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All Bets Are Off: Future of Sports Gambling in New Jersey in Doubt

By [Thursday, May 8th, 2014]

NJ Sports GamblingBY ANTHONY COHEN, CLASS OF 2015

The Professional and Amateur Sports Protection Act defines the status of sports betting throughout the United States. The federal law allows the states of Nevada, Oregon, Montana and Delaware to have various forms of sports gambling, while keeping sports gambling out of other states. These four above states all had some form of sports gambling at the time PASPA was passed and were allowed to continue the sports betting programs. However, the 3rd U.S. Circuit Court of Appeals in Philadelphia has ruled that New Jersey’s sports betting law conflicts with federal law and will not allow the state of New Jersey to proceed with sports gambling.

In the above case, the court halted New Jersey’s efforts to legalize sports gambling, upholding a ruling that New Jersey’s betting laws conflict with the PASPA and therefore cannot be implemented. The majority in this case held that as a matter of constitutional law, New Jersey’s betting laws must yield to the PASPA.  The Supremacy Clause of the U.S. Constitution states that federal laws shall prevail over state laws and that is the reason for the majority’s holding in this case.  Conversely, the dissent in this case stated that PASPA attempts to implement federal policy by telling the states they may not regulate an unregulated activity and Congress does not have that power.

The NFL, NBA, NHL, MLB, and NCAA all sued the state of New Jersey last year, claiming that the New Jersey betting law harmed the integrity of the game. The difference between New Jersey and the aforementioned states with sports betting laws is that unlike New Jersey, the other states had already implemented state betting laws prior to PASPA being passed.

Does the Federal Government have a specific interest in protecting the integrity of the game? Does the PASPA violate the authority of state legislatures under the 10th Amendment?

The 10th Amendment of the U.S. Constitution protects state sovereignty. State sovereignty is protected by granting states power that was not prohibited by the Constitution. The Supreme Court has declared laws in the modern era unconstitutional that compel states to enforce federal statutes. However, the Federal Government can regulate state activity under The Commerce Clause. The Commerce Clause authorizes Congress to regulate commerce in order to ensure that the flow of interstate commerce is free from local restraints imposed by various states. A state has the right under the 10th Amendment to regulate its domestic commerce. However, that right must be exercised in a manner that does not interfere with, or place a burden on, interstate commerce, or else Congress may regulate that area of domestic commerce in order to protect interstate commerce from the unreasonable burden.

New Jersey has the largest gaming capital on the east coast within its state border known as Atlantic City. Atlantic City is one of the most popular tourist destinations in the United States with over 30 million visitors a year and $1.7 billion dollars in investments in casino resorts. It is likely these casino resorts would produce even greater revenue to the state of New Jersey with the addition of sports betting in the casino resorts.

It would appear that the major sports leagues do not want the state of New Jersey to profit from their respective activities and the leagues claim integrity of the game would be harmed. Sports betting is a legal activity in states like Nevada and Congress has not acted under the Commerce Clause to invalidate Nevada state law. This can be considered as evidence that the Federal Government viewed sports betting as an activity that can be regulated by state legislature. Should the state of New Jersey be treated differently solely because it did not have state laws allowing sports betting prior to the enactment of PASPA?

Gov. Chris Christie has already appealed to the U.S. Supreme Court on behalf of New Jersey. However, the odds are not in Gov. Christie’s favor due to the fact only 100 arguments are agreed to be heard out of 10,000 petitions. Nevertheless, the Court of would have to decide where the line between Federal and State Governments is drawn, which has historically been a keen issue. By resolving this constitutional law issue, the Court can determine if all sports bets are off in the state of New Jersey.

Are Investors in Fantasy Sports Gambling on Their Legality?

By [Friday, December 6th, 2013]

BY PROFESSOR JODI BALSAM AND ALEX KOZHEVNIKOV NYLS ’14

As we head into the final weeks of the NFL season, many fans’ focus is on their own fantasy football league playoffs. Fantasy sports are a phenomenon that is gripping the nation. Nearly 30 million people participate in this obsession creating a multi-billion dollar industry. Fantasy sports have evolved as they has become more accessible with nearly universal access to the Internet and companies willing to pay to create sites to host fantasy leagues and track teams, players, and stats. In fantasy sports, participants create a dream team of real athletes and score points based on the results of their players’ in-game performances as they match up in a league against their peers. Fantasy sports have also created a huge betting and gambling industry. Most fantasy league participants throw money into a cash-prize pool that the winner or winners will get at the end of the sports season. But managing a dream team of real players could get some of these betting fans in hot water with authorities as the legality of what may be a form of internet gambling remains murky.

