness horse racetracks,” subject to the same restrictions regarding New Jersey college teams and collegiate events occurring in New Jersey. After voters approved the sports-wagering constitutional amendment, the New Jersey Legislature enacted the Sports Wagering Act in 2012 (“2012 Law”), which provided for regulated sports wagering at New Jersey’s casinos and racetracks. The 2012 Law established a comprehensive regulatory scheme, requiring licenses for operators and individual employees, extensive documentation, minimum cash reserves, and Division of Gaming Enforcement access to security and surveillance systems.
Slip op. at 8-9 (citations omitted).
The Ensuing Lawsuits
Five sports leagues—the National Collegiate Athletic Association (NCAA), National Football League (NFL), National Basketball Association (NBA), National Hockey League (NHL), and the Office of the Commissioner of Baseball, doing business as Major League Baseball (MLB) (collectively, the “Leagues”)—sued to enjoin the 2012 Law for violating PASPA. New Jersey did not dispute that the 2012 Law violated PASPA, but argued that PASPA was unconstitutional under the anti-commandeering doctrine, which prohibits Congress from compelling the States, or a State’s officers, to enact or enforce a federal regulatory program.
The district court held that PASPA was constitutional and enjoined implementation of the 2012 Law. New Jersey appealed, and a panel of the Court of Appeals for the Third Circuit affirmed in NCAA v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013) (Christie I). In Christie I, the court stated, “Nothing in [PASPA’s] words requires that the states keep any law in place. All that is prohibited is the issuance of gambling ‘license[s]’ or the affirmative ‘authoriz[ation] by law’ of gambling schemes.” Id. at 232. This highlighted the dispute over whether repealing a law that prohibited gambling was tantamount to authorizing gambling. In the instant case, the court stated:
The New Jersey Parties had urged that PASPA commandeered the state because it prohibited the repeal of New Jersey’s prohibitions on sports gambling; they reasoned that repealing a statute barring an activity would be equivalent to authorizing the activity, and “authorizing” was not allowed by PASPA. We rejected that argument, observing that “PASPA speaks only of ‘authorizing by law’ a sports gambling scheme,” and “[w]e [did] not see how having no law in place governing sports wagering is the same as authorizing it by law.” We further emphasized that “the lack of an affirmative prohibition of an activity does not mean it is affirmatively authorized by law. The right to do that which is not prohibited derives not from the authority of the state but from the inherent rights of the people.” In short, we concluded that the New Jersey Parties’ argument rested on a “false equivalence between repeal and authorization.”
Slip op. at 11 (citations omitted).
Subsequent Legislative Activity
After New Jersey appealed to the Supreme Court and certiorari was denied, the New Jersey legislature, in 2014, passed into law SB 2460 (“2014 Law”). This law states, in part:
[A]ny rules and regulations that may require or authorize any State agency to license, authorize, permit or otherwise take action to allow any person to engage in the placement or acceptance of any wager on any professional, collegiate, or amateur sport contest or athletic event, or that prohibit participation in or operation of a pool that accepts such wagers, are repealed to the extent they apply or may be construed to apply at a casino or gambling house operating in this State in Atlantic City or a running or harness horse racetrack in this State, to the placement and acceptance of wagers on professional, collegiate, or amateur sport contests or athletic events . . . .
N.J. Stat. Ann. § 5:12A-7 (2014). The 2014 Law specifically prohibited wagering on New Jersey college teams’ competitions and on any collegiate competition occurring in New Jersey, and it limited sports wagering to “persons 21 years of age or older situated at such location[s],” namely casinos and racetracks. Id.
Subsequent Litigation
The Leagues sought an injunction against NewJersey to prevent it from giving the law effect. The district court granted the injunction, after ruling on summary judgment that the law violates PASPA. The district court interpreted Christie I as holding that PASPA offers two choices to states: maintain prohibitions on sports gambling or completely repeal them. It reasoned that the 2014 Law runs afoul of PASPA because the 2014 Law results in a partial repeal that necessarily results in sports wagering with the State’s authorization. NewJersey again appealed.
On appeal, New Jersey argued that the 2014 Law does not constitute an authorization in violation of PASPA, and it is consistent with Christie I because the New Jersey Legislature effected a repeal as Christie I specifically permitted. The Leagues argued that the 2014 Law violates PASPA because it “authorizes by law” sports wagering and also impermissibly “licenses” the activity by confining the repeal of gambling prohibitions to licensed gambling facilities and thus, in effect, enlarging the terms of existing gaming licenses.
