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US Supreme Court Strikes Down Federal Ban on Sports Betting

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On Monday, May 14, 2018, the U.S. Supreme Court issued a decision in Murphy v. National Collegiate Athletic Association overturning the Professional and Amateur Sports Protection Act (PASPA). This legislation was the cornerstone of the federal prohibition against sports-betting in all but a few states. With the abandonment of the PASPA legislation, the individual states are now free to legalize betting on sports for real money.

Background Info

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In 1992, Congress passed PASPA, which prevented states from authorizing or licensing sports-betting within their borders. Four states that had existing avenues for wagering on sports – Nevada, Montana, Oregon, and Delaware – were grandfathered in and allowed to continue to permit betting on sporting contests. Of these four states, only Nevada made much use of this exemption, and Las Vegas became the capital of U.S.-based sports-betting.

In 2014, the State of New Jersey repealed several of its laws banning sports-betting, perhaps intending to challenge Nevada for primacy in the market. Professional and collegiate sports leagues, like the NCAA, have historically been opposed to this type of wagering because they feel that it encourages the bribery of referees, the fixing of games, and other unsavory activities. They therefore brought suit against New Jersey.

The plaintiffs won in District Court, and the Third Circuit Court of Appeals upheld this ruling against New Jersey in an August 2016 decision. The state appealed to the U.S. Supreme Court, which agreed to hear the case in June 2017.

US Supreme Court Justices circa 2018

Oral Arguments

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The case was argued before the Court on Dec. 4, 2017.

The State of New Jersey based its reasoning on the long-established legal principle of anti-commandeering, which holds that the federal government cannot compel the states to enforce federal regulatory decisions. The doctrine of anti-commandeering is derived from the text of the Tenth Amendment to the Constitution:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

In New Jersey's view, PASPA commandeers the states and usurps their authority by directing them to ban wagering on sporting events.

The NCAA and other respondents countered that PASPA doesn't commandeer the states because it doesn't require them to take any proactive measures. Rather, it prevents them from “authorizing” betting on sports. States that had existing legalized sports-betting at the time of the passage of PASPA, like Nevada, were permitted to continue offering these products.

However, the way that New Jersey attempted to legitimize betting on sports was by repealing existing bans on sports-betting, not by passing a new licensing or regulatory scheme. At issue was the point of whether or not preventing a state from repealing some of its own laws counts as commandeering.

The Supreme Court's Decision

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The Supreme Court issued its decision on May 14, 2018. Writing the majority opinion, Justice Alito was joined by justices Roberts, Kennedy, Thomas, Kagan, and Gorsuch. Justice Ginsberg wrote a dissenting opinion, in which Sotomayor joined. Justice Breyer concurred in part and dissented in part.

The Court declared that PASPA was unconstitutional:

The PASPA provision at issue here — prohibiting state authorization of sports gambling — violates the anticommandeering rule. That provision unequivocally dictates what a state legislature may and may not do. And this is true under either our interpretation or that advocated by respondents and the United States. In either event, state legislatures are put under the direct control of Congress. It 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. A more direct affront to state sovereignty is not easy to imagine.

Alito noted that the Constitution enshrines a separation of powers under a system of dual sovereignty whereby both the federal and state governments have their own distinct roles. “The anticommandeering doctrine may sound arcane,” he wrote. “But it is simply the expression of a fundamental structural decision incorporated into the Constitution, i.e., the decision to withhold from Congress the power to issue orders directly to the States.”

Effects of the Decision

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Now that PASPA has been deemed inapplicable, the individual states can pass licensing regimes for sports-betting if they so choose. Because it has already taken the necessary legislative steps to do so, New Jersey can begin to offer sports-betting right out of the gate. Monmouth Park in Oceanport is expected to become the first place in the Garden State with a sportsbook, which may appear as soon as a couple of weeks from now.

Other States Likely to Join In

Delaware currently hosts parlay betting at its racetracks because it already permitted this type of betting at the time PASPA was drafted. Parlays involve predicting the outcomes of several sporting matches, all of which must be forecast correctly for the bettor to win. The Murphy v. NCAA decision opens the door for an expansion of DE gambling to include traditional single-game wagers.

Pennsylvania, Mississippi, and West Virginia already have statutes on the books allowing for legalized sports-betting with a catch: They were written to only become active in the event of the invalidation of PASPA. With the recent Supreme Court ruling, these clauses have been triggered, and so the three states can proceed with their implementations of regulated sports-betting ecosystems.

Pennsylvania in particular is interesting in that it has recently authorized online poker and casino operations. With the additional of sports-betting, PA gambling companies now have the hope of being able to deploy all-in-one, integrated wagering platforms.

There was a bill up for consideration in the Maryland legislature that would have posed the question of legalized sports-betting to the voters in November. HB 1014 passed the House of Delegates on March 15 with a 124-14 majority, but it died in the Senate. If resurrected in future legislative sessions, the next opportunity to pose the referendum to the public at large would be in the 2020 election.

