Gambling and the Law: Court gets New Jersey sports betting wrong again
19 August 2015
Last year, I wrote an article explaining why the federal Court of Appeal was incorrect in ruling New Jersey could not regulate sports betting.
The same court has now got it wrong again, this time ruling that the Garden State cannot even deregulate sports betting.
In other words, when it comes to sports betting, New Jersey may not regulate, and it may not not regulate.
The main problem is the federal Professional and Amateur Sports Protection Act.
PASPA is one of the most radical federal laws ever enacted. It is the first, and I believe only, statute ever passed by Congress which prevents states from legalizing a form of betting. States, and not the federal government, have always had the sole power to determine what they want their public policies to be toward gambling within their borders. That is why Utah and Nevada can share a common border but one state has casinos and the other has no legal gambling whatsoever.
PASPA overrules the states. It makes it unlawful for “a governmental entity to sponsor, operate, advertise, promote, license or authorize by law or compact 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 on one or more performances of such athletes in such games.”
It is easy to see why PASPA has severe constitutional problems. The United States is exactly that: a federation of sovereign states that have become united. It is easy to forget that it is the states, not the federal government, that started with unlimited power. After the American Revolution, the states gave up some, but by no means all, of their powers as independent colonies to create a federal government. The recurring fight over states’ rights is the result of the constant need to balance the rights of the states to decide their own public policies and the more limited right of the federal government to set policies that will be consistent across the nation. In the law, this is often called “Our Federalism.”
The issue of gambling is one of the easiest questions to answer under Our Federalism. Gambling falls under the states’ police power. This is the right, and obligation, of local governments to protect the health, safety, welfare and morality of their residents.
There has never been any doubt that gambling has always been a state police power issue. The federal government only becomes involved when the U.S. Constitution gives Congress and not the states the exclusive power over an issue, as with Indian gaming; or when the states ask the central government for help.
State voters through their state constitutions, initiatives and legislatures, decide whether any or all betting should be made legal, and, if legal, how it should be regulated. If the voters of New Jersey want to have brick-and-mortar or even online casinos in Atlantic City, the federal government cannot say, "You've made the wrong decision." Prior to PASPA, the few federal anti-gambling laws that were enacted by Congress were always limited to helping the states enforce their public policies toward gambling.
PASPA changed all that for sports betting. States which allowed wagering on sports events in 1991 were grand-fathered-in, but every other state, with one exception, were locked out. State lotteries, most notably Delaware and Oregon, could continue their parlay sports games, but only if they were in existence between January 1, 1976, and August 31, 1990. Other forms of state-legal sports betting could also continue, but only if they had been authorized by a statute in effect on October 2, 1991, and were being offered to the public “at any time during the period beginning September 1, 1989, and ending October 2, 1991.”
Federal courts later ruled that even states that had sports betting could not change their games. The Delaware Lottery was stuck with parlay bets, and could not start taking straight head-to-head bets like Nevada sports books do, because it didn’t offer that particular form of sports betting during the magic years.
The one exception in PASPA was New Jersey. Atlantic City casinos successfully lobbied Congress to give them one year to get sports betting legalized in New Jersey. But PASPA’s author, former professional basketball player Sen. Bill Bradley, was also from New Jersey and had even greater political power. Casinos could not even get the question of legalizing sports betting on the ballot, at least not then.
As the years passed and Atlantic City’s fortunes diminished with the growing competition from neighboring states legalizing casinos, the interest in sports betting revived. Especially galling to casino executives and employees were billboards near the entrances to Atlantic City, advertising the legal gambling in Delaware, which included sports betting. New Jersey State Senator Raymond J. Lesniak responded, by authoring bills to legalize sports betting in the state’s racetracks and casinos.
Sen. Lesniak first got a constitutional amendment on the ballot. In November 2011 New Jersey voters overwhelmingly approved changing their State Constitution to allow sports gambling at casinos and racetracks.
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...
Lesniak then wrote an enabling statute, the Sports Wagering Law, often called the “2012 Law,” which gave state regulators the power to license sports betting, including sports pools, in casinos and racetracks. Gov. Christie signed the bill into law. The result was casinos and racetracks could now take bets on sports events, with the exception of college events taking place in New Jersey or New Jersey college teams competing anywhere. It also created a comprehensive regulatory system for the new sports books.
The NFL and other leagues immediately filed suit. The first case, commonly called Christie I, did not go well for the state.
There is no dispute that the 2012 Law directly conflicts with PASPA. Under the U.S. Constitution’s Supremacy Clause, the only way the new state law could stand would be if the federal law violated the U.S. Constitution.
