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Article: August 2018: The Implications of the United States Supreme Court’s Murphy v. NCAA Decision on Legalized Sports Betting

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On May 14, 2018, the United States Supreme Court paved the way for the expansion of legalized sports gambling with its decision in Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461 (2018). In Murphy, the Court held that the Professional and Amateur Sports Protection Act (“PASPA”)—the federal law that for over twenty-five years prohibited states from passing any new laws authorizing gambling on professional or amateur sporting events—was an unconstitutional violation of states’ rights. With the prohibitions of PASPA no longer in place, the expansion of legalized sports betting is already underway: Within weeks of the decision, the first legal sports bets in the United States (outside of Nevada) were taken in Delaware and New Jersey. Other states will follow. This article examines the potential legal implications of the Murphy decision on sports betting in the United States.

Background on the Murphy Decision

Congress enacted PASPA in 1992 to prevent the spread of legal sports gambling beyond any state that already allowed it at that time. Instead of preventing individuals from betting on sporting events, Congress prohibited the states from legalizing sports gambling by declaring it unlawful for any “governmental entity 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. At the time, Nevada was the only state that allowed widespread betting on individual sporting events. Delaware, Oregon, and Montana allowed very limited forms of sports betting such as sports pools or NFL parlay betting.

This status quo was maintained for over two decades, even as the explosion of the internet transformed illegal sports betting. No longer did individuals have to place bets with local bookies; they could open online accounts with international bookmakers taking in hundreds of billions of dollars annually. In 2012, New Jersey decided that sports gambling revenue could revive the struggling economy of Atlantic City and create new jobs for its citizens and passed legislation authorizing sports betting in New Jersey casinos and horse racing parks, acts expressly prohibited by PASPA. The four major professional sports leagues (Major League Baseball, the National Basketball Association, the National Football League, and the National Hockey League), along with the National Collegiate Athletics Association, filed a civil suit in federal district court to enjoin New Jersey from allowing betting on their sporting events, as permitted under a separate provision of PASPA. The district court entered an injunction, Nat’l Collegiate Athletic Ass’n v. Christie, 926 F. Supp. 2d 551 (D.N.J. 2013), and the Third Circuit affirmed. Nat’l Collegiate Athletic Ass’n v. Governor of N.J., 730 F.3d 208, 230 (3d Cir. 2013). Following this decision, New Jersey attempted to frame its legislation as a repeal of its existing sports gambling laws, an approach that was again rejected by both the district court and Third Circuit. Nat’l Collegiate Athletic Assn. v. Christie, 61 F. Supp. 3d 488 (D.N.J. 2014); Nat’l Collegiate Athletic Assn. v. Governor of N. J., 832 F.3d 389 (3d Cir. 2016) (en banc).

After a six-year legal battle, the Supreme Court reversed, endorsing New Jersey’s argument that PASPA was an unconstitutional violation of the “anti-commandeering” principle, a principle that recognizes the limits of Congressional authority over the states and their ability to pass laws. The Court concluded that “even where Congress has the authority under the Constitution to pass laws requiring or prohibiting certain acts, it lacks the power directly to compel the States to require or prohibit those acts.” Murphy, 138 S. Ct. at 1477 (quoting New York v. United States, 505 U.S. 144, 166 (1992)). After noting that “the Constitution confers upon Congress the power to regulate individuals, not States,” the Court concluded, “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.” Id. at 1479, 1484-85.

Will Congress Act to Replace PASPA?

As the Supreme Court noted, its decision presents Congress with a choice of either passing a new law regulating individuals’ ability to participate in sports gambling directly or leaving regulation of sports betting to the individual states. Senator Orrin Hatch, one of the original authors of PASPA, has already indicated that he will introduce legislation to replace PASPA, which he believes is necessary to “protect honesty and principle in the athletic arena.” Press Release, Sen. Orrin Hatch, Hatch Lays Groundwork for New Sports Betting Legislation (May 14, 2018) (available at https://www.hatch.senate.gov/public/index.cfm/2018/5/hatch-lays-groundwork-for-new-sports-betting-legislation). How much any proposed legislation would attempt to limit the spread of gambling is a critical question that interested parties will want answered sooner rather than later.

Public opinion on gambling has shifted towards a more tolerant view since the passage of PASPA in the early 1990s. Nearly every state now operates a lottery; legal casino gambling that was once confined almost exclusively to Las Vegas and Reno has now spread to a majority of states, the internet has made illegal sports gambling with off-shore providers easily accessible to anyone with a computer or smartphone, and games like daily fantasy sports and office NCAA March Madness bracket pools have blurred the lines between what separates acceptable from harmful gambling. See U.S. Census Bureau, Table, Income and Apportionment of State-Administered Lottery Funds: 2016, available at https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk; Csilla Horvath & Richard Paap, The Effect of Recessions on Gambling Expenditures, 28 J. Gambling Stud. 703 (2014). Any new legislation is likely to reflect this shift and thus attempt to regulate, rather than ban, gambling. In addition to clearing the legislative process, however, any new federal regulation would face a number of challenges, addressed in turn below.

