Blog Goodwin Gaming September 23, 2013

In Split Decision, Sports Leagues Overcome New Jersey’s Attempt to Legalize Sports Wagering

Following oral argument in June 2013 (chronicled in the Goodwin Gaming Blog here), the Third Circuit has affirmed, 2-1, the district court’s ruling in National Collegiate Athletic Association, et al. v. Governor of New Jersey, et al., in which the NCAA and the North American professional sports leagues (collectively, the “Leagues”) sued to stop implementation of New Jersey’s Sports Wagering Law.

In affirming the district court’s grant of summary judgment to the Leagues, the Court ruled that:

  • the Leagues suffered sufficient injury to confer Article III standing; and
  • the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), which prohibits states from authorizing sports betting, did not violate the Commerce Clause, the constitutional provision against commandeering state legislatures, or constitutional principles of state sovereignty.

The Court prefaced its nearly 100-page ruling with the caveat that it did not “judge the wisdom of PASPA” or the “strong arguments” in favor of New Jersey’s policy decision to regulate sports betting, but only applied the Constitution and statutes as enacted.

In holding that the Leagues had standing, the Third Circuit recounted PASPA’s genesis in Congressional concerns that sports gambling created a risk of game-rigging that undermines the gambled-on sport’s integrity.  The Court agreed that the state’s imprimatur on sports-betting may well lead to more gambling, “thereby souring the public’s perception of the Leagues as” potentially tainted by match-fixers.

Court Recognizes Reputational Harm, Rejects Profit Potential

The Leagues, the Court held, did not assert a “generalized grievance,” but complained of “reputational harm” from a law that “aims to license private individuals to cultivate the fruits of the Leagues’ labor.”  And the prospect of reputational injury was not merely alleged, but demonstrated through studies showing that segments of the public disapproved of sports betting, as well as evidence of a causal link between gambling and attempts by administrators and participants to influence the outcome of games.

New Jersey had argued that the Leagues could not parlay an alleged reputational injury into a lawsuit because the Leagues stood to make money from increased gambling on their games.  The Court disagreed.  That increased gambling may lead to increased revenues for the Leagues, to their ultimate financial benefit, did not preclude them from claiming injury:  “standing analysis is not an accounting exercise and it does not require a decision on the merits.”

Having ruled that the Leagues established standing, the Court proceeded to reject the various constitutional challenges to PASPA.  Beginning with the Commerce Clause challenge, the Court ruled that because “both wagering and national sports are economic activities,” and (of course) occur nationwide, “it is self-evident that the activity PASPA targets, state-licensed wagering on sports, may be regulated consistent with the Commerce Clause.”

The effect on commerce is substantial, the Court concluded without hesitation, given that the Leagues include many thousands of clubs, members, professional athletes, and collegiate participants, and that “Americans gamble up to $500 billion on sports each year.”

Ruling Explores Commandeering Question in Depth

However, New Jersey’s anti-commandeering challenge – which alleged that Congress violated the Tenth Amendment by commandeering the New Jersey legislature to accomplish the federal policy against sports-betting – was not so swiftly dismissed.  The majority spent 40 pages on this part of its holding, beginning by explaining that PASPA preempted any conflicting state law, requiring invalidation under the Supremacy Clause unless some other constitutional principle prevented Congress from enacting PASPA.

The principle that Congress may not “commandeer” state legislatures to implement federal policy has been applied to invalidate legislation only twice – in New York v. United States, 505 U.S. 144 (1992) and Printz v. United States, 521 U.S. 898 (1997).  But these cases were far different, the majority reasoned, because they left the states no choice but to expend their resources to implement federal standards by actively participating in a federal regulatory program.  The Court concluded that PASPA, by contrast, does not compel states to do anything; rather, it merely prohibits them from sanctioning sports-betting.

The State had argued that PASPA impermissibly prevented it “from repealing its ban on sports wagering.”  The majority disagreed; rather, PASPA only prohibited states from authorizing sports betting.  New Jersey may choose to have, or choose not to have, a law in place that prohibits and penalizes sports wagering; that choice does not implicate PASPA.

The Court found unpersuasive New Jersey’s reliance on dicta from Reno v. Condon, 528 U.S. 141 (2000) – (as this blog observed previously, the State placed a lot of emphasis on Reno considering that the decision rejected an anti-commandeering challenge) – instead ruling that PASPA “is very similar to the prohibition on state activity upheld unanimously in Reno.”  And the court concluded its anti-commandeering analysis by invoking field preemption principles in holding that New Jersey’s Sports Wagering Law conflicts with “federal policy” governing sports gambling, as articulated not only in PASPA, but in a number of other scattered statutes.

Finally, the majority rejected New Jersey’s argument that “PASPA violates the Equal Sovereignty of the States by singling out Nevada for preferential treatment.”  As discussed previously in this blog, PASPA included a grandfathering provision that allowed Nevada to keep its expansive sports betting operations, and also allowed smaller-in-scope legal sports betting in Delaware, Montana, and Nevada.  But the Commerce Clause, the Court ruled, contains no “guarantee of uniformity in treatment amongst the states.”

And even if the “equal sovereignty” principle prevented irrational discrimination among states, PASPA’s “true purpose” – which the majority construed as “to stop the spread of state-sanctioned sports gambling” – makes sense in the context of the already well-developed sports betting operations in Nevada.

One Judge Sees PASPA as Passing Buck to States

Judge Vanaskie concurred in part and dissented in part.  He agreed that the Leagues had standing to sue, and he agreed with the constitutional holdings that PASPA did not violate the “equal sovereignty” principle and that Congress may regulate gambling under the Commerce Clause.  However, he found that PASPA “dictates the manner in which states must regulate interstate commerce and thus contravenes the principles of federalism set forth in New York and Printz.” He rejected the majority’s “interpretation of federalism principles,” which “permits congressional negative commands to state governments.”

Noting that Congress did not ban sports betting but “passed the responsibility to the states” to deny state licenses, he viewed PASPA as undermining legislative accountability.  He dissented from the majority’s preemption analysis; “PASPA provides no federal regulatory standards or requirements of its own,” and the federal government declined to expressly preempt the field of sports-betting regulation.

Disagreeing with the majority’s conclusion that Reno v. Condon is “remarkably similar” to the case at bar, Judge Vanaskie viewed Reno as rejecting “direct congressional regulation of interstate commerce” – but in PASPA, by contrast, Congress decided not to regulate the field of sports betting, but instead to “dictat[e] how states regulate sports gambling,” effectively passing the buck to state legislators so that they – instead of Congress – could pay the political price.

As an industry commenter has observed, the case “already was expected to head to the U.S. Supreme Court regardless of the Third Circuit’s decision.”  If New Jersey asks the Justices at One First Street to tackle this one, and they accept, expect another heated battle on the federalism and anti-commandeering issues that split the Third Circuit – as Goodwin Procter’s own David Apfel recently commented, “the rubber meets the road on anti-commandeering.”