fantasy sportsThe federal law that regulates online gambling is the Unlawful Internet Gambling Enforcement Act of 2006. The act defines fantasy sports as a game of skill rather than chance and specifically exempts them. While the act protects fantasy leagues, players are supposed to report their winnings to the IRS. Although federal law defines fantasy sports as games of skill, many states still want nothing to do with them and state legislation on this topic is noticeably inconsistent. In most states, a game of skill is defined as one where skill is the predominant factor in determining the winner. Arizona, Iowa, Louisiana, Vermont, and Montana are amongst the “chance states that consider luck to be the determining factor for fantasy game winners, rather than skill, making those games a form of gambling. Florida’s Attorney General even issued a legal opinion that fantasy sports violate state gambling laws.  Residents of the Sunshine State caught betting money on fantasy leagues could be slapped with misdemeanors under current legislation.

Does the federal definition of fantasy sports as a game of skill make sense? Legal precedent suggests that it does. A 2007 New Jersey federal court discussed the distinction between skill and chance in connection with fantasy sports games in Humphrey v. Viacom. There a Colorado lawyer sued three pay-for-play online fantasy sites, alleging that the sites were engaging in gambling and must disgorge all entry fees paid by players. The court disagreed, but based its ruling primarily on a narrow construction of a New Jersey statute that sometimes allows third parties to recover losses from the winners in illegal gambling operations.  The court did, however, make two observations that suggest illegal gambling claims against traditional fantasy websites are not viable.  First, the court noted that fantasy website “entry fees do not constitute bets or wagers where they are paid unconditionally for the privilege of participating in a contest, and the prize is for an amount certain that is guaranteed to be won by one of the contestants.”  Second, the courtdescribed fantasy sports as games of skill, not chance, because players actively manage their teams, employing their sports knowledge and making strategic decisions.

A similar case was brought in Illinois, under its statute allowing recovery of gambling losses from the “winners”—Langone v. Kaiser and Fan Duel. Although dismissed principally on jurisdictional grounds, the court observed that a fantasy website cannot be characterized as the “winner” in a gambling contest because it risks nothing.  Rather, if fantasy games are a form of gambling, then fantasy websites merely serve as the “house,” by charging an entry fee and “act[ing] as the conduit for transmission of the prize to the winner” in a given league.

Between federal law explicitly providing that fantasy sports are not illegal gambling, and state judicial decisions that fantasy websites cannot be sued for gambling losses, traditional fantasy sports industry can probably rest easy for the moment. However, the new breed of fantasy websites—allowing users to wager high stakes on an athlete’s daily performance—continues to invite challenge as comparable to now-banned online poker. At least one major sports league—the NHL—has announced its opposition to daily fantasy sites, while the others have yet to comment.

Aside from the gambling legal issues that arise from fantasy sports, fantasy websites have had to contend with intellectual property (IP) issues in connection with the information they provide to the fantasy sport participant. Because tracking various players’ stats is essential to fantasy sports, many websites have sprung up to provide this data to the fantasy team owners. These websites provide services such as game data, player stats, hosting platforms, suggestions on players, projections, biographical information of players, and sports news, along with other information that might interest the casual sports fan. Websites such as Yahoo, ESPN, and CBSSports, all have large sections devoted to fantasy sports. Sports league websites—including the NFL, NHL, and the NBA–have  all created their own fantasy sports sections.

The sports leagues for the most part have no enforceable IP rights here—any use of their marks and logos is incidental to the news reporting function of the fantasy data site and so falls under the First Amendment “fair use” defense to a trademark infringement claim. For a time the players (and their unions) belived they had strong intellectual property claims based on the players’ rights of publicity.  Suits were brought claiming that fantasy sports providers were misappropriating player names and likenesses to gain a commercial advantage. However, fantasy news and stats suppliers have won all suits brought to date, essentially on the same First Amendment grounds that deterred the leagues from suing in the first place.

In a ground-breaking case, the Eighth Circuit Court of Appeals in CBC Distribution and Marketing v. Major League Baseball Advanced Media ruled that the information provided to baseball fantasy sports participants is information in the public domain and constitutes informative speech entitled to protection under the fair use doctrine.  The court also observed that fantasy sites’ use of player names and likenesses presents no danger that consumers will be misled to believe any particular player is endorsing the site. A Minnesota district court extended thisruling to football in CBS Interactive v. National Football League Players Association. The court described the manner in which fantasy sites present player information as “akin to newspapers and magazines, which routinely display pictures and information about . . . professional athletes.” While these rulings have deterred lawsuits by other sports, as fantasy websites evolve, and embed more advertising and other forms of commerce, players may renew their publicity rights claims that their names and images are being appropriated for an unauthorized endorsement.

