Supreme Court Overturns Federal Prohibition on State Authorization of Sports Wagering Under the Professional and Amateur Sports Protection Act

On May 14, 2018, the United States Supreme Court issued a long-anticipated opinion in Murphy v. NCAA and N.J. Thoroughbred Horsemen's Assn., Inc. v. NCAA, which addressed the constitutionality of a federal law barring states from operating or authorizing wagering on individual sporting events.¹ In a 7-2 decision, the Supreme Court declared unconstitutional the Professional and Amateur Sports Protection Act (28 U.S.C. § 3071, et seq., or "PASPA"), relying on New York v. United States's "anti-commandeering rule." The decision, which capped a years-long legislative and judicial effort by New Jersey to implement sports wagering in its casinos and racetracks, paves the way for legal and regulated sports wagering in any state that chooses to allow it, and is likely to result in the expansion of single-event wagering beyond Nevada, currently the only state in which such wagering is currently permitted. 

The majority observed that PASPA did not affirmatively criminalize sports wagering, which Congress presumably has the power to do under federal law.  Instead, the decision hinged on PASPA's prohibition of a state's "authoriz[ing]" wagering on competitive sporting events.² The Court agreed with petitioners' argument that New Jersey's decision to repeal its existing ban on sports wagering was effectively a decision to "authorize" sports wagering.  So viewed, the Court went on to analyze PASPA's bar (either in the context of a state's affirmative authorization of sports wagering, or the repeal of an existing ban on sports wagering), and decided that PASPA was an unconstitutional intrusion on legislative authority reserved to the states under the Constitution.

Practical Implications for Casino Operators and Service Providers

While Nevada is currently the only state with a legal and regulated single-event sports wagering regime,³ the Supreme Court's decision now opens the door for companies to run sports wagering businesses for market participants in any state that authorizes them to do so. In fact, a number of other states anticipated the Supreme Court's decision and enacted legislation while the issue was pending in the courts. Some states even took the additional step of permitting casinos and racetracks to construct the infrastructure and facilities for sportsbooks on their properties, so that they could quickly be activated if and when the Court ruled that PASPA was unconstitutional. For its part, New Jersey is currently working to develop and implement a regulatory framework for sports wagering in an effort to permit sportsbooks to open as quickly as possible. Next door, a 2013 referendum permitting commercial casinos in upstate New York also generally permits sports wagering upon "a ruling of a court of competent jurisdiction that such activity is lawful,"⁴ and several proposed laws broadly authorizing sports wagering throughout New York are currently pending before the state legislature. The Court's decision undoubtedly will spur additional states and casino operators to move forward as well.

The decision also has implications for a wide range of gaming-related industries. In addition to casino and racetrack operators themselves, numerous third-party providers are involved with the sports wagering industry, such as the sportsbook operators which provide sports wagering services for casinos in Nevada, ranging from large-scale Las Vegas Strip resorts to smaller regional or local casinos. These casino and sportsbook operators and service providers now may be able to expand their offerings into additional states, or add sports wagering capability to their existing properties. Financial institutions, payment processors, and technical consultants also will likely find themselves in a position to get involved or expand their presence in the sports wagering business.

Practical Implications for Internet Wagering

The decision also should have a wide-ranging impact on internet gambling operations. Under current federal laws (primarily the Wire Act, the Travel Act, and the Unlawful Internet Gambling Enforcement Act), intrastate internet and telephone wagering is generally permissible within the confines of a state that has affirmatively authorized such wagering, or between such states. Interstate wagering is also permissible if the wager in question is permitted by the states in which the wager is placed and/or received.⁵ Currently, Nevada offers statewide internet wagering on sporting events, and several states (particularly Delaware and New Jersey) permit internet wagering on casino games. Assuming other states decide not to affirmatively ban internet wagering after otherwise authorizing sports betting, these services now could presumably be offered in numerous other states in which sports wagering is legal. That said, operators may well decide to limit wagering to residents of individual states, in an effort to avoid any conflict with federal law regarding interstate gambling; to do so, they may need to take advantage of existing geolocation technology to ensure that wagers are accepted only from individuals in states where such betting has been authorized. 

Companies should monitor not only the location of individual players, but also the type of wagering taking place, especially because different states may decide to enact different restrictions on what types of wagers they will permit on particular events. What sorts of sports wagers are allowed presently varies considerably from state to state, and this variation is likely to expand as more states legalize sports wagering. For example, New York's sports wagering law explicitly prohibits wagering on "any collegiate sport or athletic event that takes place in New York or a sport or athletic event in which any New York college team participates regardless of where the event takes place[.]"⁶ In this scenario, a company accepting online wagers within Nevada or New Jersey would need to ensure that it does not accept wagers from individuals physically located in New York on sporting events taking place in New York, regardless of whether such wagers would be acceptable from individuals physically located in other states; the Wire Act and state prohibitions focus on where a bettor is located at the time a wager is made, without regard to information such as a bettor's billing address or the address used to register a wagering account.

We note that the Wire Act (18 U.S.C. § 1081, et seq.) currently criminalizes "the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers[.]"⁷ The current position of the United States Department of Justice is that this language prohibits only interstate sports wagering, as described in a September 2011 memorandum that paved the way for legal intrastate casino gaming via the internet;⁸ at the time this guidance was issued, single-event sports wagering was illegal in every state but Nevada. However, the Wire Act also includes a carveout for "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."⁹ Thus, to the extent sports wagering is legalized by domestic jurisdictions, wagers placed via the Internet should be permitted under the Wire Act as long as both the bettor and the sportsbook are located in jurisdictions where the type of bet made is authorized.

Conclusion

The Supreme Court's overturning of PASPA does not automatically authorize sports wagering throughout the United States; instead, it permits states to set the contours of the permissible wagering within their respective borders. Until states provide legislative and regulatory guidance on the subject, companies should assume that the legality of sports wagering within the United States remains as it did before the Murphy decision. While certain states have enacted or are expected to enact legislation either permitting sports wagering, or repealing existing prohibitions on sports wagering, companies will need to monitor and comply with the legal requirements of each state. It also is unlikely that interstate wagering will be permitted under existing federal laws and guidance, and operators therefore will need to ensure that they limit their offerings to those located within a particular state (as done by current providers of internet gambling services). Arnold & Porter will continue to monitor developments and plans to issue additional Advisories to keep companies up to date. In the meantime, please reach out if you want to discuss any of these matters or how they might affect your business.

*As United States Attorney for the District of New Jersey, Mr. Fishman was lead counsel for the United States in the successful defense of PASPA by the government and the sports leagues before the District and Circuit Courts.