The proposed Maryland bill would allow both casino operators and race tracks to obtain licenses for sports-betting once the voters approved. Racing is big business in Maryland with the Preakness Stakes – the second leg in the annual Triple Crown – calling Pimlico Park in Baltimore home. Yet, this industry is ailing, much as it is across the United States as a whole, and the addition of sports wagering could give it a much-needed shot in the arm. This is especially true in Maryland specifically because most of the race venues lack attached casinos and so cannot offer slots or table games.

More than a dozen other states have bills in various stages of the legislative process that would enable sportsbooks to serve their residents without breaking the law. The decision nullifying PASPA may act as a spur to getting these bills voted on and enacted. We'll probably see sportsbooks appear in brick-and-mortar establishments first, but the advent of state-supervised internet sports-betting is not too far off.

Major Corporations Eyeing U.S. Market

DraftKings and FanDuel, the two big names in daily fantasy sports, have indicated that they will be adding regular sports-betting to their portfolios as a consequence of the Supreme Court's ruling. This is expected to enhance their revenues and profits considerably.

International internet bookmakers, like William Hill and Betfair, will undoubtedly launch competing products in the U.S. market too. In fact, many renowned betting firms saw their share prices skyrocket immediately after news of the Murphy v. NCAA decision hit the markets. Both William Hill and Betfair posted gains of more than 10% on the London Stock Exchange while shares of rival 888 appreciated by 15%. It's estimated that more than $1.5 billion was added to the market capitalizations of all U.K. publicly traded real money gaming firms.

William Hill Sportsbook example
The William Hill Online Sportsbook, a Possible Model for Future U.S. Online Sports Betting Sites

 

What About the Wire Act?

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Notwithstanding the fact that PASPA is no longer a concern, the Federal Wire Act remains in place. This law was instituted in 1961 to give law enforcement another tool to crack down on illegal sports-betting.

It's important to note, however, that the Wire Act only applies to betting that crosses state or national boundaries and is illegal. The following text from the Act makes this clear: “Nothing in this section shall be construed to prevent…the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal.” Thus, any state-approved framework for legal sports-betting is explicitly permitted under the Wire Act.

The UIGEA is not relevant either. This 2006 statute only comes into play when the underlying activity is illegal according to the provisions of other laws. As long as the betting services conducted by state-licensed entities are in full compliance with state law, the UIGEA has no impact on them.

Reaction of Sports Leagues

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The National Collegiate Athletic Association was only the first-listed of the respondents in this Supreme Court case. The other leagues committed to fighting against sports-betting legalization were the National Football League, National Basketball Association, Major League Baseball, and National Hockey League.

However much they wished to prevail in court, these organizations had backup plans ready and waiting in case they lost. The MLB and NBA in particular have seemed to warm to the idea of allowing wagering on their contests. What they seek to accomplish now is to obtain a cut of the proceeds.

Through what's referred to as “integrity fees,” the leagues intend to derive revenue directly from the sportsbooks that profit from their games. The rationale behind these fees is that the administrators of the sports on which bettors place action provide the contests that bookmakers earn their trade from. With the proliferation of wagering on these games, league officials will incur additional expenses in maintaining game integrity.

Opponents of integrity fees contend that the games would still run regardless of whether or not any bets were placed on the outcomes. Also, changes in the legislative climate, like the nullification of PASPA, are just routine occurrences that private businesses, like sports leagues, must contend with using their own resources, and they're not entitled to outside compensation for them. A further wrinkle is introduced by the question of whether or not any portion of the integrity fees would be shared with the players.

The fee rate that the leagues are targeting is 1% of sports-betting handle, to be paid by the sportsbooks to the leagues. This is a much higher figure than 1% of revenue would be, and it means that the leagues will get their payoff whether or not the bookie makes a profit. Lobbying efforts are underway to insert integrity fees into the enabling legislation of the states that are looking to license sports-betting. They may be part of the political price bookmakers have to pay to quell opposition to their expansion.

With the new possibilities opened up by the Murphy decision, one state after another is eagerly hopping aboard the sports betting train. You can read our reporting on the latest states to have legalized betting on sports by clicking on the appropriate state name below:

New Mexico * | Tennessee | Montana | Indiana | Iowa



Don't Want to Wait for Your State to Get on Board?

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The inauguration of state-level online sports-betting is a heartening development to all those who love freedom and gambling and the freedom to gamble. However, we still have to wait a little while before the appropriate laws are enacted, license applications are submitted, regulatory bodies give their approval, and the first legalized stateside online bookmakers appear. Also, you might live in one of those benighted states that have no intention of seeing sports wagering appear any time soon. If the glacial pace that state-regulated online poker has had is any indication (only 4 states in 7 years) then you may be waiting a long time!

Offshore sportsbooks provide the answer. They conduct their business with an understanding of international trade rules that they feel trump U.S. legislation. In any case, it's they that are running the risk of drawing the ire of federal officials. There are no American laws that make it a crime for private individuals to engage in sports-betting online with their own money.

We've evaluated and ranked the top operators, which you can read about in our page on the leading online sportsbooks for U.S.A. residents. For other types of real money internet gaming, check out our page on the best online casinos and our guide to U.S.A. online poker.

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