Competing Interests

States, leagues, and gambling providers are already moving quickly to secure positions favorable to their interests, with many already enacting legislation to allow gambling at the state-level, leaving the federal government to play catch-up. Several states are already taking bets under new sports gambling laws, including New Jersey and Delaware, which started accepting sports bets at casinos within their states in June 2018. Mississippi began taking sports bets in its casinos on August 1, 2018. Approximately a dozen other states are either considering legislation or have enacted legislation authorizing sports gambling but have yet to start actively taking bets. See Ryan Rodenberg, State-by-State Sports Betting Bill Tracker, ESPN.com, updated Aug. 1, 2018, http://www.espn.com/chalk/story/_/id/19740480/gambling-sports-betting-bill-tracker-all-50-states.

Despite their opposition to New Jersey’s pre-Murphy efforts to legalize sports gambling, the sports leagues have shown an increased willingness to accept expanded sports gambling and the additional revenue opportunities it could provide. The NBA and its commissioner Adam Silver have been at the forefront, while the NFL and NCAA have shown the most reluctance to increased sports betting. The NBA even recently agreed to a partnership with MGM Resorts International, making MGM the league’s “official gaming partner” and giving MGM access to official NBA data. Press Release, National Basketball Association, MGM Resorts International Becomes Official Gaming Partner of NBA, July 31, 2018, http://www.nba.com/article/2018/07/31/mgm-resorts-international-becomes-official-gaming-partner-nba-official-release.

Some form of federal regulation would almost certainly be preferred by the sports leagues, as it would lead to a more uniform framework and would likely include at least minimum protections for the sports leagues, including possibly an “integrity fee,” which the leagues have consistently supported. Integrity fees operate as a tax on all bets taken by a sportsbook that would be paid to the leagues to be used for monitoring gambling activity on their events and educating their athletes about gambling. Integrity fees have traditionally been unpopular with many constituents, most notably would-be sportsbook operators. In some states, proposed legislation has included integrity fees as high as one percent of total wagers, not just on wagers that the sportsbook wins, an amount that is likely untenable for sportsbook operators, given that this could amount to more than twenty percent of a typical sportsbook’s revenue of four to five percent of total wagers. See Matt Bonesteel, Sports Gambling “Integrity Fee” Supporters Are Not Doing Themselves any Favors, Wash. Post (May 22, 2018), https://www.washingtonpost.com/news/early-lead/wp/2018/05/22/sports-gambling-integrity-fee-supporters-are-not-doing-themselves-any-favors/?noredirect=on&utm_term=.51c3691a9b63.

Role of the States

The role of individual states will need to be clarified, especially now that states have started to allow sports gambling. As with lotteries and casino gambling, decisions to allow sports gambling have generally been left to the individual states since Murphy. Regardless of the extent of federal legislation, state lawmakers will have to consider a number of questions that will factor into their decision to allow sports betting in their state, and to what extent it will be accessible to consumers. These factors include an assessment of how sports betting would impact professional and amateur teams in their state, how sports gambling would fit into their existing legal gambling (which may include commercial and/or tribal casinos), and whether to allow mobile sports betting.

Impact on Teams and Schools

One of the greatest concerns with expanded sports betting is the impact it could have on athletes, particularly on amateur athletes such as NCAA student-athletes. In the past, the NCAA has refused to allow states with legal sports gambling to host certain marquee sporting events, in order to limit its proximity to betting, which prompted Oregon to eliminate its sports lottery game in 2007 to attract NCAA tournament games. See Whitney Woodworth, Could U.S. Supreme Court Ruling Bring Sports Betting Back to Oregon?, Statesman Journal (May 14, 2018), https://www.statesmanjournal.com/story/news/2018/05/14/could-u-s-supreme-court-ruling-bring-sports-betting-back-oregon/608908002/. Professional leagues had taken a similar approach. Until 2017, no MLB, NBA, NFL, or NHL professional sports franchise had been located in Las Vegas, despite franchises in a number of smaller markets. That has changed now, as the Vegas Golden Knights joined the NHL this past season and the NFL’s soon-to-be-former Oakland Raiders have announced a plan to move into a new football stadium near the Las Vegas Strip in 2020. It is unclear whether this expansion will continue as legal gambling spreads to other states, or how a state’s gambling laws could impact teams in various leagues or organizations.

State gambling legislation should also be closely monitored by team and player representatives to assess the impact it will have on franchises and athletes who operate within the state. One area that should be of particular note to NCAA teams is the disparate interests of states in protecting student-athletes at state-run public universities on one hand, and increasing state revenue via legal sports gambling on the other.

