Sports betting expected across the US25th April 2012 8:22 am GMT
Following the New Jersey referendum on sports betting, IMEGA chairman Joe Brennan predicts the emergence of a $500bn market.
ON 8 NOVEMBER 2011, voters in New Jersey approved – by an overwhelming 64 to 36 per cent margin – a referendum to amend their state constitution to permit legal sports betting at casinos in Atlantic City and at race tracks.
In the process, New Jersey will likely bring about greater liberalisation for sports betting in the US over the next few years, but the pace and scope of change depends on the speed at which state officials push the courts to make the appropriate changes and free up new state markets.
The result of the vote made national headlines because current federal law prohibits stateregulated sports wagering in all but four states in the US. The New Jersey sports betting amendment therefore creates a true constitutional crisis, which must be resolved by the courts.
The NJ strategy
New Jersey’s vote was part of a two-pronged strategy by sports betting proponents to lift the yoke of the Professional and Amateur Sports Protection Act (PASPA).
The first prong was a March 2009 lawsuit, filed in the district court, by IMEGA, Senators Raymond Lesniak and Stephen Sweeney, and representatives of the state’s racing industry against the US Department of Justice. The suit asked the court to declare PASPA unconstitutional, as the law prevented New Jersey from offering sports betting while protecting the right of four other states (Nevada, Delaware, Montana and Oregon) to do so.
The original suit was dismissed but US district court Judge Garrett Brown said the state could return to federal court and ask for PASPA to be overturned if New Jersey residents voted yes in a referendum.
Hence the second prong. Legislation was passed in December 2010 by the New Jersey Senate and Assembly to put the question of sports betting on the statewide ballot in 2011. It proved decisive.
Following the overwhelming approval of New Jersey’s citizens, the state is poised to reenter court and ask for PASPA to be overturned.
In fact, Governor Chris Christie has indicated he will ask his attorney general to file suit as soon as the enabling legislation reaches his desk.
For those who think that the prospect of overturning a federal law such as PASPA is an impossible notion, it’s clear from the statistics that such an extraordinary result is relatively common. In 2002, the US Government Printing Office revealed more than 1,300 laws had been declared unconstitutional by the US Supreme Court and 158 of those acts have been overturned.
A fatal flaw
In 1991, as the US Congress debated the passage of PASPA, then senator and chairman of the US Senate’s Judiciary Committee Joe Biden (now US vice president) asked the US Department of Justice for an advisory memo on the prohibition legislation. It would prove crucial for highlighting the inherent critical flaws in PASPA, and the grounds for future reversal.
In September 1991, US Assistant Attorney General Lee Rawls stated that, “it is left to the states to decide whether to permit gambling activities based upon sporting events”.
Rawls went on to say: “Determinations of how to raise revenue have typically been left to the states. The department is concerned that (PASPA) raises federalism issues… For these reasons, the department opposes the enactment of S.474 (PASPA).”
The US Congress chose to ignore the DOJ’s objections and enacted PASPA in 1992 but it remained fatally flawed on the constitutional grounds cited in Rawls’ memo, and serves as the basis for the coming challenge by the state of New Jersey, and its attorney general, Jeff Chiesa.
The federal government, represented by the very same DOJ that objected to the law’s enactment, cannot provide any logical grounds for sustaining the status quo and has no compelling interest in preserving the law.
The arguments utilised by the sports leagues, in particular the NFL, for upholding the law for the sake of preserving the ‘integrity of the games’ fly in the face of reality. It leaves America’s vast underground sports betting market without regulatory oversight and is the opposite of ‘preservation’. Rather, it invites tampering. One cannot be vigilant with one’s head in the sand.
Too big to ignore
But, while it is likely PASPA will be overturned, it may take two to three years for this to be resolved by the courts. And once the law is overturned, it would be incorrect to assume sports betting will become instantly legal in all 50 states.
Each state will have to debate the issue and enact their own laws enabling regulated sports betting. It also remains to be seen which gaming interests in each state (lotteries, casinos, race tracks etc) would get the franchise to offer wagering. Regardless, the US is a long way from unlimited high street shops and online wagering. It will take time to be established.
In 1998, the National Gambling Impact Study estimated that sports betting in the US represented a market of more than $380bn annually. That figure predates the rise of internet wagering and fantasy sports. It is not beyond reason to estimate that today the market might exceed $500bn. That is too big to escape government’s attention. Sports betting will slowly emerge as the biggest growth market in US gaming. Bet on it.
This article first appeared in the Jan-Mar 2012 issue of GIQ magazine. To read the latest issue of GIQ magazine online, click here.