Chris Wittstruck

We’ve discussed the New Jersey sports betting issue before, but recent developments warrant that we address the topic again. While the legal controversy over sports betting presently rages only in the Garden State, the ultimate outcome will affect every state in the union. In sum, and as we suggested last summer, proponents, including the state’s Governor, shouldn’t hold their breath awaiting sports betting’s arrival.

Background

To briefly recap, The Professional and Amateur Sports Protection Act (PASPA) was passed by Congress in 1992 with the intent of protecting the integrity of team sport contests by prohibiting legalized gambling on their outcomes. The law exempted three states which were conducting lottery-type games based upon team sport results, as well as the sports books in the state of Nevada. Ironically, New Jersey could have been exempt state #5, but in the early 1990s its citizens failed to take the steps PAPSA provided specifically to them in order to accomplish that goal.

Last year, however, New Jersey passed a statute and drafted regulations permitting wagering on professional and out-of-state collegiate sports. The actions were taken despite PASPA, which clearly and indisputably bans the Garden State from engaging in wagering on sporting events. Led by Governor Chris Christie, the state has essentially thrown down the gauntlet, telling the federal government that 20-year-old PASPA is unconstitutional and baiting U.S. Attorney General Eric Holder to challenge Trenton’s lawmakers on the issue.

Standing

While the Obama Administration has failed to take the bait just yet, New Jersey’s actions have been challenged in a Federal District Court proceeding commenced by the four major professional team sports leagues, as well as the NCAA (the “leagues”). A flurry of motions and cross-motions ensued throughout the fall. In an extensive December 21 opinion, the court waded through the arguments made as to the ‘threshold’ or initial issue: Whether or not the leagues had the right to sue in the first place. The legal term for having the right to sue is ‘standing.’

Let us imagine that someone in the mythical town of Moot has painted the exterior of their house in a ghastly purple hue. By all accounts, it is not only awfully ugly, but may in fact be in violation of the Moot Building Code which requires all homes in the town to be painted in soft, mellow tones. You drive through Moot, are disgusted with what you feel is an eyesore, and bring an action to enforce the applicable town code provision. There’s just one problem: You don’t reside in Moot. Thus, since you are not likely to suffer a direct personal injury if the purple house remains, you lack the standing required to bring the lawsuit.

Based upon this legal principle, New Jersey challenged the leagues’ lawsuit, asserting that they failed to establish the minimum injury required for standing, and are thus not permitted to challenge the legality of the state’s sports betting statute. The leagues countered with the assertion that implementing the sports betting statute would harm the integrity of their games and their reputation with their fan base.

In his decision on the sole issue of legal standing, United States District Court Judge Michael A. Shipp delineated the three-prong test that the leagues had to meet in order to proceed with their lawsuit.

Injury-in-fact

First, the leagues had to exhibit that implementation of New Jersey’s sports betting law would place them under the threat of suffering an injury-in-fact that is concrete, particularized, actual and imminent. While the last sentence sounds somewhat dramatic, the court reasoned that a specific “identifiable trifle” of injury, or simply showing a personal stake in the outcome of the litigation, was sufficient to satisfy this requirement.

Here, the leagues were able to persuade the court that, 1) the fans’ perception of the integrity of their games will decline if the sports betting law goes into effect, and; 2) that legal sports wagering actually increases illegal sports betting. Specifically, the leagues successfully argued that “legalizing gambling does not regulate illegal gambling, it fuels illegal gambling.”

The court found that the leagues’ interest in protecting how they are perceived by their fans is sufficient to create the identifiable trifle of injury necessary for purposes of standing. Interesting, the court made this determination using certain “Integrity Studies” the leagues introduced. For example, one study found that 5% of those surveyed felt that gambling, and 10% felt that game fixing, most negatively affected the integrity of the leagues’ games. While not their utmost concern, significant numbers of fans consider gambling and game fixing to be at least a ‘problem’ for the leagues. Specifically, 33% of NBA fans thought game fixing was problematic, while 36% saw gambling as a problem. While 18% of NCAA Basketball fans were concerned with game fixing, 22% saw gambling on the games as a concern.

While the court reasoned that studies alone do not constitute a direct causal link between legalized gambling and negative issues of perception on the part of fans, sufficient support to draw such a conclusion exists. Recognizing that no fewer than 13 professional sports teams exist in or in very close proximity to New Jersey, the court ruled that the leagues have a personal stake in assuring that their relationship with their fans is not tainted by legalized gambling. In finding that the connection among integrity, reputation and gambling likely exists, the court took note that the New Jersey law tellingly prohibits gambling on its own college and university teams and all collegiate sporting events within the Garden State. Finally, the court rejected the state’s premise that the leagues’ support of fantasy sports was in any way analogous to legalized sports betting.

Traceability of injury

Second, for the leagues to proceed forward with their lawsuit, they were required to show that the injury complained of was fairly traceable to the challenged action of New Jersey. On this score, the state intriguingly argued that any harm would be caused by the leagues themselves. New Jersey attempted to convince the court that any game fixing would necessarily be caused by the leagues’ own players, coaches, referees and umpires, not by fan wagering. In rejecting the state’s strategy, the court concluded that New Jersey was missing a critical point. In Judge Shipp’s view, players and referees need not actually engage in gambling or game fixing in order for fans to have an increased perception that integrity of the games is suffering due to the expansion of legalized gambling.

Specifically, the court concluded that it is not only reasonable, but likely, that a merely perceived increase in game fixing can be at least in part attributed to legalized wagering on the contests. Relying on a league survey that showed 17% of leagues’ fans would spend less money on the leagues if they placed a professional sports team in close proximity to legalized sports gambling, the court determined that, at a minimum, it was likely that the perception of integrity of the leagues’ games would be negatively impacted by sports betting.

Redressability

Finally, it was incumbent on the leagues to establish that the purported harm would be “redressed” (cured) if the court were to issue at least a temporary injunction (stopping) of the implementation of New Jersey sports wagering. On this account, the court concluded that the leagues conclusively proved that even an incremental reduction in the impact of gambling is sufficient to redress the potential harm to the leagues.

Where from here?      

Now that the leagues have satisfied Judge Shipp that they possess the legal standing to challenge New Jersey’s sports betting law, they will have the ability to counter New Jersey’s argument that PASPA is unconstitutional, and that the federal government has no right to prevent Garden State residents from gambling on professional and collegiate sports. Oral argument on the constitutional issues will be set for after January 20. That’s the deadline Judge Shipp set for the U.S. Attorney General to decide whether to join the lawsuit.

If the Obama administration decides to intervene, it will most likely be in support of the constitutionality of PASPA, and thus bolster the leagues’ arguments. Even if the federal government chooses to sit on the sidelines, the state is faced with an uphill battle, given that a 2009 decision by the U.S. Circuit Court of Appeals that covers New Jersey upheld selected provisions of PASPA. The likelihood of the dispute reaching the circuit court is all but guaranteed no matter who Judge Shipp favors on the constitutional issue.

If it was legal to wager on the ultimate outcome of litigation, at this juncture my money would be on the leagues.