6 AMERICAN GAMING LAWYER • AUTUMN 2017

>>UPDATE: U.S. SPORTS BETTING

the Current status of sportswagering in new Jersey

By Nicholas Casiello, Jr., CJ Fisher and Robert Baldassarre

Further, Americans wagered more than $15billion on Super Bowl 51 and March Madnessthis year, but only 3% of that amount was wa-gered legally. These numbers not only showthe extent to which sports wagering is em-bedded in our society but also the substantialamount of wagering that exists outside of alegal framework and is unregulated and un-taxed. The AGA estimates that legalizedsports wagering in the United States couldsupport 152,000 new jobs, create an estimated$26 billion in economic output and generateup to $5.3 billion in tax revenue.

For almost 25 years, the Professional andAmateur Sports Protection Act of 1992(“PASPA”) (28 U.S.C. §§ 3701-3704) has pre-vented the expansion of legalized sportswagering in the United States by prohibitingstate-sanctioned sports wagering. PASPAprovides, in part, that it is unlawful for a gov-ernmental entity to sponsor, operate, adver-tise, promote, license, or “authorize by law”sports wagering.2 In enacting PASPA, how-ever, Congress included exceptions for state-sanctioned sports wagering in Nevada andsports lotteries in Oregon, Delaware andMontana. Additionally, Congress carved outan exception that permitted New Jersey, as wellas other states, to authorize sports wageringhad it chosen to do so within one year ofPASPA’s enactment. New Jersey missed outon that opportunity, but some 18 years later,began taking steps to undo its failure.

I. New Jersey Legislative History, and Federal District Court and Appellate HistoryIn 2010, the New Jersey Legislature held pub-lic hearings on the desirability of allowingsports wagering. Proponents of legalizationargued that sports wagering would generaterevenues for New Jersey’s struggling casinosand racetracks. In 2011, the legislature held areferendum asking New Jersey voters whethersports wagering should be permitted, and 64%voted in favor of amending the New JerseyConstitution to permit sports wagering.

The amendment permitted the NewJersey Legislature to “authorize by law”sports wagering at casinos or gambling housesin Atlantic City and at current or former run-ning and harness horse racetracks.3 Theamendment, however, excluded wagering onNew Jersey college teams or on any collegiateevent occurring in New Jersey.

Following the constitutional amendment,the New Jersey Legislature enacted the SportsWagering Act in 2012 (the “2012 Law”)(N.J.S.A. 5:12A-1 to A-6), which provided forregulated sports wagering at New Jersey’s casi-nos and racetracks. Specifically, “[t]he 2012Law established a regulatory scheme, requir-ing licenses for operators and individualemployees, extensive documentation, mini-mum cash reserves, and Division of GamingEnforcement access to security and surveil-lance systems.”4 Continued on next page

AMERICAN GAMING LAWYER • AUTUMN 2017 7

The appeal of sports wagering in the United States, as well as internationally, cannotbe overstated. As described by the United States Court of Appeals for the ThirdCircuit Court (the “Third Circuit”), “[w]agering on sporting events is an activity

almost as inscribed in our society as participating in or watching the sports themselves.”1

The American Gaming Association (the “AGA”) estimates that $92 billion in wagers wasplaced on NFL and college football games for the 2016-2017 season, with only $2 billionof that total wagered legally.

Nicholas Casiello, Jr.

CJ Fisher

Robert Baldassarre

1 National Collegiate Athletic Ass’n v. Governor of New Jersey, 730 F.3d 208, 215 (3d Cir. 2013). 2 28 U.S.C. § 3702. 3 N.J. Const. Art. IV, Section VII, Para. 2(D) and 2(F).4 National Collegiate Athletic Ass’n v. Governor of New Jersey, 832 F.3d 389, 393 (3d Cir. 2016).