Relationships With Existing Gambling Operators

States must also consider the ramifications of expanded sports betting on existing casino operations within their state and the impact on established business relationships. States will face a number of questions, such as whether to limit sports betting to in-person wagers at existing casinos or allow new standalone sportsbooks and whether to limit mobile betting licenses to existing licensed casino operators or allow licensing of new operators.

Certain agreements between states and American Indian tribes could also be implicated by these decisions. Tribes in a number of states, including California, Connecticut, and Mississippi, have monopolies or near-monopolies on offering certain types of casino gambling or games through long-standing agreements with the state. A number of these tribes have expressed their belief that legal sports gambling falls under the language of these existing exclusivity agreements and that granting others the right to conduct sportsbook operations would violate these exclusivity agreements and entitle the tribes to withhold as much as several billion dollars in slot machine revenues annually from the states. Kevin Draper, et al., Indian Tribes Dig In to Gain Their Share of Sports Betting, N.Y. Times (May 21, 2018), https://www.nytimes.com/2018/05/21/sports/sports-betting-indian-casinos.html. California and Connecticut have yet to authorize legal sports gambling as they negotiate with the tribes. The influence of the tribes and the language of these agreements will certainly impact what legislation these states can enact and how widespread sports gambling will be in these states.

Mobile Betting

Mobile sports betting has already been available to customers located within Nevada since 2010. Improvements in the accuracy of geolocation and geofencing technology have allowed mobile betting service providers to ensure that only people located in Nevada could place bets on their mobile devices. As of this writing, Nevada is still the only state where bets can be placed on a mobile device. However, New Jersey has already approved mobile sports betting and is expected to start taking bets in early August 2018. Press Release, State of New Jersey, Governor Murphy Signs Sports Betting Legislation, June 11, 2018, https://www.state.nj.us/governor/news/news/562018/approved/20180611b_sportsBetting.shtml. Mobile betting providers, including both DraftKings and FanDuel, the two largest daily fantasy sports providers, already have partnership deals in place with New Jersey casinos to be their mobile sports betting platform. Other states are expected to follow suit.

The availability of mobile betting provides two distinct differences from in-person betting in casinos. First, and most obviously, mobile betting makes sports gambling more accessible to consumers. Bets can be placed from anywhere, including at home or at a live sporting event, without the need to drive to a casino. Second, mobile betting greatly expands the betting options available to consumers. “Live betting” or “in-play betting” can offer gamblers the ability to wager on many individual events within games and can also offer up-to-the-second odds on certain outcomes within the games, whereas the available options in physical sportsbooks are more limited and less fluid.

Changes to the Business of Sports

Regardless of the laws eventually passed by Congress or state governments, the way sporting events are sold to consumers and experienced by fans is certain to change. While gambling on sports had largely been an unacknowledged reality throughout most of the sports broadcasting era, the gambling implications of certain events will likely be much more freely discussed by commentators during telecasts. Additionally, advertising and sponsorships by betting services and data providers will likely be ubiquitous on broadcasts and in stadiums and arenas, where these companies can directly reach their target audience of sports fans.

As the NBA’s recent deal with MGM highlights, access to up-to-the-minute information and performance data will be critical for both gaming providers and customers alike, as each side seeks to have as much data as possible at its disposal in order to make informed wagers. This intense interest in data could raise potential privacy issues as athletes seek to protect and control the rights to their individual health and performance data. In particular, the right to prevent the disclosure of certain health issues of athletes, especially college student-athletes, could raise significant legal issues.

Other Ramifications of the Murphy Decision

The Supreme Court’s unambiguous anti-commandeering language in the Murphy opinion could have implications for other areas of law where states have been at odds with the federal government, particularly in fields where Congress seeks to impose more restrictive laws than some states, such as immigration and marijuana law. States seeking to avoid federal regulations could try to advance New Jersey’s successful anti-commandeering arguments from Murphy to obtain greater autonomy over these and other issues.

Conclusion

With the elimination of PASPA, expanded sports gambling is here to stay. Given the historical popularity of illegal sports betting and the large sums of money wagered illegally each year, it will quickly become a significant sector of the economy – legal and otherwise.

Similar to the expansion of state lotteries and casino gambling in the 1980s and 1990s, once it begins, the majority of states are likely to take part. Although some states may resist legalization due to concerns over the harm that legal sports gambling could cause its citizens, abstention will prove challenging for states that begin losing potential revenues from wagering by its citizens to neighboring states that offer legal sports betting. As sports gambling becomes more accepted in the United States, many states are also likely to allow mobile betting, rather than restricting betting to casinos. In the midst of this revolution, the leagues, governments, and sportsbooks and gaming providers will all seek to protect and grow the products they have developed and the people they represent. New conflicts—and new law—are certain to develop.