Saturday, October 18, 2014

Not So Fast on NJ Sports Betting; Injunction Hearing Looms

With yesterday's bombshell announcement that New Jersey Governor Chris Christie signed legislation partially repealing the state-law prohibition against sports wagering and also withdrew his federal court motion seeking to clarify the existing injunction, many are trumpeting the arrival of legal sports betting in New Jersey. But not so fast. While Monmouth Park Racetrack is making plans to launch sports wagering beginning on October 26th, Atlantic City's casinos are wisely taking a "wait-and-see" approach. And for good reason too, as legal sports betting in New Jersey remains a long shot despite Governor Christie's headline-grabbing move yesterday. I expect the sports leagues and the DOJ to counter New Jersey's surprise move by dropping a bombshell of their own next week: they will likely file an emergency motion for an ex parte temporary restraining order prohibiting Monmouth Park and any other licensed racetrack or casino from offering sports betting. As part of that request, the leagues and the DOJ will also ask the federal court judge (Michael A. Shipp) to schedule a hearing on a motion for preliminary injunction.

Expect the leagues and the DOJ to argue that New Jersey's partial repeal (which is limited solely to casinos and racetracks) runs afoul of the Professional and Amateur Sports Protection Act ("PASPA"), which prohibits States from "sponsoring, licensing or authorizing" sports wagering, because casinos and racetracks require licenses to operate in New Jersey and are heavily regulated by the State. Thus, as the DOJ argued in their response to New Jersey's motion last month, "[a]s long as the only entities that may engage in sports wagering must be licensed by New Jersey, New Jersey is in effect licensing sports wagering, which is squarely within PASPA's licensing prohibition."

The leagues and the NCAA raised similar concerns in response to New Jersey's recent motion, stating:
[V]irtually every detail concerning the operation of casinos and racetracks is heavily regulated by both State law and by regulations promulgated by the [Division of Gaming Enforcement] and Racing Commission. For example, State regulations upon casinos and racetracks include licensing and permitting requirements (e.g., N.J. Stat. Ann. ss 5:5-32 & 5:12-96), specifications on equipment used for gambling (id., ss 5:5-63; 5:12-100), and payment to the State of a portion of revenue derived from casino and racetrack wagering (id., ss 5:5-48; 5:12-144).
According to defendants, all of these regulations will apply equally to sports wagering [under a partial repeal]. In other words, in their view, this Court's injunction leaves New Jersey free to accomplish precisely what the Sports Wagering Law was enacted to achieve: state-regulated sports wagering in casinos and racetracks. Not only is that result flatly inconsistent with this Court's injunction; it is flatly inconsistent with PASPA. PASPA does not prohibit States from repealing existing prohibitions ad "complete[ly] deregulating" sports wagering. [citation omitted]. But it does prohibit States from simply labeling something a "repeal" that is plainly, in substance, authorization and regulation of sports gambling. Accordingly, defendants' latest arguments are nothing more than a blatant attempt to circumvent the Court's injunction and the federal law that it prohibits defendants from violating.
(Leagues' Response, at pp. 12-13)

The leagues and the DOJ make a fair point about New Jersey's partial repeal being a "back-door" licensing and regulation of sports betting. Think about it. What do you think would happen if the sports book of a New Jersey casino or racetrack accepted "prohibited wagers," such as wagers from persons under the age of 21 or wagers on contests involving New Jersey collegiate sports teams, both of which are prohibited under the new law. They would be prosecuted, of course, by New Jersey law enforcement authorities. But don't think for one second that New Jersey gaming regulators (such as the Division of Gaming Enforcement) wouldn't also take a hard look at such illegal activity. A casino and racetrack that accepted illegal sports bets could very well find its license suspended, revoked or non-renewed, and also be subjected to substantial fines. Consider what might also occur if a New Jersey casino or racetrack accepted sports wagers from convicted felons or failed to honor winning wagers. Their State-issued license would be in serious jeopardy. Thus, a persuasive argument can be made that, even under a partial repeal, New Jersey would still be able to "regulate" the sports wagering activities of casinos and racetracks.