Nicholas Casiello, Jr. is Chairof the Gaming Practice Groupand CJ Fisher and Robert Baldassarre are associates in the Gaming Practice Group ofFox Rothschild LLP, an Am Law 100 law firm. Theirpractice focuses on all aspects ofgaming law, including gaming regulatory compliance, investigations and licensing. They may be reached at (609) 348-4515 orncasiello@foxrothschild.com, cjfisher@foxrothschild.com orrbaldassarre@foxrothschild.com

8 AMERICAN GAMING LAWYER • AUTUMN 2017

In 2012, the National CollegiateAthletic Association (“NCAA”) and thefour major professional sports leagues(collectively, “the Leagues”) filed suit inthe United States District Court for theDistrict of New Jersey (“District Court”)to enjoin the Governor of the State ofNew Jersey, along with other state exec-utive officials (collectively, “the State”),from implementing the 2012 Law(“Christie I”).5 The Leagues alleged thatthe 2012 Law violated PASPA’s prohi-bition on state-sanctioned sports wager-ing. The State did not dispute that the2012 Law violated PASPA, but insteadrelied on a number of arguments to chal-lenge the constitutionality of PASPA.Specifically, the State argued that PASPAviolates Congress’s powers under theCommerce Clause, the Tenth Amend-ment’s limitations on Congress’s powersand the Due Process Clause and EqualProtection Principles.

With respect to the Commerce

Clause, the State challenged the excep-tions in PASPA as unconstitutionallydiscriminatory, while the Leaguesargued that PASPA is a permissibleexercise of Congress’s Commerce Clausepowers. The District Court found that,despite its exceptions, Congress actedwithin its Commerce Clause powersbecause it had a rational basis to con-clude that legalized sports wageringwould impact interstate commerce and arational basis to exempt pre-existingsports wagering systems.

The State also argued that PASPAviolates the Tenth Amendment’s limita-tions on Congress’s powers because itrequires New Jersey to prohibit sportswagering in violation of the Anti-Com-mandeering principle established by theUnited States Supreme Court. TheLeagues responded by insisting thatPASPA does not commandeer or compelNew Jersey to do anything, ratherPASPA only prohibits the states fromauthorizing sports wagering. The

District Court again sided in favor of theLeagues and determined that PASPAneither compels nor commandeers NewJersey to take any action.

The State’s final constitutionalargument rested on the theory thatPASPA violates the Fifth Amendmentprotections of the Due Process Clauseand Equal Protection Principles, specifi-cally, that the exceptions within PASPAare insufficient to survive rational basisscrutiny. The Leagues challenged thestanding of the State to assert such aclaim on the theory that it is not a personfor purposes of Fifth Amendment analy-sis. Despite concerns over the State’sstanding, the District Court neverthelessentertained the argument but ultimatelyconcluded that the reliance interests ofthe excepted states, coupled with the gov-ernment’s legitimate interest in stem-ming the tide of legalized sportswagering, provided sufficient support forupholding PASPA pursuant to rationalbasis review.

The District Court granted sum-mary judgment for the Leagues and heldthat a permanent injunction was war-ranted. The State responded by filingan expedited appeal with the Third Cir-cuit.6 On appeal, the State first arguedthat the Leagues lacked standing to bringthe case because they suffer no injuryfrom the State’s legalization of wageringon the outcomes of their games.7 TheLeagues responded by claiming that theyhave standing because their own gamesare the subject of the 2012 Law, and,further, that the 2012 Law would lead tonegative public perception of theLeagues. The Third Circuit held that theLeagues had standing in the case due tothe threat of reputational harm, particu-larly given the stigmatizing effect of hav-ing sporting contests associated withgambling.

The State did not fare better withrespect to its arguments on the merits.The Third Circuit addressed each of theState’s constitutional arguments in turn,each time siding with the District Court.First, the Third Circuit held that PASPAis within Congress’s Commerce Clause

>>UPDATE: U.S. SPORTS BETTING

The American Gaming Association (the “AGA”) estimatesthat $92 billion in wagers was placed on NFL and

college football games for the 2016-2017 season, with only $2 billion of that total wagered legally.

