Prospectus Feature: Sports Gambling Illegal, Still

In the newest, but probably not last, chapter of New Jersey’s long battle to legalize sports gambling, yesterday the Third Circuit Court of Appeals in NCAA v. Governor of the State of New Jersey again upheld the constitutionality of the federal law preventing gambling on professional and college sports. The defeat serves as yet another judicial setback for the State of New Jersey’s attempt to legalize sports gambling at its casinos and racetracks.

New Jersey’s plight began in 1992 when Congress passed the Professional and Amateur Sports Protection Act (“PASPA”). Alongside a broad prohibition on sports gambling, Congress included a series of exceptions for states that permitted sports gambling over the ten year period preceding the law’s enactment. This, of course, is how Nevada can maintain gambling in its sportsbooks. One of the exceptions was given to New Jersey—if New Jersey passed a regulatory scheme authorizing sports gambling in the year after the law was passed, New Jersey would not be subject to its main prohibitions. But New Jersey elected not to do so; instead, both its constitution and laws prohibited sports gambling. In 2011, desperate to reinvigorate Atlantic City and its gaming industry, the state held a referendum to amend the constitution to permit sports gambling, which passed easily. The New Jersey legislature followed up in 2012 with a bill authorizing sports gambling at casinos and racetracks. MLB, along with the NFL, NBA, NHL and NCAA (the “Leagues”), vindicating a right expressly granted to the Leagues by Congress, sued to enjoin the state under the terms of PASPA, which expressly prohibits states from “authorizing” sports gambling.

On the first go round in court, New Jersey acknowledged that PASPA prohibited the state’s attempt to authorize sports gambling, but asserted the law was unconstitutional under what is known as the anti-commandeering doctrine. The doctrine provides that, as an essential element of our federalist system in which the federal and state governments share power, Congress cannot commandeer the states to enforce federal law. Essentially, on issues in which both the federal government and state government share regulatory authority, the federal government must leave the states a choice as to how they may deploy their resources. The District Court found there was no commandeering and granted judgment to the Leagues, preventing the law from going into effect. On appeal, the Third Circuit’s 2013 Opinion agreed and stated that PASPA was constitutional because nothing within the statute requires a state to keep any law in place. But the court also left the door open for this lawsuit, musing that New Jersey was free to repeal the prohibitions already in place and explaining that the repeal of a prohibition was not the same as legal authorization of an activity.

Seizing upon this language, New Jersey state legislature decided to partially repeal its laws prohibiting sports gambling in a way intended to allow casinos and racetracks to offer sports betting. Again, the Leagues filed suit in federal court arguing that New Jersey was in violation of federal law. And again the District Court sided with the Leagues. New Jersey again appealed the decision to the Third Circuit. Last August, by a 2-1 margin, a three judge panel at the Third Circuit affirmed the District Court’s ruling, finding New Jersey’s “partial repeal” of its law to be an authorization of sports gambling. The court reasoned that the carefully couched language nonetheless violated the still-constitutional PASPA. Interestingly, the author of the 2013 Opinion, Circuit Judge Raymond Fuentes, dissented from the Majority’s August 2015 opinion, arguing that New Jersey had done exactly what the court had previously stated they could lawfully do: repeal any existing law on sports gambling. New Jersey moved for a rehearing “en banc,” meaning in front of all the judges of the Circuit, not just a three judge panel. En banc petitions are rarely granted, but this one was, most likely because of Judge Fuentes' dissent after authoring the 2013 Opinion.

This glimmer of hope for New Jersey (generally, when an en banc petition is granted, it tends to favor the party who lost initially in the appeal) was extinguished by a 10-2 vote to affirm. The Majority Opinion found that New Jersey’s partial repeal was essentially an authorization in violation of PASPA, as it was targeted to specific businesses (casinos and racetracks), specific age requirements (21 and over) and on specific events (those not involving contests in New Jersey or New Jersey college teams). In rejecting the renewed anti-commandeering argument, the Majority further determined that though this selective repeal is not valid under PASPA, the statute still leaves states with “sufficient room” to craft their own policies. The court insisted that there may be options for New Jersey that would be permitted under the statute, but at this time did not specify what those other options would be.

Both dissenting opinions touched on this apparent intentionally vague statement. Judge Fuentes applied his own logic from the 2013 Opinion to conclude that repeal is not equivalent to authorization, and thus New Jersey’s legislation maneuvering does not authorize sports gambling, it merely removes the state from regulating it. Judge Thomas Vanaskie, who also dissented in the 2013 Opinion, offered a more strident critique and again reiterated his earlier view that PASPA is unconstitutional under the anti-commandeering doctrine. In his view, the Majority Opinion’s backtrack on the issue of repeal and direction to “excise” portions of its 2013 Opinion that might be contradictory, demonstrates that PASPA unconstitutionally leaves New Jersey with no options under the law.

New Jersey now has two options if it wants to continue the fight to legalize sports gambling: 1) file a petition of certiorari to the Supreme Court (granted in approximately 1 percent of petitions); or 2) lobby Congress for either an exemption or a wholesale repeal of PASPA. The State will likely pursue both options. State Senator Raymond Lesniak has already indicated that New Jersey will petition the Supreme Court, though he acknowledged it is “a long shot.” While the Supreme Court could grant the petition, it tends to favor cert only where there is a split in authority among the Courts of Appeals and/or where the decision is likely to have significant impact on cases pending in the lower courts.

As far as the lobbying effort goes, there has been significant momentum in favor of legalizing sports gambling. Several states, including neighboring Pennsylvania, have laid the groundwork for a federal regulatory environment that permits sports gambling. Daily fantasy sports, including those entities whose partners include the major professional leagues, are on the road to being legal and state-regulated. The Leagues themselves are slowly beginning to embrace gambling. Others have pointed out the oddity of allowing just a few states to do something prohibited in all other states (though, it must be noted, varying state law is much more common than one might think). It could easily be argued that the concerns underlying PASPA are not as acute now as they were in the pre-internet, pre-casino proliferation society of 1992. In fact, the Majority Opinion even nodded in this direction, noting that “PASPA is not without its critics,” has become unpopular and may benefit from the transparency that accompanies legality and regulatory oversight. But, as the court made sure to highlight, its duty is not to judge the wisdom of the law or usurp Congress’ role.

The court’s ruling underlines what most legal experts always thought: that any progress towards legalizing sports gambling will come from Congress, not the courts.