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Offshore Report : The Insider : Hartley Henderson


A partial repeal of PASPA could be the worst decision for both the states and leagues

By: Hartley Henderson - exclusive to OSGA.com
Published: Apr 16, 2018


A decision by the Supreme Court on New Jersey's challenge to a ruling that prohibits it from authorizing sports betting in the state could be made as early as this week.

There are really three rulings SCOTUS can make:

- Rule in favor of the leagues and say that New Jersey's sports betting law is illegal and the state can not offer sports betting in any way.
- Rule that PASPA is unconstitutional and repeal the law, thereby making sports betting in the United States completely legal.
- They can rule that New Jersey's sports betting law (i.e. a law that allows New Jersey to offer sports betting at casinos and racetracks) does not violate PASPA, but the federal law remains in place. That would allow New Jersey to move forward with their plan to offer sports betting in Atlantic City, but it would also leave a federal law on the table that most states believe is unfair since it favors four grandfathered states.

Most analysts seem to believe that the last option is what SCOTUS will rule, which would appease New Jersey and other states that have passed sports betting laws, but it could bring on issues of their own. Lawrence Walters, a first amendment attorney specializing in gambling is one of those analysts:

"A full repeal of PASPA is unlikely, but possible. If PASPA was to be repealed, a new law would likely be passed by Congress to replace PASPA. The more likely outcome seems to be that New Jersey wins by a small margin, with the Court ruling that PASPA does not to prevent New Jersey's actions in repealing sports betting prohibitions in the state. Courts tend to rule on the facts of the cases before them and go no further than necessary to resolve the pending dispute. The Court will not necessarily consider policy arguments in deciding a purely legal issue. So, whether one ruling or another is the best way to regulate sports betting is not a matter for the Court to resolve. A full repeal would not be required to resolve the current dispute, but it is within the power of SCOTUS, since the constitutionality of the statute has been challenged."

The big issue with leaving PASPA in place is that the federal law, while not prohibiting sports betting per se, does not allow states to license or regulate sports betting. So, if left in place, states can remove all prohibitions that prevent them from offering sports betting (as New Jersey has done), but they also can not pass rules to license and regulate it as they would like. And since they can't license the product, then logically they can't charge a licensing fee either. And for many states that's the main reason they want to offer sports betting in the first place. New Jersey's reasons for passing its sports betting law is to help bolster interest at Atlantic City casinos, but they would also presumably want some sort of fee for state coffers to help in the regulation which could be precluded by a partial repeal. And for states, like Pennsylvania, whose law institutes a $10 million one-time licensing fee, along with smaller fees by Michigan, Kentucky and various other states that have a licensing fee as part of their proposed laws to allow sports betting, the inability to require this will be a big deterrent to moving forward with their sports betting law.

PASPA Repeal SCOTUSNew Jersey has indicated they are fine without licensing fees or regulation since the law as it stands will increase state taxes and create jobs, but clearly, they would prefer to be able to regulate it with the New Jersey Division of Gaming setting the rules. Similarly, for sports leagues, most have indicated the desire for a 1% integrity fee for their blessing on offering betting on their sports. But if states can't regulate or license betting then the leaguses probably have no basis for demanding the fee, since sports betting is still technically illegal per federal law. Of course some will argue that most states don't have the integrity fee built into their legislation so it's a moot point and the majority of leagues would prefer a federal law that has the integrity fee as part of the regulatory requirement. But PASPA as it stands does not have any rules attached to it and it is extremely unlikely the Supreme Court will mandate any amendments to the law to keep it in place – that's a decision for Congress. So, keeping PASPA in place but simply allowing New Jersey to repeal rules that force it to prohibit sports betting benefits no one.

Again, Larry Walters gave his thoughts on this issue:

"New Jersey repealed its laws and removed most sports betting prohibitions in casinos. If PASPA was to be struck down, federal lawmakers would likely have concerns that other states would follow, leaving no prohibitions for those wishing to engage in gambling. The example that those opposed to the full repeal seem to be using is the possibility of children in casinos. It seems likely that Congress would get involved if several other states started following New Jersey.
Even if New Jersey loses the SCOTUS case, it seems unlikely that PASPA will survive as it currently stands. Federal lawmakers may be incentivized to act regardless of how the case is determined."