Further, Americans wagered more than $15 billion on Super Bowl 51 and March Madness this year, but only 3% of that amount was wagered legally.

“

”Continued from previous page

powers. Specifically, the court concludedthat PASPA is aimed at an activity thathas substantial effects on interstate com-merce. Next, the Third Circuit held thatPASPA does not impermissibly com-mandeer the states. In support of thisconclusion, the court explained thatPASPA lacks an affirmative commandthat the states enact or carry out a fed-eral scheme, but, rather, it operates sim-ply as a law of pre-emption via theSupremacy Clause. Finally, the courtheld that the exceptions containedwithin PASPA do not violate the equalsovereignty of the states.

Following the Third Circuit’s affir-mation of the District Court’s judgment,the State petitioned the United StatesSupreme Court for writ of certiorari,which was denied in June 2014.8 As aresult, New Jersey went back to the leg-islative drawing board.

On October 17, 2014, the New JerseyLegislature enacted SB 2460 (the “2014Law”) (2014 N.J. Sess. Law Serv. Ch. 62,codified at N.J.S.A. 5:12A-7 to A-9),repealing the 2012 Law and other pro-visions of New Jersey law that prohibitsports wagering in certain contexts.Notably, the 2014 Law only repealedthese laws to the extent they applied tosports wagering at a casino or racetrackby persons 21 years of age or older.Further, its repeals did not extend towagering on collegiate sporting eventsthat take place in New Jersey or sport-ing events in which any New Jersey col-lege team participates. In enacting the2014 Law, the New Jersey Legislaturestressed that the law implements theThird Circuit’s decision in Christie I.

On October 20, 2014, in response tothe 2014 Law, the Leagues filed a com-plaint for declaratory judgment andinjunctive relief against the State in theDistrict Court (“Christie II”).9 WhileChristie I addressed PASPA’s constitu-tionality, Christie II concerned the extentto which PASPA preempted the 2014Law. The State interpreted the ThirdCircuit’s decision in Christie I to allowNew Jersey to partially repeal any exist-ing laws that apply to sports wagering.

The Leagues insisted that the ThirdCircuit’s decision required New Jersey toeither maintain its prohibitions or com-pletely deregulate the field of sportswagering.

The District Court shared theLeagues’ view and read the Third Cir-cuit’s decision in Christie I to hold that,“anything outside of [maintaining pro-hibitions or completely deregulating thefield of sports wagering] would leavestates too much room to circumvent theultimate intent of Congress.”10 The Dis-trict Court explained, while styled as apartial repeal, the 2014 Law would havethe same primary effect of the 2012 Lawand, thus, go against PASPA’s goal ofbanning sports wagering pursuant toa state scheme. Further, the DistrictCourt reasoned that New Jersey’s attemptto allow sports wagering in only a lim-ited context, coupled with New Jersey’shistory of attempts to circumventPASPA, led to the conclusion that the2014 Law is in direct conflict with thepurpose and goal of PASPA. The Dis-trict Court granted summary judgmentfor the Leagues and held that the 2014Law is invalid as preempted by PASPA.

Undeterred, the State appealed theDistrict Court’s decision.11 On appealbefore the Third Circuit, the State arguedthat the 2014 Law does not constitute anauthorization in violation of PASPA andthat it is consistent with Christie I

because the New Jersey Legislature ef-fected a repeal, as Christie I specificallypermitted. The Leagues countered byarguing that the 2014 Law violatesPASPA because it “authorizes by law”sports wagering and also impermissibly“licenses” the activity by confining therepeal of gambling prohibitions tolicensed gambling facilities, i.e. casinosand racetracks.12

A panel of the Third Circuitaffirmed the District Court’s Christie IIruling in a divided opinion; however, thatdecision was subsequently vacated onOctober 14, 2015, upon the grant of apetition for rehearing en banc. Sitting enbanc, the Third Circuit agreed with thereasoning of the panel majority’s opin-ion and held that because PASPA, by itsterms, prohibits states from authorizingby law sports wagering and because the2014 Law does exactly that, the 2014Law violates federal law. Further, theThird Circuit clarified its Christie Iruling, but reiterated that PASPA doesnot commandeer the states in a way thatviolates the Tenth Amendment.

