Washington DC U.S. Supreme Court building. shutterstock.com

On May 14, the U.S. Supreme Court handed New Jersey a victory in its eight-plus-year campaign to legalize sports betting. In the consolidated matter of Murphy v. Nat’l Collegiate Athletic Ass’n, No. 16-476 (formerly known as Christie v. Nat’l Collegiate Athletic Ass’n), and New Jersey Thoroughbred Horsemen’s Ass’n v. Nat’l Collegiate Athletic Ass’n, No. 16-477) (hereinafter, Murphy), the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), a federal law that, in part, prohibited states from authorizing state-sanctioned sports betting.

The court held that:

  1. PASPA prohibited a state from repealing a portion of its own laws barring sports betting;
  2. The prohibition violated the anti-commandeering doctrine—a principle derived from the Tenth Amendment that bars the federal government from compelling the states to enact and enforce federal regulatory programs; and
  3. The otherwise constitutional portions of PASPA were not severable from the unconstitutional provisions.

The Murphy court’s decision has potential far-reaching implications for not only sports betting and the gaming industry, but principles of federalism and the balance of power between the states and the federal government. In the more immediate term, the decision permits states to enact legislation permitting sports betting unless Congress decides to regulate sports betting directly.

PASPA and New Jersey’s Campaign to Legalize Sports Betting

Enacted in 1992, PASPA made it unlawful for a state or its subdivisions “to sponsor, operate, advertise, promote, license, or authorize by law or compact … a lottery, sweepstakes, or other betting, gambling, or wagering scheme based … on” competitive sporting events, 28 U.S.C. §3702(1), and for “a person to sponsor, operate, advertise, or promote” those gambling schemes if done “pursuant to the law or compact of a government entity.” Id. §3702(2). PASPA did not require any state to enact legislation or a regulatory scheme—a fact that would later become important to its constitutionality—and carved out exceptions for the four states (Delaware, Montana, Nevada and Oregon) with existing sports betting laws.

In 2012, New Jersey enacted legislation authorizing sports betting at in-state casinos and race tracks. The National Collegiate Athletic Association (NCAA) and multiple professional sports leagues sued the state in federal court to enforce PASPA and obtained an injunction that blocked New Jersey’s laws from taking effect. On appeal, the Third Circuit affirmed the district court’s injunction and upheld the constitutionality of PASPA against New Jersey’s federalism challenge that the law impermissibly commandeered the regulatory power of the states. In response, New Jersey enacted a second round of legislation that did not expressly authorize sports betting, but repealed portions of its existing state laws prohibiting sports betting. Following renewed litigation by the NCAA and the professional sports leagues, the Third Circuit again ruled against the state. In June 2017, the Supreme Court granted New Jersey’s petition for a writ of certiorari.

The ‘Murphy’ Court’s Decision

The Supreme Court struck down PASPA in its entirety and opened the door for New Jersey and other states to permit state-sanctioned sports betting.

Writing for the majority, which also included Chief Justice Roberts and Justices Kennedy, Thomas, Kagan, Gorsuch and, in part, Justice Breyer, Justice Samuel Alito first analyzed whether the selective repeal of portions of New Jersey’s gambling laws violated PASPA’s prohibition against authorizing sports betting. Justice Alito reasoned that any repeal of “old laws banning sports gambling” had the effect of authorizing some activity because it gave those previously prohibited the right to engage in the otherwise restricted activity, and thus violated PASPA.

Justice Alito then considered whether PASPA violated the anti-commandeering doctrine, which expresses “the decision to withhold from Congress the power to issue orders directly to the States.” The majority held that PASPA clearly violated the anti-commandeering doctrine by “unequivocally dictat[ing] what a state legislature may and may not do”—i.e., prohibiting New Jersey from repealing its own laws.

Finally, Justice Alito considered whether the unconstitutional provisions could be “severed” from the rest of PASPA. The majority concluded that Congress would not have intended for these provisions to stand alone without PASPA’s core prohibition against state “authorization” of sports gambling, and struck down PASPA in its entirety. Justice Alito explained that “the result would [have been] a scheme sharply different from what Congress contemplated when PASPA was enacted.”

