U.S. Supreme Court reverses Third Circuit and strikes down federal sports betting ban, opening the door for states to legalize



May 14, 2018

Gaming Law Alert

Author(s): Marx P. Calderon, Christopher Queenin, Brian T. Kelly, Robert Fisher

The Supreme Court strikes down a 26-year old law that prohibited states from passing legislation to legalize sports betting. The decision effectively opens the floodgates for state- sanctioned sports betting across the country.

Today, the Supreme Court of the United States struck down the Professional and Amateur Sports Protection Act (PASPA) in its entirety as unconstitutional.

What happened?

In Murphy v. NCAA, the state of New Jersey challenged the constitutionality of PASPA, which confined lawful sports betting to states where the practice was already legal (most notably, Nevada) at the time of its enactment in 1992. For several years, New Jersey has been fighting to allow sports betting at its struggling casinos and racetracks, but has been blocked by the 26-year-old PASPA, which empowers the NCAA and professional sports leagues to sue any state that tries to pass such legislation.

When PASPA was passed, it was a relatively uncontroversial measure. Nearly all states, including New Jersey, had laws prohibiting sports betting. Since then, however, the public’s attitude toward legal sports betting has shifted. A recent UMass Lowell-Washington Post poll found that 55% of Americans approve legalizing betting on professional sports—double the amount from 25 years ago. Commissioners of most of the professional sports leagues appear to have softened their stances on sports betting, and the NFL and NHL now have permanent franchises in Las Vegas—something that was unthinkable until just recently. The leagues’ shift has been motivated, at least in part, by their desire to increase overall television ratings (and increase advertising revenues for the league and broadcast networks) in an age of splintered viewership.

Given this shift, it is not surprising that New Jersey saw legalized sports betting as a viable way to increase revenue in the state. In 2012, following a voter-approved amendment to the state constitution, the legislature passed a law legalizing sports betting in Atlantic City and at horseracing tracks. The NCAA and major professional sports leagues brought an action in federal district court to stop the law from going into effect. The district court sided with the sports leagues, the Third Circuit Court of Appeals affirmed and the Supreme Court denied review.

In 2014, New Jersey tried again. This time, instead of passing a law that affirmatively authorized sports betting in the state, the legislature simply repealed the state’s law that prohibited sports betting. The NCAA and sports leagues filed another suit. New Jersey argued the federal government, through PASPA, violated the 10th Amendment of the Constitution by prohibiting states from repealing laws that prohibited sports betting. The sports leagues argued that the law was constitutional because it did not require states to do anything—it simply prohibited them from authorizing sports betting.

The Supreme Court agreed with New Jersey. The Court held that PASPA improperly restricted states from passing their own laws in violation of the so-called “anti-commandeering” principle in the 10th Amendment of the Constitution. That principle, in effect, says that Congress cannot issue direct orders to state legislatures telling them what they can and cannot do. Justice Alito, who delivered the opinion for the majority, stated that “[i]t is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals” and, further, that “[a] more direct affront to state sovereignty is not easy to imagine.” Significantly, the Court held that no section of PAPSA could be severed, thus finding it unconstitutional in its entirety.

What it means

Today’s decision does not mean that entrepreneurs and developers can immediately launch sports betting websites to take bets. For starters, most states still have laws prohibiting sports betting within their borders. While some states have introduced bills allowing sports betting in anticipation of PASPA’s repeal, those laws have not yet gone into effect. Furthermore, these bills do not, and cannot, offer a uniform regulatory regime across state lines. Some of the bills provide a detailed regulatory framework—setting forth how casinos or racetracks will provide sports betting services and how a state’s gaming commissions will provide oversight—while others merely serve as a placeholder in the event PASPA is overturned. Some bills would only permit on-site betting (at casinos or race tracks), while others would also permit online betting.

Putting aside the state-specific issues, certain existing federal laws, such as the Wire Act of 1961, which criminalizes placing interstate bets via the Internet or phone, likely would place certain limits on any sports betting business seeking to have a national reach. Additionally, it remains to be seen whether today’s decision motivates Congress to enact a general federal regulatory framework that states opt into.

Nevertheless, certain states are moving in the direction of legalizing sports betting and it is expected that residents of these states will be placing legal bets within their states in the coming year.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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