Featured Article in Gaming.com on sports betting, featuring speech made by Steve Geller at National Conference of Legislators from Gaming States (NCLGS) Conference; That speech is published in full in prior blog post
Below is an article by Ryan Butler. It was the Featured Article on Gaming.com, and was published on July 12, 2019. I have boldfaced the parts where I am quoted or referred to in the article. This article references the remarks which I made at the NCLGS conference on July 12. I published the text of my speech on this blog less than an hour ago, and they appear directly below this article. Please view the speech in my prior blog post.
US Sports Betting Future, Legality Remain Largely Undefined
MINNEAPOLIS — More than a year after the Supreme Court struck down the federal ban on sports betting, nine states are taking legal wagers and 30 or more could do so within the next few years. But as more and more states embrace legal wagering, major questions remain about taxation, implementation and even the legal basis for the nascent industry overall.
Speaking at a conference of state lawmakers Friday, a group of gaming lawyers reiterated the myriad legal and regulatory challenges that remain even after the landmark Supreme Court decision opened widespread sports betting outside of Nevada. Questions and court battles over federal and state laws have loomed over the industry since its inception, but the complexities and possible impacts of these interpretations are even less certain than originally believed.
New Jersey led the legal challenge that ultimately resulted in the Supreme Court ruling and was the first state outside Nevada to implement a regulated online market, but even that intrastate array of internet-based offerings may run afoul of federal statute, argued Geller Law Firm’s Steve Geller. The former Florida state Senator and gaming lawyer said he didn’t believe New Jersey law wasn’t in compliance, but said it wouldn’t be hard for an opposing legal view to take shape.
That dichotomy served as a microcosm of the entire debate.
“The short answer as an attorney is I can make a convincing argument for whichever side hired me,” Geller said.
Geller and other speakers at a session during this weekend’s National Council of Legislators from Gaming States (NCLGS) meeting tried to address these questions over legality, but largely acknowledged one of the few definitive in U.S. sports betting was uncertainty.
Legislative Restrictions Remain Unclear
Questions over legality are nothing new to gambling stakeholders, but Friday’s NCLGS meeting only opened up more fronts in the ongoing developments, and challenges, for legal gaming.
Much of the meeting, and debate across the gaming industry, centers on the Wire Act of 1961. Enacted as a means to combat organized crime and legalized decades before the commercial internet was publicly accessible, there has been ongoing debate, and reinterpretations, over its effect on online gaming.
In 2011, the Obama administration answered a question from a state lottery by ruling the Wire Act didn’t apply to online gaming. This helped a handful of states pursue or expand internet lottery offerings, iCasino games and online poker.
That was revised in 2018 by the Trump administration, which ruled the law prohibited all forms of internet gaming in a move that sent shockwaves across the multi-billion dollar industry and threatened to cripple the fledgling U.S. market. The ruling was challenged in court soon after it was issued, and gaming advocates scored a significant victory earlier this year when a New Hampshire court ruled the new interpretation was invalid.
Still the matter remains far from settled, and even the presiding judge in the New Hampshire court believes the case will be challenged all the way to the U.S. Supreme Court. The fallout from this looming court battle remains the central concern of the industry, and gaming observers at NCLGS and across the country still remain unsure how it will end.
Under either interpretation, the law explicitly prohibits sports betting across state lines, but Geller opened up the possibility that intrastate markets conducted online may still be in violation.
Though New Jersey requires its internet servers for online gaming be located in Atlantic City, and bettors must be within state lines to place a bet, it still could be in violation of the Wire Act’s sports betting provisions against interstate communication. Any information, payment processing or other component inherent in online communication that is transmitted through any out-of-state location (or even a satellite in outer space) could, by technical definition, be in violation.
Geller also said a clause in existing New Jersey sports betting regulations prohibiting bets on in-state college teams could also violate federal statutes. The ban on bets could favor the integrity protections of an in-state team at the expense of an out-of-state team, which Geller said could violate the dormant commerce clause of the Constitution.
The veteran gaming lawyer didn’t say he necessarily agreed with that interpretation, but told attendees this is just one of a myriad of ways a law could be viewed, and how it could impact gaming.
During a question-and-answer portion of the seminar, Kentucky Rep. Adam Koenig asked panelists what to look for when interpreting these laws. A leader in Frankfort for his state’s sports betting expansion efforts, Koenig wanted to prepare for future legalization efforts when the federal laws remain so poorly defined.