A panel of the Court of Appeals for the Third Circuit affirmed the decision in Christie I in a divided opinion, which was subsequently vacated. In the instant case, an en banc panel essentially agreed with the reasoning of the panel majority’s opinion.
The court acknowledged the salutary purpose of the law in trying to revive the troubled casino and racetrack industries and recognized that PASPA has stymied New Jersey’s attempts to revive its casinos and racetracks while providing additional jobs for its workforce. Nevertheless, it concluded that the 2014 Law violates PASPA because it authorizes sports gambling by law.
In its analysis, the court stated:
First, the 2014 Law authorizes casinos and racetracks to operate sports gambling while other laws prohibit sports gambling by all other entities. Without the 2014 Law, the sports gambling prohibitions would apply to casinos and racetracks.
Second, the 2014 Law authorizes sports gambling by selectively dictating where sports gambling may occur, who may place bets in such gambling, and which athletic contests are permissible subjects for such gambling . . . . The word “authorize” means, inter alia, “[t]o empower; to give a right or authority to act,” or “[t]o permit a thing to be done in the future.” Black’s Law Dictionary 133 (6th ed. 1990). The 2014 Law allows casinos and racetracks and their patrons to engage, under enumerated circumstances, in conduct that other businesses and their patrons cannot do. That selectiveness constitutes specific permission and empowerment.
. . .
Third, the exception in PASPA for New Jersey, which the State did not take advantage of before the one-year time limit expired, is remarkably similar to the 2014 Law. The exception states that PASPA does not apply to “a betting, gambling, or wagering scheme . . . conducted exclusively in casinos . . . , but only to the extent that . . . any commercial casino gaming scheme was in operation . . . throughout the 10-year period” before PASPA was enacted. 28 U.S.C. § 3704(a)(3)(B). The exception would have permitted sports gambling at New Jersey’s casinos, which is just what the 2014 Law does. We can easily infer that, by explicitly excepting a scheme of sports gambling in New Jersey’s casinos from PASPA’s prohibitions, Congress intended that such a scheme would violate PASPA. If Congress had not perceived that sports gambling in New Jersey’s casinos would violate PASPA, then it would not have needed to insert the New Jersey exception. In other words, if sports gambling in New Jersey’s casinos does not violate PASPA, then PASPA’s one-year exception for New Jersey would have been superfluous.
Slip op. at 17-19. The court also addressed the state’s argument that the 2014 Law is only a “repeal” removing prohibitions against sports gambling, and it is not an “affirmative authorization” under Christie I, stating:
To the extent that in Christie I we took the position that a repeal cannot constitute an authorization, we now reject that reasoning. Moreover, we do not adopt the District Court’s view that the options available to a state are limited to two. Neither of these propositions were necessary to their respective rulings and were, in essence, dicta. Furthermore, our discussion of partial versus total repeals is similarly unnecessary to determining the 2014 Law’s legality because the question presented here is straightforward—i.e., what does the law do—and does not turn on the way in which the state has enacted its directive.
Slip op. at 18. A first dissenting opinion largely agreed with New Jersey, opining that partial repeal of prohibitions is not tantamount to authorizing by law a sports wagering scheme in violation of PASPA. A second dissenting opinion largely agreed with the first dissent and further questioned the constitutionality of PASPA, stating:
The bedrock principle of federalism that Congress may not compel the States to require or prohibit certain activities cannot be evaded by the false assertion that PASPA affords the States some undefined options when it comes to sports wagering. Because I believe that PASPA was intended to compel the States to prohibit wagering on sporting events, it cannot survive constitutional scrutiny. Accordingly, as I did in Christie I, I dissent.
Slip op. at 41 (Vanaskie, J., dissenting).
Conclusion
At least for now, sports betting in the United States remains limited by PASPA. Absent a successful appeal to the Supreme Court, it seems likely that an amendment to, or repeal of, PASPA may be needed if states want to move forward with sports betting. At least one state legislature (Pennsylvania) has taken action, urging Congress to repeal PASPA. In support of that action, Rep. Robert Matzie noted that sports betting in the United States totals an estimated $400 billion per year, with only 1 percent taking place in legal form. Other states (e.g., CA and NY) have already introduced bills that would permit sports betting if allowed by federal law.
James G. Gatto is a partner in the Intellectual Property practice group in Sheppard Mullin’s Washington, D.C. office. He is also co-leader of the firm’s Digital Media Industry and Social Media and Games Industry teams, and leads the firm’s Open Source team. Mark A. Patrick is an associate in the Intellectual Property practice group focusing in the firm’s Washington D.C. office.
