In the wake of the U.S. Supreme Court’s decision in Murphy v. National Collegiate Athletic Association, New Jersey lawmakers are working quickly to enact sports betting legislation. For businesses looking to enter the state’s legal sports wagering industry, there will be a wealth of opportunities.[caption id="attachment_24810" align="aligncenter" width="550"] Photo courtesy of Phil Goodwin (Unsplash.com)[/caption]
While businesses can start to lay the groundwork for legal sports pools, it is important to recognize that the regulatory structure is not yet in place. "We're moving quickly with legislation. I'm hopeful we should be ready by early June. Everyone should respect the legislative process rather than jumping out," said Senate President Steve Sweeney.
SCOTUS Rules in Favor of New Jersey
As detailed in greater depth in prior articles, the U.S. Supreme Court recently cleared the way for New Jersey to authorize sports betting within the state. New Jersey first passed a law establishing a regulatory regime for legalized sports betting in 2012. However, the country’s major professional sports leagues and the NCAA filed a lawsuit, which was joined by the Department of Justice. The suit alleged that New Jersey had violated the 1992 Professional and Amateur Sports Protection Act (PASPA), which expressly prohibits government entities, including the states, from authorizing sports wagering.
The Supreme Court agreed with New Jersey that PASPA is unconstitutional because it dictates the extent to which the states must maintain their prohibitions on sports wagering. “It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals,” Justice Samuel A. Alito Jr. wrote. “A more direct affront to state sovereignty is not easy to imagine.”
Sports Betting Legislation
Both houses of the New Jersey Legislature are currently considering bills to regulate sports wagering. Sen. Sweeney’s bill, Senate Bill 2602, appears to be the frontrunner. It would authorize casinos in Atlantic City and current/former racetracks in New Jersey to conduct wagering on professional and collegiate sports or athletic events. Below are several other key provisions:
- Oversight: The Casino Control Commission and the Division of Gaming Enforcement would regulate sports betting, generally in line with the current duties of the commission and the division with regard to casinos and their operations. The New Jersey Racing Commission would be involved in approving the operation of a sports pool at a racetrack and any agreement between a casino and a racetrack to jointly operate a sports pool.
- Banned Wagers: Wagering on any collegiate sports or athletic events that take place in New Jersey or on a sport or athletic event in which any New Jersey college team participates would be prohibited, regardless of where the event takes place.
- Placement of Wagers: agers on a sports event could be placed in-person in a sports wagering lounge located at a casino or racetrack. An operator may also accept wagers via the Internet from persons who are not physically present in this State if the division determines that such wagering is not inconsistent with federal law or the law of the jurisdiction, including any foreign nation, in which any such person is located, or such wagering is conducted pursuant to a reciprocal agreement to which the State is a party that is not inconsistent with federal law.
- Prohibited Persons: Betters must be at least 21 years of age. Certain people would also be excluded from sports wagering, including any person whose name appears on a casino exclusion list or any self-exclusion list of a casino or racetrack and officers and employees of an operator, or any relative thereof living in the same household as the operator, anyone with access to nonpublic confidential information held by the operator, and anyone who is an agent or proxy for any other person.
- Reporting Obligations: An operator must immediately report any criminal or disciplinary proceedings commenced against the operator in connection with its operations, any abnormal betting activity or patterns that may indicate a concern about the integrity of a sports event, any potential breach of a sports governing body’s rules or codes of conduct that pertain to sports wagering, any conduct that corrupts a betting outcome of a sports event for purposes of financial gain, including but not limited to match fixing, and suspicious or illegal wagering activities, including the use of funds derived from illegal activity, using agents to place wagers, or using false identification.
- Recordkeeping Obligations: Operators must maintain records of all wagers, including personally identifiable information of the better, the amount and type of bet, the time and date that the bet was placed, the location where the bet was made, including an IP address if applicable, the outcome of the bet, records of abnormal betting activity, and video camera recordings in the case of in-person wagers, for a period of not less than three years from the date of the sports event on which the wager was placed. Records will be confidential but made available to the division upon request or to any party pursuant to a court order.
- Licensing: A casino or racetrack would be required to demonstrate that it has the necessary financial responsibility and good character to operate a sports pool. The Division of Gaming Enforcement and the New Jersey Racing Commission will have responsibility for licensing and will promulgate regulations for the conduct and operation of the sports wagering activities. The New Jersey Racing Commission would also be involved in approving the operation of a sports pool at a racetrack and any agreement between a casino and a racetrack to jointly operate a sports pool. Persons engaged in wagering activities for a casino or racetrack will be either licensed as casino key employees or registered as casino employees.
- Taxation: Sports wagering gross revenue realized by a casino or a racetrack would be subject to an 8 percent gross revenue tax, the proceeds of which are dedicated to programs for senior citizens and disabled residents. An investment alternative tax rate of 2.5 percent with an investment alternative of 1.25 percent will apply to a casino. Sports wagering gross revenue realized by a racetrack will be subject to an additional tax of 1.25 percent on amounts actually received from a sports wagering operation with 0.75 percent paid to the municipality and 0.5 percent paid to the county in which the sports wagering lounge is located. Sums received from Internet wagering on sports events would be taxed as provided in J.S.A. 5:12-95.19.
Legal Sports Betting in New Jersey Creates Business Opportunities
Prior to the Supreme Court’s decision, Americans placed an estimated $150 billion in illegal wagers on professional and amateur sports every year. Now that it will no longer be relegated to the black market, sports betting is poised to explode.
In addition to providing a much-needed boost to casinos and racetracks, legalized sports wagering will benefit media companies like ESPN, as well as data companies that crunch statistics. Digital betting platforms will also stand to reap significant profits once they are authorized to take wagers.
For entrepreneurs and established businesses looking to break into New Jersey’s legal sports betting industry, we encourage you to work with a knowledgeable New Jersey business attorney who can help you negotiate the forthcoming regulatory structure. As with any other new industry, there is a wealth of opportunity, as well as many traps for the unwary.