There were, and are, many potential challenges to PASPA’s constitutionality.
There is a general misconception that sports betting is only legal in Nevada, or perhaps in two or three other states. In fact, betting on sports events is authorized by state statute in about a dozen states under PASPA, because they had legal sports betting in 1991 or are expressly exempt, like jai alai.
Imagine what would happen to any other federal statute this irrational and discriminatory. Could Congress have passed a law in 1928 making it a crime for states to allow movies to have sound, but exempting a dozen states that were already showing talkies?
The federal courts brushed off this blatant discrimination, by characterizing PASPA as merely permitting “Nevada to license widespread sports gambling while banning other states from doing so.” “Appellants ignore another feature that distinguishes PASPA . . . that far from singling out a handful of states for disfavored treatment, PASPA treats more favorably a single state.”
Of course, this is factually wrong. PASPA permits a dozen states to license all sorts of forms of sports gambling, but does not permit any of them to change what they were doing in 1991, nor does it allow any of the other 40+ states and territories from even experimenting with limited betting on sports events.
PASPA is unconstitutional in other ways. There has never before been an Act of Congress which so restricts the right of states to raise revenue. There is no time limit on sports betting continuing in the dozen favored states, a violation of the express commandment in the Constitution that intellectual property exclusivity be time limited. If the sole purpose of PASPA is to prevent the spread of state-sponsored gambling, it would seem to violate the Interstate Commerce Clause to irrationally allow a dozen states to continue to expand their legal sports betting, as long as they stick with the same forms. There is no precedent upholding the right of Congress to permit a dozen states to continue to offer, forever, activities that are supposedly undesirable while forever barring every other state from those same activities.
And there has never before been an Act of Congress giving private organizations the power to enforce a federal law against a state. “A civil action to enjoin [a state from legalizing sports betting] may be commenced . . .by the Attorney General of the United States, or by a professional sports organization or amateur sports organization whose competitive game is alleged to be the basis of [the wager].” States cannot be sued without their consent. If a state cannot be sued by an Indian tribe or its own state employees, what chance is there that the Court would allow a suit by an amateur sports organization.
Of course, the biggest problem with PASPA is that it violates Our Federalism, by stomping on traditional states’ rights.
The lawyers for the state did not do a good job of defending this most fundamental of concepts. PASPA violates the U.S. Constitution because it undercuts the very structure of the American system. Congress, for the first time in history, has assumed power to tell the states what their public policies must be when it comes to gambling, an area that has been, and still is, reserved to the states. Instead of focusing on the history and purpose of the creation of the federal government by the states, Gov. Christie’s lawyers got lost in a thicket of obscure constitutional doctrines. They dug up the obscure doctrine of “commandeering,” which prohibits Congress from commanding a state to do a particular act. The U.S. Supreme Court has only invalidated acts of Congress two times under the anti-commandeering doctrine. Worse, the Court hearing the appeal has never found a federal law was impermissibly commandeering a state.
You should know you are on the wrong track when you are asking a court to do something which it has never done before.
So, in a two to one decision, the U.S. Third Circuit Court of Appeals found PASPA to be constitutional. The Court upheld the decision of the trial judge, U.S. District Judge Michael A. Shipp, to enjoin the 2012 Act.
That would normally have been the end of the attempt to bring sports betting to New Jersey. The state tried to get the U.S. Supreme Court to reverse. But the High Court hears very few cases, particularly when there is no disagreement between Courts of Appeals. If the Ninth Circuit or some other court ruled that PASPA was unconstitutional, there would then be a reason for the Supreme Court to decide the question.
But Sen. Lesniak and the New Jersey Legislature got creative. Reading extremely carefully both the language of PASPA and the written opinions from the courts involved with Christie I, they came up with a way of legalizing sports betting. They simply eliminated all of the laws which made sports betting illegal.
Their thinking was as follows: PASPA is limited to certain specified acts. If the state did none of those, it could not fall under PASPA. Here's the checklist, from the language of PASPA itself:
Sponsor -- Eliminating the laws that make sports betting a crime does not make the state a sponsor of the act.
Operate -- The state would not be operating sports betting.
Advertise -- Nope.
Promote -- Nope.
License -- No licenses would be issued.
Or, authorize by law or compact -- Decriminalizing is not authorizing.
This analysis was supported by the Court's own language in Christie I. “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.” “We do not see how having no law in place governing sports wagering is the same as authorizing it by law.”
So, in 2014, the Legislature passed SB 2460 (the 2014 Law), which provided in part: any 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...
