The Legality of USA Sports Betting Following PASPA’s Repeal

On May 14, 2018, the Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act (PASPA). This action was taken after the state of New Jersey sued PASPA in the case of Murphy v. National Collegiate Athletic Association, claiming that the law infringed the Tenth Amendment of the United States Constitution.

Following the revocation of PASPA by the Supreme Court, sports betting can now be legalised in the United States of America. Attention now turns to the individual states while they dictate as to whether or not betting on sports becomes an available and legalised activity under their jurisdiction.

Why was PASPA in breach?

The Professional and Amateur Sports Protection Act, enacted in 1992, did not make sports betting illegal as sports betting was already outlawed. With the exception of the state of Nevada as well as Delaware, Oregon, and Montana in part, PASPA stopped states from creating laws that regulated and taxed sports betting. Preventing states from making law infringes the Tenth Amendment; thus the Supreme Court opted to repeal PASPA following a six to three majority decision.

What does PASPA’s revocation mean?

With PASPA gone, states are now able to create laws that legalise and regulate sports betting. It does not automatically mean that betting on sports is now legal; PASPA’s repeal is merely the first step towards legalisation.

In the running to the Supreme Court’s decision, 18 states reportedly started to introduce legislation to legalise sports betting, including Delaware, New Jersey, and West Virginia. PASPA’s repeal only grants states the opportunity to legalise sports betting. As it is voluntary, not all states will create sports betting statutes immediately, or even at all. Thus, sports betting may never become a legalised activity throughout the USA, as is the case with the recreational and prescribed use of specific psychoactive drugs.

As for betting operators, a truly free market does not appear the way that states are heading. Although the markets are expected to be very lucrative, states that are making the first moves to legalise betting have proposed limited licensing structures.

It is estimated that around $150 billion was wagered on sports in the USA each year while PASPA was in power: 97 per cent of which was bet illegally. Now, estimates for a legalised sports betting market in the USA range between $57 billion and $400 billion per year.

As states will regulate which operators can offer betting services under their jurisdiction, potential bettors within those states will benefit from a protected betting environment that is safe, regulated, legal, and protects wagers. This safety net will increase the popularity of sports betting which, up until now, has been overruled by deviancy in the USA.

What does it mean for a state to legalise sports betting?

States passing legislation to legalise sports betting are expected to establish many regulations which operators must comply with before they can offer their services to the people of that state. Once operators comply, they will be able to offer their services within the state, but to no one outside of that state.

One of the most pertinent statutes stopping the USA from allowing all of its residents to engage in sports betting is the Interstate Wire Act of 1961. Also known as the Federal Wire Act, this law prohibits interstate sports wagering via telephone or the internet. The Federal Wire Act does, however, allow the placing of bets on a sporting event from a state where betting on sport is legal into a state where it is also legal. To avoid infringing this statue, operators may utilise geo-location technology to ensure that their services are not available to those residing outside of the confines of a legalised state.

As of June 5th, Delaware became the first new state to offer sports betting, with three locations open for business.

Other states like West Virginia and New Jersey seek to have a full-scale offering in place while Delaware will continue to grow from these three locations. The Diamond State already has the necessary legal and regulatory authority to build a full-scale gambling operation.

Potential bumps along the road

While the market is predicted to be very lucrative, some operators may choose to not enter into certain state markets due to the new laws and regulations enacted. A proposal in Pennsylvania penned a one-time license fee of as much as $10 million along with up to a 34 per cent tax on gross receipts. As the legalisation of sports betting is going to be regulated by each state individually, some states are expected to begin as hotspots for operators.

New federal legislation may also prove to be a problem as, in theory, federal law could step in to stop sports betting before it properly begins. One of the four authors of PASPA, Senator Orrin Hatch (R-Utah), has announced that he will introduce new legislation that will protect honesty and principle in the athletic arena. But, some predict that federal legislation will not arrive until after the mid-term elections.

Another potential issue is that the NBA and MLB are trying to claim a 1 per cent sports integrity fee from bookmakers. If this were to come to fruition, many operators would see the market as a non-starter. The majority of sportsbooks only keep around 5 per cent of wagers. This integrity fee would also limit the amount of tax revenue that states could earn. However, Nevada avoiding such a fee for decades should set a precedent.

It is still early in the story of the legalisation of sports betting in the USA, and much could infringe the popular gambling activity from establishing itself across the nation. While many states are embracing the chance to allow sports betting under their jurisdiction, with Delaware being the first new state to do so, it seems very unlikely that every state in the USA will legalise and host sports betting services anytime soon.

by Denitza Dimitrova

LL.B., LL.M., Mag.Jur.

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