U.S. Sports Betting Tracker Research Note. U.S. Supreme Court Ruling Cheat Sheet. Authors

Transcription

1 U.S. Supreme Court Ruling Cheat Sheet Authors A crucial ruling awaits. Sometime before June 25, the U.S. Supreme Court will decide whether states beyond Delaware, Montana, Nevada and Oregon can move forward with implementing regulatory regimes for sports betting, or whether the road to sports wagering expansion will have to run through the U.S. Congress instead. With a decision in the closely-watched case Murphy v National Collegiate Athletic Association expected soon, we have prepared this research note, which: Outlines the different ways the Supreme Court could rule on the challenge to the federal Professional and Amateur Sports Protection Act of 1992 (PASPA) that was brought by New Jersey Highlights the immediate implications for sports wagering expansion under each of the possible outcomes we identify A quick primer on the New Jersey case. The case centers on a law that New Jersey enacted in With that law, New Jersey repealed state-level prohibitions on sports wagering that is conducted at racetracks and Atlantic City casinos. Why pass a law to repeal the state-level ban on sports wagering, rather than to regulate the activity? Because the federal courts had already blocked New Jersey s earlier efforts to regulate sports betting at tracks and casinos in spite of PASPA. In the pending Supreme Court case, New Jersey argues that PASPA cannot prevent states from merely permitting wagering to occur outside of a formal licensing regime. The National Collegiate Athletic Association (NCAA) and professional sports leagues including the National Basketball Association (NBA), by contrast, argue that limiting permitted sports betting to specific, highly-regulated gambling locations amounts to a de facto authorization. The Supreme Court, meanwhile, will rule on the question of whether PASPA, as a federal statute that prohibits modification or repeal of state-law prohibitions on private conduct[,] impermissibly commandeers the regulatory power of states. Potential outcomes. There are at least four possible ways the Supreme Court could rule. Those outcomes are summarized below, with a brief analysis of what would, or could, come next under each scenario. Outcome 1: PASPA Overturned In Full What it means. Such a ruling would see New Jersey win its case with the Supreme Court striking down PASPA in its entirety after finding the federal statute does not comport with principles of constitutional law. What happens next. All 50 states would be eligible to license and James Kilsby Managing Director, Americas Washington, D.C. Office James@gamblingcompliance.com Chris Krafcik Research Director, North America San Francisco Bay Area Office Chris@gamblingcompliance.com Daniel Stone Head of Data Content London Office Daniels@gamblingcompliance.com +44 (0) Possible Decision Dates The Supreme Court could issue a ruling in Murphy v NCAA on any of the following dates: April: 17, 18, 24, 25, 30 May: 14, 21, 29 June: 4, 11, 18, 25 Source: SCOTUSblog.com

2 regulate sports betting on their own terms, with at least a half-dozen states already positioned to move forward very quickly, according to our research. Under this scenario, we would anticipate New Jersey to swiftly pass a new state law to license, regulate and tax sports wagering at tracks and casinos (rather than merely permitting it, as per the 2014 law at issue in the Supreme Court case). We would also anticipate the state s Division of Gaming Enforcement to move expeditiously to adopt temporary regulations and allow rollout of physical sports books in Atlantic City as well as online betting tied to the state s established internet casinos. Other likely first-movers are Delaware, where an existing sports lottery program would be expanded to include single-game wagering on all sports, and West Virginia, where lawmakers in early March passed a state law to authorize sports betting at casinos and online. Figure 1. Potential Post-PASPA First Movers State Distribution Channels Launch Year Delaware Casinos 2018 Mississippi Casinos 2019 New Jersey Casinos, Racetracks, Online 2018 Pennsylvania Casinos, Online 2019 West Virginia Casinos, Online 2018 Source: GamblingCompliance Research / Estimates Other states also positioning themselves for sports betting expansion. According to our research, 16 states have considered sports wagering legislation this year, and one West Virginia has enacted such legislation. Figure 2. The State Of The States 2018 Post-PASPA Legislation Considered Post-PASPA Legislation Enacted IA MI NY CT RI CA KS MO IL IN KY WV MD OK SC LA Source: GamblingCompliance Research / State Legislatures