The Third Circuit acknowledgedthat the 2014 Law’s statutory purposewas to legalize sports wagering in orderto revive New Jersey’s struggling casinoand racetrack industry. Aside from thelegislature’s purpose, the Third Circuitprovided three reasons why the 2014Law impermissibly authorized sportswagering. First, it explained that the2014 Law authorizes casinos and race-tracks to operate sports wagering whileother laws prohibit sports wagering byall other entities. Second, it opined thatthe 2014 Law authorizes sports wager-ing by selectively dictating where sportswagering may occur, who may placewagers, and which athletic contests arepermissible subjects for wagering.

Third, it opined that the 2014 Lawauthorizing licensed casinos to conductsports wagering was remarkably similarto the New Jersey exception language inPASPA and since New Jersey did notauthorize the PASPA exception, the2014 Law violated PASPA.

The Third Circuit also reaffirmedits decision in Christie I that PASPA does

Continued on next page

AMERICAN GAMING LAWYER • AUTUMN 2017 9

The AGA estimates that legalized sports wageringin the United States could support 152,000 new jobs, create anestimated $26 billion in economic output and generate up to $5.3 billion in tax revenue.

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10 AMERICAN GAMING LAWYER • AUTUMN 2017

>>UPDATE: U.S. SPORTS BETTINGnot unconstitutionally commandeerthe states; however, it explained thatthe District Court’s conclusionthat PASPA presents states witha binary choice – either maintain acomplete prohibition on sportswagering or wholly repeal stateprohibitions – was incorrect.Instead, it explained that PASPAneither commands states to takeaffirmative steps nor presents acoercive binary choice. Rather, theThird Circuit opined that PASPAdoes not require states to take anyaction at all. The Third Circuitcontinued to find PASPA constitu-tional and affirmed the District Court’sdecision.

The State once again petitioned theUnited States Supreme Court for writ ofcertiorari, and on June 27, 2017, theSupreme Court granted writ of certiorarifor Christie II. It is worth noting that fiveother states, including West Virginia,Louisiana, Arizona, Mississippi and Wis-consin, as well as the AGA, supportedNew Jersey in amicus brief and urged theSupreme Court to hear the case. This isreflective, in part, of recent efforts toreassess PASPA and its prohibitions onstate-sanctioned sports wagering. Theseefforts exist at the state level, as discussedabove, as well as at the federal level.

II. Federal Legislative MovementRecently, the AGA has increased itsefforts to repeal PASPA and give statesthe opportunity to offer sports wageringif they so choose. To that end, in April2017 the AGA announced a new set ofpolicy principals outlining the casinoindustry’s approach to legalized sportswagering, which include deference to

states regarding the desirability of regu-lating sports wagering, ensuring theintegrity of sports wagering and sport-ing events themselves through statelicensing and regulation, and ensuringthat sports wagering operations aretransparent to law enforcement.

On May 25, 2017, the United StatesHouse of Representatives Energy andCommerce Committee released discussiondraft legislation, entitled the Gaming

Accountability and ModernizationEnhancement Act of 2017 (“GAMEAct”), which proposes to repealPASPA and is generally consistentwith the AGA’s policy principals.

The GAME Act provides thatindividuals and governmental enti-ties would not be subject to civil orcriminal liability under federal lawfor engaging in a “gaming activity,”through a gaming facility, where theactivity is lawful under the law ofthe state in which the activity takesplace. “Gaming activity” includes, inpart, “in the case of a governmentalentity, sponsoring, operating, adver-

tising, promoting, licensing, or authoriz-ing by law or compact” sport wagering.This exclusion from liability, however,would only apply if the relevant state lawprovides for consumer protections withrespect to the gaming activity that includesthe licensing of gaming facilities, report-ing requirements to ensure that gamingfacilities are operating in a transparentmanner, appropriate safeguards to ensuregambling is conducted responsibly andappropriate mechanisms to ensure thatcustomer and gaming facility taxes arereported and collected.