The answer, panelists said, lies largely in the federal and state authorities who have the ability to interpret such laws.
Federal Inaction Continues as Lone Constant
If it’s any consolation, the actions – or inactions – toward gaming legislation on the federal level remains one of the few constants in the ongoing gaming debate.
The federal government has taken no significant move on gaming laws since the ban was overturned in May of last year and industry observers, stakeholders and consumers have largely believed that pattern will continue. The panelists during the NCLGS session reaffirmed that, with officials from law offices, sports betting data services platform Sportradar and even representatives from the National Basketball Association all agreeing that no move was likely.
Though a federal law could clarify many of the aforementioned legal question marks, this national-level ambivalence is a welcome development for much of the industry.
National advocacy groups like the American Gaming Association as well as commercial stakeholders and state-level officials have all preferred the current state-by-state approach to gaming legislation. Though it lacks a federal-level baseline that could potentially alleviate many of the concerns facing the industry, these stakeholders largely believe that any national-level action would be even more detrimental than the current hands-off approach.
In an address to NCLGS attendees later in the afternoon Friday, Penn National CEO Tim Wilmott didn’t mince words when asked about federal intervention.
“We believe gaming is a states’ rights issue and we’re going to fight that to the death,” Wilmott said. “Any involvement from the federal government will be something that we’ll put all our energies and resources against.”
Wilmott and other industry leaders don’t appear to have much to worry about. Congressional gridlock has become a punchline for even the nation’s most pressing issues, leaving most observers to believe gaming has little chance of being further regulated by a highly partisan and divided federal legislature.
“I think it would be a waste of time,” Geller said of a push for federal regulation. “The current Congress, I don’t think could pass gas, much less legislation.”
The United States Supreme Court has issued its ruling in Christie v. NCAA, Case 16-476, stating that the Professional and Amateur Sports Protection Act (PASPA) is unconstitutional. Many people mistakenly think that this has legalized Sports Betting. I expect the ruling to be far less consequential than many think, especially in Florida.
No one knows how much is wagered on illegal Sports Betting in the US today because it’s, well, …illegal. I’ve seen estimates ranging from $107 billion to $300 billion. I think that today’s accurate number is probably somewhere between $150 billion and $200 billion, based on averaging the numbers I’ve seen, even though they’re only guesstimates. Some people assume that all of those wagers and more will immediately go into legal Sports Betting. I disagree.
People enjoy the traditional Office Pool on things like the NCAA Basketball tournament, and other events. Most of those people won’t stop the pools to go wager at a casino. Some people wager on credit with illegal bookies who have “creative” ways of collecting debts. Those people will still go to bookies because of the credit issue. States will tax sports betting (some will do so with heavy taxes), private operators will want to make a profit, and the Sports Leagues have already demanded a cut. I think that the Sports Leagues and states are expecting a larger cut than will prove to be feasible. With all of those takeouts, a bookie should be able to offer better odds.
The biggest issue about the size of the market is whether or not Sports Betting will be able to be offered online. Most boosters say yes, but I don’t know why. I believe that Sports Betting will, at least initially, be limited to bricks and mortar casinos.
Many people think that the famous December 23, 2011 “Christmas Surprise” ruling from the United Stated Department of Justice, Office of Legal Counsel, authorized internet gambling, including Sports Betting. Incorrect. The OLC ruling was much more limited. It was based on an acknowledged conflict between the prior interpretation of the Wire Act of 1961, and the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). The interpretation of the Wire Act had been that any type of Internet Gambling was illegal, but UIGEA specifically excluded Intrastate online gambling from penalties. OLC issued the Christmas Surprise ruling announcing that their longtime previous interpretation of the Wire Act was incorrect, and that the Wire Act should only apply to Sports Betting, and that only Sports Betting is illegal over the internet. Department of Justice Ruling December 2011 on Internet Gambling. Let me include quotes from that opinion:
“We conclude that interstate transmissions of wire communications that do not relate to a “sporting event or contest,” 18 U.S.C. § 1084(a), fall outside of the reach of the Wire Act. Because the proposed New York and Illinois lottery proposals do not involve wagering on sporting events or contests, the Wire Act does not, in our view, prohibit them.”