3 Looking farther ahead. We anticipate a Supreme Court repeal of PASPA would see legal sports betting spread to between 21 and 38 states within a five-year period, creating a market worth $2.0bn to $5.8bn in annual revenue. Figure 3. Base- And Bull-Case U.S. Sports Betting Forecasts Operating Model Base Case Bull Case Online Sports Betting $871m $2.7bn Retail Sports Betting $317m $1.6bn Sports Books At Casinos $805m $1.6bn Total $2.0bn $5.8bn All $ figures gross gaming revenue Source: GamblingCompliance Research Outcome 2: New Jersey Wins With A Narrower Ruling What it means. Scenario 1. The Supreme Court could decline to overturn PASPA but, at the same time, still find that PASPA does not prevent states from selectively repealing their sports wagering prohibitions just as New Jersey did in its 2014 law. Scenario 2. Alternatively, the court could overturn the part of PASPA that prevents states from authorizing and licensing sports betting, while leaving in place a second part of the statute that prevents private persons from operating or promoting sports wagering in accordance with state laws. What happens next. Scenario 1. We expect New Jersey tracks would institute a system of self-regulated sports betting within weeks of a ruling. We also expect sports books would be launched at Atlantic City casinos, although whether bets could be offered online is unclear. Even less clear, meanwhile, is whether any additional states would follow New Jersey in partially repealing their sports wagering prohibitions, given that gambling operations have historically been subjected to strict oversight at the state level. Scenario 2. We anticipate states would continue to pass legislation for sports betting even though operators and advertisers would be at risk of further litigation from sports leagues or the U.S. Department of Justice if state sports wagering laws were actually implemented. All roads lead to Congress. Ultimately, we suspect the main impact of either scenario would be to muddy the waters of U.S. sports betting law and provide Congress with an incentive to act to fully repeal PASPA and replace it with a new federal regime permitting all 50 states to have lawful wagering.

4 Outcome 3. New Jersey Loses And PASPA Is Upheld What it means. Such an outcome would mean sports betting cannot expand beyond PASPA-exempt states unless or until Congress votes to repeal or amend the statute. We note that many legal commentators believe such a ruling is unlikely largely because there is no obvious reason why the Supreme Court would have decided to take up the New Jersey case only to reaffirm the findings of lower courts on the issue. What happens next. We think the focus would shift to Congress, only with less urgency than under the narrower rulings of Outcome 2, given the absence of a PASPA loophole permitting states to pass sports betting laws or selectively repeal them. Outcome 4. New Jersey Loses... And So Does Nevada What it means. Such an outcome would see the Supreme Court find PASPA to be unconstitutional in a way that strikes out the exemptions that have allowed Nevada and other states to keep sports betting laws on their books despite the 1992 federal ban. Although this outcome has been raised as a possibility by some legal scholars, it has become increasingly unlikely, in our view. Arguments before the Supreme Court have focused almost exclusively on the concept of commandeering (the power of Congress vis-à-vis states) rather than the principle of equal sovereignty (the federal government should treat all states equally). We understand it would be very unusual for the Supreme Court to issue a ruling on a legal principle that was not argued in the case. What happens next. We think there would be legal confusion and resultant pressure on Congress, particularly from Nevada-based sports wagering interests and the state s congressional delegation, to pass clarifying legislation. Conclusions and caveats. Although the Supreme Court s ruling is set to influence the shape of the U.S. sports betting market for years to come, we believe there would still be several areas of potential legal uncertainty even if the court rules to strike down PASPA in full. How does the federal Wire Act of 1961 apply to online sports betting, including in the case of intermediate routing of wagering transactions outside a state s borders? How do state and federal sports betting laws interlock with the federal Indian Gaming Regulatory Act of 1988 for the operation of wagering by Indian tribes? Can sports leagues assert legal ownership over official data streams and require bookmakers to pay for them by state law? We expect these issues, among others, to come into sharper focus in the wake of the Supreme Court s ruling on PASPA. Three of the four outcomes discussed above would put questions about sports betting policy in the hands of Congress. Therefore, it would not surprise us if a Supreme Court ruling on PASPA redirects the current debate on sports betting legalization from states to Capitol Hill. We will provide a far more detailed analysis of this issue once the Supreme Court has ruled.

5 About GamblingCompliance GamblingCompliance is the leading provider of independent legal, regulatory and business intelligence to the global gambling industry. Trusted by leading names all over the world, we power more informed understanding and effective decision making. Our independent analysis of legal and policy developments provides the comprehensive coverage you need to understand what regulatory changes mean for your business opportunities. Based in London, Washington, D.C., the San Francisco Bay Area and Taipei, GamblingCompliance s team of in-house analysts and journalists boast an unrivaled network of contacts among policymakers, lobbyists and legal experts, as well as a wealth of experience to analyze regulatory change as it affects all sectors of the gambling industry. Find out more at gamblingcompliance.com. Use Of Information In preparing this report, GamblingCompliance Inc. has made every effort to ensure the accuracy of its contents. However, no representation or warranty, express or implied, is given as to the accuracy or completeness of its information. Readers that rely on any information in this report do so entirely at their own risk. GamblingCompliance Inc. and its employees do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this report.