But analysts also note that the different sports leagues have alternate positions on what they really want from SCOTUS and a partial repeal is not the solution for any of them. The NBA and MLB have indicated they favor legal sports betting, provided they get an integrity fee. But, they would prefer a ruling that PASPA is unconstitutional as it stands and mandate a new federal law that replaces it with one that has regulations regarding underage betting, problem gambling, combatting game fixing and most importantly that mandates 1% of all revenue goes to the leagues. The NFL and NCAA would presumably want the courts to rule that PASPA is indeed constitutional and should remain in place. However, they also may demand an amendment to the law to make it clear that sports betting in the U.S. is illegal under all circumstances and consequently removes the grandfathering clause forcing Nevada and Delaware to abandon sports betting. The desires of the other leagues are uncertain although presumably they'd be happy with either a ruling that sports betting is illegal and a toughening of PASPA or a full repeal of the law with a new bill that requires an integrity fee because in either case they win.

Supreme Court sports betting lawsBut what all the leagues clearly don't want is a partial repeal that makes sports betting technically illegal, although states can get around it by ignoring the law. A partial repeal would simply make sports betting a free-for-all. At least with a full repeal the NCAA can approach states and get their input into the drafting of regulations, which may indeed include a ban on amateur sports betting. And a partial repeal also doesn't address the concerns of all the states that gave an amicus brief in favor of New Jersey which effectively stated that PASPA is an affront to federalism since it mandates states to enforce a law that they don't agree with, doesn't benefit them and has no logical reason to be mandated at the federal level. i.e. to preserve the country's security.

If SCOTUS does rule for a full repeal then Larry Walters believes states will almost immediately move forward with legislation:

"Although the SCOTUS decision has yet to be issued, several states including Pennsylvania have laws ready to go pending the decision. At this time 20 states have sports betting bills that have been filed, ranging from issues such as the details of precisely how sports betting would operate in their state, to simpler bills that would allow for more specific details once the case is decided. Some of these bills would go into effect immediately upon a decision in favor of New Jersey.

Many of the state bills would look to existing wagering structures such as lottery commissions or casinos to provide the oversight on sports betting. Some of the bills would allow for on-site betting only such as at racetracks and casinos, while other would allow for remote or mobile betting which is already popular with off-shore sportsbooks. It seems that a mix of land-based, mobile, and online operations will ultimately be the sports betting landscape, similar to how Nevada currently operates. However, Nevada requires individuals to register mobile or online accounts at land-based venues, and there seems to be a strong desire for states to follow the rule."

Should SCOTUS make a ruling for a full or partial repeal it's almost certain that the Wire Act will be the next gambling related law for SCOTUS to decide on. The 2011 DoJ opinion said that online betting is legal except for sports betting and the courts have previously ruled that the Internet is automatically interstate by nature so states that want to offer online sports betting (and many states do have Internet sports betting as part of their proposed plan) may find it difficult to do so without a court challenge. Moreover, states that get their information from Nevada or other sources may be told they are engaging in illegal activity since the sports betting information is not intrastate.

Walters acknowledges that this could be a concern but believes it's not likely because of carve outs for transmissions of information in the Wire Act:

"Due to the Wire Act, no interstate gambling options will be available. Unless the Wire Act was to be modified, all gambling operators would need to have servers in the states that they were receiving wagers from at all times. However, the Wire Act provides for an exemption for transmission of wagering information, so operators could likely replicate their odds for their operations in every state where the activity was legal."

Walters also stated a concern that if PASPA is repealed or partially repealed and is passed back to Congress to create a new law, that they could use the decision on PASPA to appease Sheldon Adelson with a future law.

"Sheldon Adelson has previously said that he would be willing to spend whatever it takes in order to stop online gambling. There is a danger that RAWA could be inserted into a potential new law by Congress if PASPA was to be struck down, and it seems that RAWA is mostly supported by Republicans at this point. Some lawmakers have previously tried several times to insert RAWA into bills (although they have not had any success yet) so it would not be surprising to see it again."

So make no mistake, the only decision that American bettors should be cheering for is a full repeal of PASPA and a decision by Congress not to get involved with future gambling bills and instead leave the decision on gambling up to the states, where it should be. But it's a process, and first steps first, and that would be a full repeal on the grounds that PASPA is unfair and unconstitutional.
The next opportunity for SCOTUS to rule on PASPA is Tuesday although Larry Walters believes it won't be done until later:

The most likely dates for the Court's decision appear to be April 30, May 14, May 21, May 29, June 4, June 11, June 18, and June 25. Some online sportsbooks have actually placed odds on whether the Supreme Court will reverse the lower court's decision in the case. The Supreme Court reversing the lower court's decision is the overwhelming favorite. But the scope of such a decision remains the uncertain issue.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!



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