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August 20, 2015Download PDF

Third Circuit Panel Nixes New Jersey Sports Betting

On August 25, 2015, the Third Circuit denied New Jersey’s latest effort to bring legalized sports betting into the state. In a 2-1 decision, the Court of Appeals panel ruled that New Jersey’s efforts violate the Professional and Amateur Sports Protection Act of 1992 (“PASPA”). New Jersey’s efforts to bring sports betting to the state have been repeatedly and vigorously challenged by the major professional sports leagues and the NCAA.

The issue presented to the Third Circuit was whether SB2460, the New Jersey legislation enacted in 2014 that partially repealed certain prohibits on sports gambling, violated PASPA. The Circuit upheld the decision of the District Court, holding that the New Jersey law did violate PASPA, which prohibits states from authorizing by law sports gambling. 

Enacted in 1992, PASPA prohibits state-sanctioned sports gambling, but includes exceptions for sports wagering in Nevada and sports lotteries in a few other states. In fact, PASPA included an exception for New Jersey to enact a sports gambling scheme within one year of the law’s enactment, which New Jersey failed to do.

In 2012, the New Jersey Legislature enacted the Sports Wagering Act, which allowed for regulated sports wagering at casinos and racetracks. The four major sports leagues and the NCAA sued to enjoin the law as a violation of PASPA. The federal District Court then enjoined implementation of the 2012 law, a decision that was upheld by the Third Circuit in 2013.  

After the Supreme Court denied certiorari to the New Jersey plaintiffs, the Legislature passed SB2460, which repealed any existing prohibitions on sports betting in New Jersey, but restricted all sports gambling activity only to casinos in Atlantic City and racetracks throughout the State. The new statute also prohibited wagering on New Jersey college teams or collegiate competitions occurring in the state. 

The sports leagues once again filed suit to enjoin the 2014 statute. The District Court held again that the law violated PASPA. The District Court interpreted the ruling in the case involving the 2012 statute as offering the states two options: maintain all prohibitions on sports gambling or completely repeal them. The District Court found that the 2014 law was preempted by PASPA because the law repealed the prohibition only as to racetracks and Atlantic City casinos. On appeal, the state argued that the new statute complied with PASPA and was consistent with the Third Circuit’s earlier decision on the 2012 law.

The Third Circuit recognized that PASPA has been criticized, including that it encourages the spread of illegal sports betting, but reminded everyone that it was not the court’s place to “usurp Congress’ role” based on a law’s unpopularity. Rather, the Court of Appeals noted that under PASPA, it is unlawful for “a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact” sports gambling, and that that the 2014 New Jersey law did just that and, therefore, violated PASPA. 

The New Jersey parties argued that the 2014 law did not provide authority for sports gambling at casinos and racetracks, but merely repealed any previous prohibition. The court disagreed, finding that absent the new law, New Jersey’s “myriad laws prohibiting sports gambling would apply to the casinos and racetracks.” Despite the presence of the word “repeal” in the 2014 law, the court found that the statute was an authorization for sports gambling, as it “selectively grant[ed] permission to certain entities to engage in sports gambling.” 

Lastly, the court noted that PASPA’s one-year exception for New Jersey denoted that, without such an exception, Congress intended for such a legislative scheme to violate PASPA, as the 2014 law did. In summary, the Third Circuit panel found that the 2014 law violated PASPA because it “authorize[d] by law sports gambling[,]” and affirmed the District Court’s decision.

Judge Fuentes authored a dissenting opinion, and disagreed with the majority that a partial repeal of laws prohibiting sports betting amounted to authorization. Judge Fuentes noted that the 2014 law rendered previous prohibitions on sports gambling in casinos and racetracks non-existent and therefore, there would be no laws governing sports gambling in those locations. He disagreed with the majority that the 2014 law provided “authorization” for sports betting in violation of PASPA.

This latest impediment to bringing sports gambling to New Jersey comes at a time when the state’s gambling mecca, Atlantic City, appears to be facing an economic crisis, as four of its casinos shut down last year. However, this is not the end of the battle for those who seek to bring a new source to New Jersey. 

New Jersey Senator Ray Lesniak said he would appeal for an en banc hearing before the entire Third Circuit. Senator Lesniak and New Jersey are not alone in the push to legalize sports betting outside Nevada and the few other states where PASPA allows it. Indiana, New York, South Carolina, and Texas also introduced sports betting legislation this year. States see legalized sports betting as a way to curtail rampant illegal betting and bring in new money into to the states. Estimates put illegal sports betting annual revenue in the United States somewhere between $150 and $400 billion. 

Even one of the major sports leagues would support expansion of legalized sports betting, though through Congressional action rather than the route New Jersey has taken. Last year, NBA commissioner Adam Silver spoke out and supported Congress creating a federal statutory scheme to allow states to offer legalized sports gambling. After Tuesday’s decision, an NBA spokesman stated that the league agreed with the Third Circuit’s decision and reiterated that the NBA would support legalized sports betting through Congressional action. 

Major League Baseball, while agreeing with Tuesday’s decision, and the NHL support further consideration of legalized sports gambling. However, the NFL and NCAA have not shared the same openness to legalized sports betting as the NBA. The NCAA voiced its agreement with Tuesday’s decision, and stated that legalized sports betting is a threat to student-athletes and “the integrity of athletic competition.” The NFL is strongly opposed to any expansion in sports betting, but did not comment on the decision. 

There are currently two sports betting bills sitting in the House of Representative’s Judiciary Committee. They were introduced by U.S. Congressmen Frank LoBiondo and Frank Pallone from New Jersey.