* Hedgeye Gaming, Lodging and Leisure (GLL) and Legal Policy teams will host a call on Tuesday, November 21, at 2:30 pm discussing this key Supreme Court battle and the potential ramifications of a decision striking down federal prohibitions on sports wagering. Please contact sales@hedgeye.com for more details.
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In a couple of weeks, the Supreme Court will hear arguments in a case that could clear the way for states to allow sports wagering. If the State of New Jersey prevails in Christie v. NCAA, states that currently prohibit betting on professional or amateur sports contests could repeal those laws and effectively allow such wagering in casinos, racetracks and other selected venues.
Currently, sports betting is only legal in Nevada. Allowing sports betting across the country could affect Nevada resorts that benefit from current exclusivity but it could also positively affect gaming resorts in expanded sports betting jurisdictions. It could also generate additional tax revenue for state treasuries.
Separately, the expansion of sports betting could intensify interest in broadcasts of major sporting events, indirectly benefiting broadcasters, regional sports networks and cable channels that license rights to NFL, MLB, NBA and other major games and events.
Case Background: In 1992, Congress passed the Professional and Amateur Sports Protection Act (PASPA), prohibiting states from authorizing sports betting and restricting private parties from conducting sports betting operations authorized by state law. The law protected the Nevada sports wagering business with a carve-out and gave the State of New Jersey one year to explicitly authorize sports betting to ensure it, too, would be excepted from the general federal prohibition. New Jersey did not act within the one-year window and thus became subject to the federal ban.
Years later, New Jersey had a change of heart, hoping to provide a boost to the struggling Atlantic City casino industry. In 2012, it passed a law explicitly authorizing sports betting in New Jersey casinos, but the major sports leagues successfully convinced a federal judge to block the implementation of the New Jersey law, citing the prohibitions of PASPA.
On appeal, the Third Circuit agreed that PASPA foreclosed New Jersey's effort to legalize sports wagering, but suggested that the State could avoid the PASPA restriction by simply repealing existing state laws that prohibited sports wagering. New Jersey seized on the court's language and, in 2014, the legislature passed a law that did just that, repealing the state ban on sports wagering at least as applied to casinos and racetracks in the State.
The NCAA and major sports leagues challenged the repeal and on review, the Third Circuit backtracked from its prior suggestion that a repeal could dodge the PASPA prohibition. Although the State was not affirmatively authorizing sports betting, the court determined that the mere repeal of state laws prohibiting sports wagering was the equivalent of an affirmative authorization and the State's action was deemed a violation of PASPA.
The Current Challenge: New Jersey asked the Supreme Court to review the appellate court's ruling. Although the Justice Department recommended that the Court decline the appeal, the Supreme Court took the case anyway, an indication that at least four Justices on the Court believe this case raises important legal issues deserving further review.
The State contends that enforcing a federal law that blocks a state from repealing its own ban on sports betting unconstitutionally usurps state sovereignty. According to the State, PASPA cannot "commandeer" the state's legislative and administrative powers in order to implement a federal policy against sports betting beyond Nevada. The anti-commandeering doctrine has been applied in a couple of past Supreme Court cases, establishing that the federal government cannot force state governments or officials to serve as instruments of federal policy.
The doctrine is rooted in principles of federalism, effectuating the constitutional structure of dual sovereignty. How these principles are applied in any given case, however, can vary widely among the nine Justices. The framers established a federal government of specified or enumerated powers (spending power, commerce clause power, etc.) while leaving all other powers to the states. At the same time, when the federal government passes laws or regulations in the exercise of its specified powers, those federal laws are "supreme" and preempt any conflicting state enactment.
The debate among the Justices in balancing these interests will likely be complicated without an obvious consensus approach. In the sports betting case, the Court will determine whether the federal statute (PASPA), as interpreted by the Third Circuit Court of Appeals, steps over the dual sovereignty line when it prevents New Jersey from repealing its own laws in order to support a federal policy against sports gambling. Under the anti-commandeering doctrine, state legislatures and officials cannot be conscripted to serve federal policy goals, and New Jersey argues that PASPA violates that doctrine.
Severability: Even if the Court rules for New Jersey on the big issue, concluding that PASPA unconstitutionally forces the State to maintain a ban on sports wagering, a second issue could undermine the benefit to gaming interests and states supporting expanded sports betting.
Another provision of PASPA prohibits private entities from conducting sports betting operations authorized by the state. New Jersey contends that this provision cannot be salvaged if the Court allows the repeal of state sports betting restrictions. But the NCAA and sports leagues, backed by the U.S. Justice Department, contend the restrictions on private entities represent an independent and sustainable basis to fulfill a federal policy to limit the spread of sports wagering.
This issue does not get much attention in mainstream news coverage of this case, but it could be a critical issue addressed at oral arguments. If the statute's prohibitions against private entities are severable, the gaming industry could come up short despite a state victory on the larger constitutional issue.
Procedure and Timing: The Court has scheduled oral arguments for December 4. A ruling is possible before the end of the first quarter but it could easily slip into the second quarter of next year. Oral arguments should provide additional insights regarding the probable outcome, but, at this point, we give the edge to the State on the big constitutional question, but consider the severability issue a "push."
