Nearing the close of its six-year lifespan, one of the most anticipated decisions of the U.S. Supreme Court term, Murphy v. NCAA, Docket No. 16-476, is poised to change both the gambling and sports industries.
While the court looks ready to strike down the federal ban on sports gambling, namely the Professional and Amateur Sports Protection Act, or PAPSA, the battle to legalize sports gambling in the individual states the “right way” will see the real fight between the sports and gambling industries.
The controversy started in 2011 when New Jersey voters passed a referendum to end the state prohibition on sports gambling.
Former New Jersey governor, Chris Christie, then signed a bill to fully repeal all of the state’s regulations and prohibitions concerning wagering on professional and amateur sports.
In 2012, the NCAA challenged the repeal in federal court for violating PAPSA, which makes it “unlawful … to sponsor … or authorize by law … betting … on ... competitive games [involving athletes].” 28 U.S.C.A. Section 3702.
The issue then became whether or not prohibiting states from repealing their own laws constituted a violation of the 10th Amendment.
The District Court for Northern New Jersey and the 3rd U.S. Circuit Court of Appeals ruled in favor of the NCAA, finding that the repeal violated the law and rejecting the constitutional challenge. See National College Athletic Association v. Christie, 730 F.3d 208, 215 (3d. Cir. 2013).
Now, the Supreme Court is on the verge of reversing that decision. Savvy gamblers would place their bets on PAPSA being ruled unconstitutional, but the forthcoming action in the states promises closer odds. As the states introduce their own repeals, there will be an explosion of competing lobbying from sports leagues and the gambling industry.
The leading governing bodies in sport, such as the MLB and NBA, are not as active at the state level as they are with Congress. This begs the question of how and where the leagues will lobby for their interests.
The top priority for sports leagues is the inclusion of a specific tax on sports gambling known as an “integrity fee.” The integrity fee provides for a 1 percent tax on the handle (total amount of wagers placed) to be paid out to sports leagues.
The leagues argue, perhaps hyperbolically, that this money is needed to preserve the integrity of competition in the presence of gambling. Including this tax would bring substantial revenue to these leagues, likely going far beyond the cost of “sustaining integrity.”
The leagues have already begun lobbying in some states. Indiana, New York and Illinois are a few examples of the leagues’ successful efforts, as each state includes an integrity fee in its proposed bills. All three states also have a heavy economic presence of professional sports franchises.
In contrast, states that have not included the fee in their legislation, such as West Virginia and Iowa, do not house franchises, suggesting that the leagues will focus on states where they have financial leverage.
On the other hand, the gambling industry is a staunch opponent of the integrity fee. In states where gambling brings in substantial revenue, such as Nevada and New Jersey, the gambling industry has successfully blocked an integrity fee.
However, in states where leagues have a strong presence, the gambling lobby will likely advocate for a more favorable version of the integrity fee, such as a tax on only the revenue derived by the sports books, as opposed to the fee off the top.
The conflict between the leagues and the gambling industry has the potential to result in a major disparity among the states and may even result in an opportunity for the Uniform Law Commission, or ULC, to get involved.
The ULC is comprised of lawyers, judges and scholars who offer guidance to states on crafting important legislation. The uncertainty of sports gambling legislation provides the perfect conditions for the ULC.
Following its constitution, the ULC adopts projects that will “promote uniformity where it is desirable and practicable.” A new project must have an obvious reason, significant benefits and a reasonable chance of enactment in a substantial number of states or will promote uniformity indirectly.
There is an obvious reason for an act here. An imbalance between states on the integrity fee will affect where leagues invest resources. Sports leagues are more likely to advertise and promote gambling in states that have the fee.
This can both hurt a state’s economy and deprive citizens of their enjoyment of a beloved franchise. The ULC’s research and guidance can help states understand this problem and show them how to avoid it.
More than 15 states have already passed or proposed legalizing sports gambling, so it is likely that most states will adopt legislation addressing the issue in one way or another.
In doing so, states would eagerly look for guidance from a credible source. Even if states did not adopt the ULC’s exact product, the guidance provided by it could help states answer the difficult questions concerning the integrity fee and any subsequent issues presented.
Finally, there are other benefits that will come from a uniform set of laws here. The ULC typically gets involved on projects that have ramifications on interstate commerce and a consistent policy among the states will help facilitate the interstate gambling market, including online gambling.
No matter the decision, the Supreme Court will likely set off a flurry of legislation, assuming the court rules to legalize sports betting. Thus, the ULC can make a substantial impact on the national sports gambling market.
If it can persuade lawmakers to adopt their position, whether it favors or rejects the fee, it will help state legislatures avoid a long and contentious lobbying battle between two powerful interests that could result in an unstable start for the new world of legal sports gambling.