Future Implications for the Sports Betting Industry

State legislatures began preparing for a post-PASPA landscape prior to the Murphy court’s decision. Over the past several years, states have legalized gambling to generate revenue for ailing state budgets. With New Jersey’s appeal pending, more than 15 states introduced or enacted legislation that would legalize sports betting in the event the Supreme Court held PASPA unconstitutional. As of the May 14 decision, Delaware, Mississippi, Pennsylvania and West Virginia have enacted sports betting legislation and, with New Jersey, are expected to launch licensed, regulated sports betting regulatory frameworks in 2018.

Companies in the gaming and fantasy sports industries also have prepared for legalized sports betting. Sports betting operators and casinos in the U.S. and abroad have positioned themselves to meet consumer demands in potential new markets. For example, a major U.K.-based sportsbook and betting shop operator opened a sports bar adjacent to a New Jersey racetrack and is expected to begin accepting bets soon.

Leading daily fantasy sports operators DraftKings and FanDuel issued statements shortly after the decision, expressing their respective intentions to enter the sports betting industry. In February 2018, DraftKings announced it hired a Head of Sportsbook in anticipation of the pending Supreme Court decision. On May 23, FanDuel and Dublin-based betting company Paddy Power Betfair agreed to merge their U.S. operations “to capitalize on the sports betting market opportunity in the United States.”

Technology is expected to play a large role in the future of sports betting. DraftKings and FanDuel, which rely on technology to allow consumers to enter daily fantasy sports contests, have been developing sports-betting related internet products. Other companies have reportedly partnered with technology companies to develop online platforms. MGM Resorts International, for example, announced that it intends to offer sports betting online through its PlayMGM mobile app.

Companies seeking to enter the U.S. sports betting industry will need to navigate the evolving patchwork of state statutory and regulatory frameworks and federal laws related to interstate gambling. Decisions regarding state-specific requirements for licensing, taxation, consumer protection and the scope of sports betting are being made by state legislatures and agencies on a state-by-state basis. Companies seeking to engage in sports betting will need to comply with the respective states’ requirements.

Existing federal laws may also impact interstate sports betting. The Interstate Wire Act of 1961, 18 U.S.C. §1081 et seq., and the Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. §5361 et seq., are two statutes that may prohibit payments related to sports betting across state lines.

Congress could also replace PASPA with new legislation prohibiting sports betting. Neither the Murphy court’s decision nor the anti-commandeering doctrine prohibit Congress from enacting legislation that bans sports betting nationally. Rather, Congress merely cannot require states to enforce a federal ban. Alternatively, Congress could enact a federal regulatory framework for sports betting pursuant to the Commerce Clause. A nationwide framework could provide certainty to sports leagues and sports betting operators.

Future Implications for Other Industries

New Jersey’s litigation playbook for challenging PASPA and the Supreme Court’s affirmation of the anti-commandeering doctrine carry implications for other areas in which state and federal sovereignty intersect. Advocates for state legalization of recreational and medical marijuana can rely on the Murphy decision to support state marijuana regulation on the basis that, although the federal government can enact and enforce its own laws prohibiting marijuana use, it cannot require states to enforce those laws. Similarly, the Murphy decision strengthens the position of sanctuary cities that resist pressure from the federal government to assist in the deportation of undocumented immigrants. The sanctuary cities can argue that, similar to PASPA, federal immigration law cannot force states to use their own law enforcement to enforce a federal regulatory program.

The federal government can continue to enact legislation that prohibits interstate activities by making them directly illegal under federal law. However, the federal government cannot require the states to enforce such federal policy. As the majority noted in Murphy, this distinction protects individual liberties, promotes political accountability, and prevents the federal government from shifting the costs of regulation to the states.

 

Bryan Mosca is a member, and Mark Quist is a law clerk, in Cozen O’Connor’s State Attorneys General practice. Both are based in the firm’s D.C. office. Cozen O’Connor’s State AG practice advises companies across sectors on state AG related legal and policy matters in all 50 states and D.C.