And what about the revenues attributable to sports wagering? Under existing law, New Jersey's casinos are required to pay the state 8% of gross gaming revenues (GGR)? Would revenues from sports wagers be included in GGR? If they are included, the state would be "taxing" the sports wagering activities of its licensed casinos, which could be viewed as a violation of PASPA. But even if New Jersey did not directly tax sports wagering revenues, it would still "indirectly" tax sports betting by virtue of the fact that the presence of sports books at casinos and racetracks would attract additional patrons who would wager on casino games or horse races, thereby increasing both GGR and the tax payments thereon. Either way, the State would reap a substantial monetary benefit from "unregulated" sports wagering, which might very well place its recent legislative action in the cross-hairs of PASPA.

And has anyone considered the Wire Act as a possible surprise argument by the leagues and the DOJ? The Wire Act prohibits the use of a "wire communication facility for the transmission in interstate or foreign commerce of bets or wagers on any sporting event or contest." 18 U.S.C. s 1084(a). Sports books, such as those operating in Nevada (and possibly Monmouth Park), use computerized bookmaking services and communications technology to handle their sports bets. Could the use of such technology by Monmouth Park or another New Jersey gaming operator trigger the Wire Act? Possibly. Remember, the Third Circuit has already concluded that sports wagering "substantially affects interstate commerce." It will be interesting to see if the leagues invoke the Wire Act next week as part of their expected assault on Monmouth Park's plans to offer sports betting beginning October 26th.

Several people have asked me whether Monmouth Park, a private entity (although the leagues would dispute that), is beyond the reach of PASPA. Since PASPA prohibits state-sponsored sports betting, their reasoning is that private persons are not covered by PASPA. But that overlooks Section 3702(2) of PASPA, which prohibits private parties from conducting sports wagering "pursuant to the law or compact of a governmental entity." The leagues would argue that Monmouth Park's operation of a sports books is "pursuant to the law" signed by Governor Christie on Friday. The leagues are also expected to argue that Monmouth Park is a "state governmental entity' (and thus subject to PASPA) because it is owned and operated by the New Jersey Sports and Exposition Authority ("NJSEA"). Thus, based on the state's alleged ownership of Monmouth Park, the Leagues would argue that any sports wagering conducted at Monmouth Park "would violate the provisions of PASPA that prohibit a State from directly sponsoring, operating, or advertising sports wagering." However, New Jersey officials are expected to dispute that characterization, claiming that the NJSEA only owns the land, but does not operate the racetrack.

PREDICTION: At some point between October 20th and October 24th, the leagues and the DOJ will file an emergency motion for an ex parte temporary restraining order seeking to block Monmouth Park Racetrack from offering sports betting. The motion will be filed on an "emergency" basis because Monmouth Park has announced that it will offer sports betting beginning October 26th, which is one week away. The leagues and DOJ thus need to file their motion this week to have any realistic chance of blocking Monmouth Park from offering sports betting beginning next Sunday. Any delay in filing this motion could expose the leagues and the DOJ to the argument that they have "waived" the right to claim an "irreparable injury" (one of the requirements for a temporary restraining order and/or preliminary injunction). Thus, it would be a shocker if the leagues and the DOJ did not act quickly on this, such as by filing their motion on Monday or Tuesday. As part of their emergency motion, I expect the leagues and DOJ to also ask for a preliminary injunction prohibiting all New Jersey casinos and racetracks from conducting sports wagering. Judge Shipp will likely issue the temporary restraining order later this week, and schedule a hearing on the preliminary injunction for November (possibly the same November 21st date that was already slotted for the hearing on New Jersey's now-withdrawn motion for clarification and/or modification of the injunction).

Things are about to get real interesting in New Jersey!


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