In addition, the AGA launched theAmerican Sports Betting Coalition (the“ASBC”), an advocacy coalition to repealPASPA, on June 12, 2017. The ASBCbrings together law enforcement officials,states’ rights advocates, policymakers andindustry leaders in hopes of pushing forlegislative action in Washington. Thecoalition includes an advisory council oflaw enforcement and state and localelected officials to solicit input asstakeholders attempt to craft a legislativesolution.

5 See National Collegiate Athletic Ass’n v. Governor of New Jersey, 926 F.Supp.2d 551 (D.N.J. 2013).6 See 730 F.3d 208 (3d Cir. 2013).7 The issue of standing was also addressed at the district court level, with the District Court concluding that the Leagues had standing.8 See National Collegiate Athletic Ass’n v. Governor of New Jersey, 134 S.Ct. 2866 (2014).9 See National Collegiate Athletic Ass’n v. Christie, 61 F.Supp.3d 488 (D.N.J. 2014).10 Id. at 504 (emphasis in original).11 See National Collegiate Athletic Ass’n v. Governor of New Jersey, 799 F.3d 259 (3d Cir. 2015).12 832 F.3d 389 at 395.13 See https://www.nytimes.com/2014/11/14/opinion/nba-commissioner-adam-silver-legalize-sports-betting.html

The GAME Act provides that individuals and

governmental entities wouldnot be subject to civil or

criminal liability under federallaw for engaging in a “gamingactivity,” through a gamingfacility, where the activity islawful under the law of thestate in which the activity

takes place.

“

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AMERICAN GAMING LAWYER • AUTUMN 2017 11

III. ConclusionNew Jersey faces long odds in theSupreme Court, but it is not alone in itsbattle. Nine other states (California,Connecticut, Maryland, Michigan,Mississippi, New York, Pennsylvania,South Carolina and West Virginia) haveenacted or are considering the enact-ment of legislation to authorize sportswagering in the event New Jersey is suc-cessful or federal law is changed. We willknow the decision of the Supreme Courtsoon. Neither a victory nor a defeat willbe the end of the matter. If successful,federal legislation is virtually assured. Ifunsuccessful, federal legislation may stilloccur, thanks to the efforts of the AGAand others who are making a compellingcase for legalization. One such person isAdam Silver, Commissioner of the Na-tional Basketball Association, who, in aNovember 13, 2014, Op-Ed in the NewYork Times, said:

But despite legal restrictions,sports betting is widespread. It is athriving underground businessthat operates free from regulationor oversight. Because there are fewlegal options available, those whowish to bet resort to illicitbookmaking operations and shadyoffshore websites…. Times havechanged since Paspa (sic) wasenacted. Gambling hasincreasingly become a popular andaccepted form of entertainment inthe United States. Most states offerlotteries. Over half of them havelegal casinos. Three have approvedsome form of Internet gambling,with others poised to follow….Outside of the United States,sports betting and other forms ofgambling are popular, widely legaland subject to regulation. InEngland, for example, a sports bet

can be placed on a smartphone, at astadium kiosk or even using atelevision remote control….Inlight of these domestic and globaltrends, the laws on sports bettingshould be changed. Congressshould adopt a federal frameworkthat allows states to authorizebetting on professional sports,subject to strict regulatoryrequirements and technologicalsafeguards.13

That was almost three years ago, andthere has been no change in federal law.One thing we know for sure is thatregardless of what happens in theSupreme Court or with federal law, foot-ball fans will surely wager another $92billion dollars this Fall on NFL andcollegiate contests. The only question iswhether it will continue to be unregu-lated, untaxed and unlawful. �