Will the Federal Government Regulate Sports Betting in 2019?

Will the Federal Government Regulate Sports Betting in 2019?

The federal government is looking to get back in the business of regulating sports betting in the wake of the U.S. Supreme Court striking down the Professional and Amateur Sports Protection Act (PASPA). The Sports Wagering Market Integrity Act of 2018 would require states like New Jersey to meet minimum standards imposed by the Department of Justice (DOJ).

SCOTUS Greenlights Sports Betting

As detailed in greater depth in prior articles, the U.S. Supreme Court 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, in which the Department of Justice joined. The suit alleged that New Jersey had violated PASPA, the federal law which expressly prohibited government entities, including the states, from authorizing sports wagering. 

In Murphy v. National Collegiate Athletic Association, the Supreme Court agreed with New Jersey that PASPA was unconstitutional because it prohibited state authorization of 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.”

Following the Supreme Court’s decision, New Jersey, Pennsylvania and Rhode Island have legalized sports gambling. Several other states are also working to approve it. In New Jersey, sports betting is now authorized in New Jersey casinos and racetracks, as well as online.

According to a new report by consulting firm Eilers & Krejcik Gaming, New Jersey’s revenues from sports gambling will surpass Nevada’s as early as 2021. The report projects that New Jersey’s gaming industry will reap $442 million that year, while Nevada will take in $410 million.

Sports Wagering Market Integrity Act of 2018

As we enter 2019, additional regulatory hurdles could slow the growth of the sports gambling industry. On December 20, 2018, Sens. Orrin Hatch and Sen. Chuck Schumer introduced the Sports Wagering Market Integrity Act of 2018, which would establish federal oversight over the sports betting industry. Notably, Sen. Hatch was one of the authors of PASPA. “This bill is the first step towards ensuring that sports betting is done right in the states that choose to legalize it. Just as importantly, it provides protections for states that choose not to go down that path,” he said in a press statement.

As outlined by Sens. Hatch and Schumer, the Sports Wagering Market Integrity Act of 2018 would:

• Prohibit the acceptance of sports wagers, with exceptions for social gambling and states that meet certain minimum standards;
• Permit states to authorize online sports wagering to provide a regulated alternative to the illegal, offshore market;
• Prohibit sports wagers on amateur sporting events except the Olympics and college sports;
• Restrict certain sports wagers when necessary to protect contest integrity;
• Prohibit sports wagering by individuals younger than 21; athletes, coaches, officials, and others associated with sports organizations; and individuals convicted of certain federal crimes related to sports wagering;
• Require that sports wagering operators use data provided or licensed by sports organizations to determine the outcome of sports wagers through 2024, and set requirements for data used thereafter;
• Establish a national self-exclusion list;
• Put in place a variety of consumer protections, including disclosure, advertising, and reserve requirements;
• Establish recordkeeping and suspicious transaction reporting requirements;
• Update existing casino anti-money laundering laws to include sports wagering operators;
• Provide a process whereby states may compact with each other to permits interstate sports wagering;
• Designate a non-profit National Sports Wagering Clearinghouse to, inter alia, receive and share anonymized sports wagering data and suspicious transaction reports among sports wagering operators, state regulators, sports organizations, and federal and state law enforcement;
• Dedicate revenue from the existing sports wagering excise tax to law enforcement and programs for the prevention and treatment of gambling disorder;
• Update the Wire Act to permit certain interstate sports wagers, while also providing additional enforcement authorities such as a state cause of action and a new mechanism for the Department of Justice to target unlicensed, offshore sports wagering websites;
• Expand the Sports Bribery Act to cover extortion and blackmail, prohibit sports wagers based on nonpublic information, and strengthen whistleblower protections; and
• Provide additional authority to the Department of Health and Human Services to prevent, monitor, and treat gambling addiction.

Importantly, the proposed bill would not require sports betting operators to pay an integrity fee to the major sports leagues and the NCAA. However, sports wagering operators would be required to use data provided or licensed by the leagues to determine the outcome of sports wagers, at least until 2024. At that point, the proposed legislation authorizes operators to use alternative forms of data, so long as they can demonstrate that it is sufficiently similar to the data provided by the leagues.

Reaction to Federal Sports Betting Law

The NFL and NCAA have already voiced support for the Sports Wagering Market Integrity Act of 2018. “The Sports Wagering Market Integrity Act reaffirms the long-standing commitment of Congress to protecting the integrity of American athletics. We appreciate the bipartisan leadership demonstrated by Senators Hatch and Schumer in bringing forth this commonsense legislation, and we urge its swift enactment,” said Jocelyn Moore, National Football League Executive Vice President.

Not surprisingly, the sports betting industry favors a more “hands off” approach. In support, the American Gaming Association noted that the gaming industry already has a strict regulatory climate. “This bill is the epitome of a solution in search of a problem, representing an unprecedented and inappropriate expansion of federal involvement in the gaming industry,” said Sara Slane, Senior Vice President of Public Affairs for the American Gaming Association.

Given the upcoming leadership changes in Congress, it is unclear when and if the federal sports wagering bill will advance. We will, however, continue to closely monitor its progress. For businesses looking to enter New Jersey’s legal sports betting industry, we encourage you to work with a knowledgeable New Jersey business attorney who can help you navigate the regulatory framework.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Ashley Brinn, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.