All though legal battles continue to wage and the legality of fantasy sports in some contexts is murky, the industry continues to thrive. With the disappearance of online real-money poker contests (which arguably more than fantasy sports were based on skill than chance),  legislators may now set their sites on online betting on fantasy sports. However, the vast popularity of fantasy sport may just keep them legally alive. Fantasy sports have increased fan interest and  excitement in the actual sporting contests. The leagues and the players have thrived with the rise of fantasy sports, as previously uninteresting match-ups get renewed hype when they feature certain fantasy players. Fans tune into games across the nation that normally would generate little interest to follow their favorite (and most hated) fantasy players. The increased revenue for all involved in sports may ultimately trump concerns about gambling or player publicity rights.

Federal Appeals Court Strikes Down New Jersey’s Sports Gambling Statute

By [Wednesday, September 18th, 2013]

NJSportsGamblingThe Third Circuit Court of Appeals ruled this week that New Jersey’s law legalizing sports gambling conflicts with federal statutes.  The NJ law, heralded as a way to revive the Atlantic City economy, would have permitted betting on professional and college sports at racetracks and Atlantic City casinos.  The federal appeals court, however, held that the law was preempted by the 1992 Professional and Amateur Sports Protection Act (PASPA), a federal statute that restricts sports gambling.

Since 1992, PASPA has prohibited any state from offering sports betting unless that state had a sports betting scheme in place at some point during the 15 years before the statute was enacted.  Accordingly, the law grandfathered Delaware, Oregon, and Montana to engage in limited sports-betting schemes that did not involve single-game wagers, and authorized Nevada as the only state to offer single-game sports betting. PASPA provided all other states with a one-year window after its passage to seek to offer sports betting.  New Jersey declined to do so.

In 2011, in the absence of any new federal statutory authority, New Jersey re-opened the issue and conducted a referendum in which voters approved an amendment to the state constitution to allow sports betting in the state’s casinos and racetracks.  The state legislature then passed a corresponding bill, which Governor Chris Christie signed into law.  The NJ law would allow wagering on all major professional and collegiate sporting events, except sporting events taking place in New Jersey or involving New Jersey colleges regardless of where they take place.

The major proponents of PASPA — the NCAA and the four major sports leagues — immediately sued in federal district court to enjoin the NJ law, and the US Department of Justice intervened to defend the constitutionality of PASPA.  New Jersey defended the suit by arguing that: (1) the leagues lack standing to sue because they are not injured by the legalization of sports betting, and (2) PASPA impermissibly conscripts the states into enforcing a federal program to regulate gambling, in violation of the U.S. Constitution’s “anti-commandeering” principle.  The District Court disagreed with New Jersey’s arguments, and enjoined sports betting in the state.  In a split decision, the Court of Appeals affirmed the District Court.

On the key issues, the Court of Appeals 2-judge majority found first that the leagues would suffer reputational injury as a result of the NJ law, a legally cognizable harm that confers standing.  The Court endorsed evidence that the leagues would be harmed by their unwanted association with an activity they disapprove of — gambling, and by the probability that the NJ law would increase incentives for game-rigging.  Second, the Court of Appeals majority found that simply by prohibiting sports betting, Congress did not unconstitutionally commandeer state resources or compel states to enact their own regulatory program.  As the Court put it, “PASPA does not require or coerce the states to lift a finger.”

Here is where the dissenting judge parted ways with his colleagues.  The dissent argued that principles of federalism required Congress to stay its hand when regulating gambling.  Because PASPA merely announces a federal anti-gambling policy, and does not provide regulatory standards or requirements, the dissent faulted it as commandeering states to adopt gambling regulations of their own.  The dissent relied on the recent Supreme Court decision striking down an Obamacare provision that would have withheld federal Medicaid grants to states unless they expanded their Medicaid eligibility requirements.

Governor Christie has already promised to appeal the ruling to the U.S. Supreme Court, which might well take the case because of the split decision and the issues of federalism it raises.

While the ruling’s legal thrust is in the realm of constitutional law, the majority decision makes some incisive observations about the effect of single-game wagering on sports.  It repeatedly cites to the legislative history of PASPA and the concern that legalization of sports gambling inevitably promotes suspicion about controversial plays and leads fans to think the “fix is in” whenever their team failed to beat the point-spread.  The Court describes the “moral erosion” resulting from sports betting, as it increases the temptation to fix games.  Fan surveys are cited for the notion that the mere existence of sports gambling deters fan interest and spending on the game.

The decision is a clear victory for those battling the stigmatizing effects of the association of sports with gambling.  But a deeper question remains whether the leagues can retain their credibility on the issue as they invest more significantly in fantasy versions of their sports?