“The Criminal Division’s conclusion that the New York and Illinois lottery proposals may be unlawful rests on the premise that the Wire Act prohibits interstate wire transmissions of gambling-related communications that do not involve “any sporting event or contest.” See Crim. Mem. at 3; Crim. Supp. Mem. at 2. As noted above, both Illinois and New York dispute this premise, contending that the Wire Act prohibits only transmissions concerning sports-related wagering… We conclude that the Criminal Division’s premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.”
This provision contains two broad clauses. The first bars anyone engaged in the business of betting or wagering from knowingly using a wire communication facility “for 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.” Id. The second bars any such person from knowingly using a wire communication facility to transmit communications that entitle the recipient to “receive money or credit” either “as a result of bets or wagers” or “for information assisting in the placing of bets or wagers.” Id.5”
“Reading the entire subsection, including its second clause, as limited to sports-related betting also makes functional sense of the statute. Cf. Corley v. United States, 129 S. Ct. 1558, 1567 n.5 (2009) (construing the statute as a whole to avoid “the absurd results of a literal reading”). On this reading, all of subsection 1084(a)’s prohibitions serve the same end, forbidding wagering, information, and winnings transmissions of the same scope: No person may send a wire communication that places a bet on a sporting event or entitles the sender to receive money or credit as a result of a sports-related bet, and no person may send a wire communication that shares information assisting in the placing of a sports-related bet or entitles the sender to money or credit for sharing information that assisted in the placing of a sports-related bet.”
Based on the DOJ opinion, a consensus has emerged among serious attorneys that the Wire Act prohibits interstate internet gambling, but permits intra-state internet gambling if authorized by the legislature of that state. It is not clear if interstate compacts are permitted. Information on shared pari-mutuel pools through the internet, although apparently otherwise prohibited by the Wire Act, are expressly permitted through the later Interstate Horse Racing Act.
It currently appears to me that the clear wording of the Wire Act and the December 2011 DOJ memo both, at a minimum, continue to prohibit internet wagering on sports betting. It is not clear to me at this time if even sports betting at local brick and mortar casinos in states that authorize sports betting would be permitted if that wagering is part of interstate pools. Remember that the Wire Act prohibits not only wagering on sport events, but also prohibits “ information assisting in the placing of bets or wagers.”
Finally, the prospects are even worse in Florida. Florida is unlikely to have an opportunity to have a Special Session of the Legislature prior to the elections. There will be a referendum on the November ballot pertaining to voter control of gambling that may or may not impact sports betting. It is also certainly possible that competition between the different gambling industries in Florida, and opposition from the same forces that are pushing the anti-gambling referendum (such as Disney) may result in an inability of Florida to pass any sports betting legislation.
The United States Supreme Court has ended the State of New Jersey’s current hope for sports betting, at least for now. The Supreme Court denied certiorari, and refused to hear an appeal from the Third Circuit Court of Appeals, which had upheld a lower court judge who ruled against the State. This ruling was expected by most experienced appellate attorneys. The Supreme Court rules against even hearing most appeals where there are not conflicting opinions from different Circuit Courts of Appeal, and there were not conflicting rulings here. By refusing to hear the appeal, the Supreme Court offered no opinion on the underlying merits of the lower court rulings (nor do I).
In 1992, the United States Congress passed the Professional and Amateur Sports Protection Act (PASPA) which prohibited sports wagering, but grandfathered in four states that had some form of sports wagering. Nevada had full sports wagering, while Delaware, Montana, and Oregon had certain limited sports wagering. New Jersey was given one year to opt in to sports wagering, but failed to do so at the time. In 2011, the voters of New Jersey approved a referendum placed on the ballot by the Legislature calling for approval of sports wagering. In 2012, Governor Chris Christie signed legislation permitting sports wagering in New Jersey. The NFL, NBA, MLB, NHL, and NCAA filed suit against New Jersey, alleging that the 2012 law violated PASPA. The Trial Court Judge ruled against New Jersey, and by a 2-1 vote the Third Circuit Court of Appeals upheld the Trial Judge.
State Legislators from New Jersey have pledged to continue the fight for sports betting by other methods, which may include asking the Federal Government not to enforce PASPA, asking Congress to amend PASPA, or trying to further change New Jersey laws in a way that could bring sports wagering to New Jersey in a way that would be consistent with PASPA.