The 2014 Law apparently meant what it said. At oral argument, the lawyers for the state declared that under the 2014 Law the state would have nothing to do with any sports betting that took place at a casino or racetrack. "Appellants conceded they would have no authority or jurisdiction over sports wagering. See, e.g., Tr. 14:12–15 ('Q: Sports betting is going to take place in the casino with no oversight whatsoever; A: That's right.'"
In fact, the New Jersey Legislature and its casino regulators would have literally no power in any way over any wagers on any sports event. Sports betting would not even be considered gambling: “[Division of Gaming Enforcement (“DGE”) ] now considers sports wagering to be ‘non-gambling activity’ . . . that is beyond DGE's control and outside of DGE's regulatory authority.” App. 416 . . . Tr. 21:15–20 (“All of the state and federal laws that deal with consumer protection, criminal penalties and the like remain in full force and effect at the sports betting venue. The only thing that doesn't get regulated is the sports betting itself.”).
But, in another two to one decision, the Third Circuit again ruled that New Jersey could not legalize sports betting, even by repealing all of its anti-sports betting laws. The majority held that the 2014 Act violated PASPA.
The majority noted that only casinos and racetracks would now be exempt from the state's anti-gambling laws. Plus, there were additional restrictions, such as the sports betting could not involve sports events taking place in New Jersey, or New Jersey teams playing anywhere.
The Dissent pointed out that repealing a law is not the same as authorizing one. A repeal means the law no longer exists, period.
As this article is being written, the state has asked for reconsideration by the entire Third Circuit. Such rehearings are rare, but there is some indication that some justices are interested. They have asked the NFL and other appellees to respond to the motion. Justices not involved in the original hearing may be unhappy with the holding that a repeal is the same as an authorization. Repealing a statute has always meant that the law is completely erased, as if it never existed, at least for acts taking place after the repeal. Imagine the problems that would be created if a repeal meant something else: What exactly would that something else be?
There are, of course, other reasons the Court could use to declare the 2014 Act invalid.
First, on its face the 2014 Act either does authorize sports betting, and thus violates PASPA, or it doesn't, in which case it violates the State Constitution. The 2011 New Jersey Constitutional amendment only empowers the State Legislation to "authorize" sports betting. In fact, the previous paragraph in the same section of the New Jersey Constitution spells out in detail how thoroughly gambling in casinos has to be regulated:
It shall be lawful for the Legislature to authorize by law the establishment and operation, under regulation and control by the State, of gambling houses or casinos within the boundaries . . . of Atlantic City . . . and to license and tax such operations and equipment used in connection therewith. Any law authorizing the establishment and operation of such gambling establishments shall provide for the State revenues derived therefrom to be applied solely for the purpose of providing funding for reductions in property taxes . . .of eligible senior citizens . . . with such formulae as the Legislature shall by law provide. The type and number of such casinos or gambling houses and of the gambling games which may be conducted in any such establishment shall be determined by or pursuant to the terms of the law authorizing the establishment and operation thereof.
PASPA expressly prevents a state from regulating, directly or indirectly, any form of sports betting. Despite the declarations from the state's attorney during oral arguments, it is impossible to believe that sports betting in Atlantic City casinos would be unregulated. Under well established gaming law states regulate everything that takes place on the grounds of tracks and casinos.
The Nevada Supreme Court has ruled that state gaming regulators could require the owner of a dress shop to be examined for suitability. Planet Hollywood had to pay a large fine and agree to police a private nightclub on the casino's grounds.
If a casino and its state regulators, were not responsible for activities taking place in the casino, what would sports betting in Atlantic City look like? If the 2014 Act truly eliminated all laws and regulations related to sports betting, then anyone could take a bet from anyone else on a sports event. That might be acceptable. But if a company wanted to set up a sports book, it would have to be treated like any other retail business that wished to operate on the casino floor. If a casino has an agreement with Burger King, it is not going to sit by if McDonalds tries to set up a competing operation in the casino building. Any sports book would have to have the approval of the casino's executives. And those executives would have to report the operation to state regulators. The regulators in turn would have to investigate and oversee the sports book, to ensure that the casino company was not doing business with individuals who were unsuitable.
Does anyone really believe that the New Jersey Division of Gaming Enforcement, a part of the State Attorney General's office, would allow known organized crime figures to take bets on sports events on the floors of Atlantic City casinos?
© Copyright 2015. Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law and is a consultant and expert witness for governments and industry. His latest books, GAMING LAW IN A NUTSHELL, INTERNET GAMING LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.
© Copyright 2015, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose.