SCOTUS Delivers State Gaming Proponents a Win

By Randall Gerard – May 2018

Final Score: 6-3

For fans keeping score, New Jersey was yesterday’s big winner with a 6-3 victory over the NCAA.

The Supreme Court of the United States (SCOTUS) ruled yesterday in favor of New Jersey Governor Phil Murphy in the state’s case against the National Collegiate Athletic Association (NCAA). The verdict in Murphy (formerly Christie) v. NCAA struck down the Professional and Amateur Sports Protection Act (PASPA) which was enacted in January 1993 to outlaw sports betting nationwide with the exclusion of sports lotteries in Oregon, Delaware and Montana and the licensed sports pools in Nevada. The ruling gives New Jersey – and potentially other states – the authority to legalize intrastate sports wagering.

Many states are touting this as a pro-business decision and economic driver to create jobs and tax revenue. Moreover, politicians have turned state legalized sports betting into a consumer protection issue and as a way to curtail the existing black market. Currently, New Jersey, New York, Mississippi, Connecticut, Pennsylvania and West Virginia have passed turn-key legislation that would permit intrastate sports gambling in their respective states, and up to 20 additional states are considering similar sports wagering authorizing legislation.

The Players

Now that states have the authority to regulate sports gambling, they will be in the driver’s seat as they craft legislation with many stakeholders trying to influence the outcome. Following the decision, some players including the National Football League called for a federal “regulatory framework for legalized sports betting.” Recognizing this opportunity for oversight, Sen. Orrin Hatch (R-UT) followed the SCOTUS opinion with the announcement that he plans to submit federal legislation designed to provide superseding regulations. According to Sen. Hatch, a state-based industry would create a, “patchwork race to the regulatory bottom.”

While there is already reticence among some to allow states to have this authority, other stakeholders have much to gain, including some obvious players: state-regulated casinos, other state-regulated gaming operations (pari-mutuel racing, lotteries), tribal casinos and European or other foreign companies that have been engaged in offering consumers sports betting outside of the United States. Other less obvious winners are the cell phone carriers, customer verification companies, payment processors, entertainment companies, advertising companies and essentially anyone with an internet platform and lots of customers (i.e. GAFA – Google, Apple, Facebook and Amazon – Yahoo and ESPN). 

One issue that could put some of these allies at odds are “integrity fees” that sports leagues are pushing. The “integrity fee” is a percentage that the leagues would collect on all wagering – not just winning bets – in that particular state. This has become a flashpoint between the leagues and casinos, which could trickle down to the individual athletes and players unions.

Next Opponent: Washington? 

Now that PASPA has been ruled unconstitutional, the question to ask is whether additional modifications will be made to the Wire Act to address the gaming industry’s move towards internet and mobile betting – a move that will be closely watched by the likes of AT&T, Verizon, T-Mobile and Sprint as the attractiveness of sports wagering to states is enhanced when mobile becomes unimpeded. The Wire Act of 1961 is the federal law that sought to end the prominent role organized crime played in booking sports wagers. Over the years, the Department of Justice (DOJ) has interpreted the law to apply to online sports wagering and they have successfully shut down some illegal internet sports books. Most recently, the DOJ under former President Obama reviewed the Wire Act interpretation, and while they changed their view on its application to internet poker, casino games and lotteries, they continue to maintain that sports betting via “the wire” is prohibited. 

Despite questions about whether the Wire Act would prevent mobile sports betting, mobile betting has been occurring in Nevada for several years now without federal action to prevent the placement of sports bets on mobile devices. Noteworthy: Attorney General Jeff Sessions has recused himself from gambling issues based on an unrelated matter with his personal counsel but that recusal could come into play as PASPA and Wire Act modifications are determined.

Unlike past legislative sessions, there has been a recent dearth of gambling legislation but the SCOTUS decision could usher in a host of congressional considerations as we saw with Sen. Hatch’s announcement. One bill floating around prior to the SCOTUS decision was the GAME Act – Gaming Accountability and Modernization Enhancement Act (HR 4530) – introduced by House Energy and Commerce (E&C) Ranking Member Frank Pallone (D-NJ) in the 115th Congress. The bill was referred to both the E&C and House Judiciary Committees but is not expected to see any action. The legislation would undo PASPA (a bit irrelevant now), remove liability issues, add consumer protection, empower the Federal Trade Commission (FTC) as a clearinghouse, and define sports wagering.

The Playbook

The SCOTUS decision could be an economic game-changer for states and a potential lightning rod for anti-gambling, conservative forces. Your Cogent team is uniquely equipped to help you in the states and prepare you to address the challenges and opportunities that could be presented at the federal level.

Randall Gerard spearheads government relations campaigns on behalf of a number of Cogent’s technology, telecom and tax clients, and serves as one of the firm’s principal liaisons for outreach to Republican leadership. Randall is an active member of the national finance committee at the Republican Governors Association and maintains close ties to governors and their staffs across the country. He formerly navigated one of the world’s largest casino brands through the online gaming debate. For Randall’s complete bio, click here.