Legal & Regulatory News

The US Supreme Court has struck down the Professional and Amateur Sports Protection Act (PASPA), clearing the way for states to legalise and regulate sports betting.

In an eagerly-anticipated decision, issued earlier today (May 14th) the court ruled that states should have the right to regulate and tax sports betting, and that it was unconstitutional to ban them from doing so.

It made the ruling following a challenge by New Jersey against PASPA, which banned all states outside of Nevada from regulating sports betting. Others, namely Montana, Oregon and Delaware, were allowed to offer limited forms of betting.

It ruled that PASPA, passed by Congress in 1992, attempted to "regulate state governments' regulation" of their citizens by preventing them from enacting sports betting laws. According to the US Constitution, the Supreme Court said, Congress does not have the right to do so.

It said that under the Tenth Amendment of the US Constitution, all legislative power not conferred on Congress is reserved for the states. Therefore Congress does have the right to issue direct orders to state legislatures (the "anticommandeering" principle) meaning PASPA, by preventing states from authorising sports betting legislation, was unconstitutional.

The opinion of the Court was delivered by Justice Samuel Alito, supported by Justices Neil Gorusch, Clarence Thomas, Anthony Kennedy and Elena Kagan, as well as Chief Justice John Roberts. Justice Stephen Breyer agreed in part with the verdict, though Justices Ruth Bader Ginsberg and Sonia Sotomayor both opposed the decision.

In her dissenting opinion on the verdict, Ginsberg accused her fellow Justices of using "an axe to cut down [statute] §3702 instead of using a scalpel to trim the statute."

In statute §3702(1), PASPA makes it unlawful for a state or its subdivisions to "to sponsor, operate, advertise, promote, license, or authorize by law or compact... a lottery, sweepstakes, or other betting, gambling, or wagering scheme based . . . on" competitive sporting events. In §3702(2), it goes on to say that it is unlawful for "a person to sponsor, operate, advertise, or promote" those same gambling schemes if done "pursuant to the law or compact of a governmental entity".

Ginsberg argued that Congress' original goal had been to prohibit sports gambling. However, she said, statute §3702(1) had been worded in such a way that presented it as an instruction to the states, rather than a federal ban, as intended. This made it unconstitutional. Therefore she, supported by Sotomayor, disputed the Supreme Court ruling, instead favouring changes to PASPA to confirm the prohibition of sports betting.

Breyer also supported this interpretation.

"Under our precedent, the first provision (§3702(1) - directly and unconditionally telling States what laws they must enact) is unconstitutional, but the second (§3702(2) - directly telling individuals what they cannot do) is not," he said.

However, he agreed with part of the majority verdict, which stated that provisions within a law could not be removed if they would change the ultimate goal of the legislation.

This paves the way for New Jersey to roll out sports betting legislation, almost four years after the state enacted a law that partially repealed a prohibition on wagering. Other states that have passed sports betting laws, such as Pennsylvania, West Virginia and Mississippi, can also move ahead with the roll-out.

Legislation to regulate sports betting is currently in play in around 18 state legislatures in total.

The decision has been hailed by the American Gaming Association (AGA): "The Supreme Court's decision is a victory for millions of Americans who want to bet on sports in a safe and regulated manner," AGA president and chief executive Geoff Freeman said.

"It's now possible for states and sovereign tribal nations to create a sports betting market that will protect consumers, preserve the integrity of the games, empower law enforcement to fight illegal gambling, and generate new revenue for states, tribes, sporting bodies, broadcasters and many others."

New Jersey first attempted to legalise sports betting in Atlantic City and at horse racing tracks in 2012, after a state referendum showed widespread public support for the move. However the National Collegiate Athletic Association, supported by the National Basketball Association (NBA), National Football League (NFL), National Hockey League (NHL), and Office of the Commissioner of Major League Baseball (MLB), together with the Department of Justice, challenged the move.

This challenge was upheld by the Federal District Court of New Jersey in March 2013.

A second bill, which attempted to circumvent PASPA by partially repealing the state's prohibitions, permits, licenses, and authorizations concerning sports betting, was passed by then-Governor Chris Christie in 2014. This too was subject to an injunction from the NCAA and professional sports leagues.

Appeals launched in the Federal District Court and US Third Circuit Court of Appeals by New Jersey both failed, until the Supreme Court agreed to take up the case in 2017.

The announcement was a boon to investors, with shares in New York-listed suppliers Scientific Games Corporation (NSQ:SGMS) and International Game Technology (NSQ:IGT) up by 10.03 per cent and 4.21 per cent respectively to $58.70 and $29.67, while shares in Playtech plc (LSE:PTEC) climbed 2.33 per cent to 816.00 pence per share.

Shares in some of the leading London-listed iGaming operators also gained on the news, with 888 Holding plc (LSE:888) up 7.21 per cent at 289.90p and GVC Holdings plc (LSE:GVC) up 5.08 per cent to 920.00p. Shares in William Hill plc (LSE:WMH) rose 8.42 per cent to 306.60p, while Paddy Power Betfair plc (LSE:PPB) gained 9.57 per cent to 7,785.00p in London.

Other licensed US operators also benefited, with shares in Caesars Entertainment Corporation (NSQ:CZR) up 5.67 per cent to $12.58 in New York, while Toronto-listed The Stars Group Inc (TOR:TSGI) saw its shares increase by 11.88 per cent to CAD$47.75.