Court Rejects New Jersey's Attempt to Allow Sports Betting

Horse Race

Gambling is a profitable industry and, when legal and taxed, a strong source of revenue for state governments. Lotteries are a particularly popular source of non-tax income for states. Most forms of gambling, however, are illegal. It appears that sports betting will remain illegal in most places, even if states want to add it to their revenue streams.

New Jersey, which depends on Atlantic City casino fees and gaming taxes to enhance its revenues, has twice attempted to add sports betting to the list of gambling activities that its casinos may offer. It did so because casinos and racetracks are suffering financially and the legislature wanted to give those industries “a shot in the arm.” Unfortunately for New Jersey, federal law prohibits most states from authorizing gambling on sporting events.

After an earlier version of New Jersey’s sports betting statute was rejected as violating federal law, the state adopted a new statute that essentially repealed the prohibition against sports betting, but only in casinos and racetracks. Professional sports leagues and the NCAA sued New Jersey to block the new law. The United States Court of Appeals for the Third Circuit recently agreed with the sports leagues and set aside the law. The 10-2 decision held that the federal law prohibiting states from authorizing sports betting preempts New Jersey’s partial repeal of its sports gambling law.

New Jersey and PASPA

Congress passed the Professional and Amateur Sports Protection Act (PASPA) in 1992. Among its other provisions, PASPA makes it unlawful for any state or local government to authorize, promote, or license any betting, gambling, or wagering scheme involving competitive games in which amateur or professional athletes participate. The law makes exceptions for sports wagering in Nevada and for sports lotteries in Oregon and Delaware. The law would have extended a similar exception to New Jersey if the state had passed an appropriate law within one year after PASPA took effect, but New Jersey did not authorize sports betting until 2011, long after the exception expired.

Prior to 2011, New Jersey prohibited all sports betting. After a statewide referendum, the New Jersey Constitution was amended to permit the legislature to authorize sports betting in Atlantic City casinos and New Jersey racetracks, except that no wagers were authorized that involved New Jersey college teams or any collegiate event occurring in New Jersey. In 2012, the legislature enacted a law that authorized sports betting in casinos and racetracks, subject to those limitations.

Recognizing that the new law conflicted with PASPA, New Jersey argued that PASPA was unconstitutional. In a 2013 decision, the U.S. Court of Appeals rejected that argument. While the federal government generally cannot “commandeer” state legislation by forcing states to adopt particular laws, the court held that PASPA prohibits states from adopting particular laws and therefore does not violate the constitutional prohibition against commandeering state legislation.

New Jersey then tried to make an end run around the court’s decision by repealing all laws that prohibit sports betting to the extent that they apply to casinos and race tracks, with the exception of laws prohibiting minors from gambling and laws that prohibit betting on New Jersey collegiate sporting events. Since New Jersey did not affirmatively authorize sports betting, but instead chose not to prohibit it in certain venues, New Jersey argued that it was not in violation of PASPA.

The Court of Appeals’ Decision

The court of appeals recognized that PASPA is a controversial law. Proponents of sports betting argue that regulated gambling is not harmful and that legalized sports betting is preferable to illegal betting, which carries a greater risk of corruption. Other critics of the law argue that states, not the federal government, should decide whether to authorize gambling within their borders. The court of appeals pointed out that the wisdom of PASPA is for Congress, not the courts, to determine. Since federal law makes it unlawful for states to authorize sports betting, the only question before the court was whether New Jersey’s new law violates PASPA.

The court’s decision turned on whether, as New Jersey claimed, there is a difference between authorizing an act and not forbidding an act. The court’s earlier decision effectively held that New Jersey could repeal all laws that prohibit or regulate sports betting without running afoul of PASPA. In the absence of any law that prohibits or regulates sports betting, the state could not be said to “authorize” sports betting in violation of PASPA, any more than a state can be said to authorize everything it does not prohibit. Individuals have an inherent right to do what the law does not forbid. They do not need a state to authorize them to engage in legal activity.

Seizing on that language, New Jersey argued that its partial repeal of its sports betting law satisfied PASPA because it did not “authorize” sports betting in casinos or racetracks, but simply chose not to make sports betting illegal in those places. The court was unpersuaded by New Jersey’s reasoning.

While a complete repeal of all sports betting laws might not violate PASPA, New Jersey’s partial appeal amounted to a regulatory scheme that authorizes sports betting in certain venues but not in others. New Jersey law generally prohibits sports betting. By “repealing” those prohibitions only in casinos and racetracks, New Jersey effectively authorized sports betting in those venues while continuing to make it illegal everywhere else.

In addition, the New Jersey law regulates sports betting even within casinos and racetracks. The law prohibits minors from placing bets and it prohibits everyone from betting on New Jersey collegiate teams and on college sporting events that take place in New Jersey. Thus, New Jersey authorized some people to bet on some sporting events while prohibiting other wagers. A scheme that allows some bets to be made while others are prohibited meets the definition of “authorizing” sports betting.

The court also reaffirmed its conclusion that PASPA does not “commandeer” New Jersey law. The court recognized that Congress generally lacks the power to compel a state to enact a law if it is the kind of law that Congress could itself enact. For example, the federal government cannot require states to conduct background checks on gun owners.

The court acknowledged that there is a difference between repealing a law against gambling and enacting a law that authorizes gambling. Congress lacks the authority to prohibit a state from repealing its gambling laws. In this case, however, New Jersey’s repeal was so selective that it effectively authorized sports betting in certain venues but not in others. Congress did not compel New Jersey to enact that regulatory scheme and thus did not commandeer New Jersey law. Rather, Congress acted within its power by prohibiting states from authorizing sports betting. PASPA therefore did not violate the constitutional prohibition against commandeering state legislation.

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