A New Jersey federal judge last month rejected New Jersey's latest attempt to legalize sports betting, ruling that a state statute that repealed New Jersey's long-standing prohibition on sports betting at casinos and racetracks violates the 1992 Professional and Amateur Sports Protection Act (PASPA)—a federal law banning sports betting across the nation. New Jersey had resurrected its long-standing bid to legalize sports betting through a series of novel but risky legal maneuvers that seized on language from a 2013 decision of the U.S. Court of Appeals for the Third Circuit. In that decision, NCAA v. Christie (Christie I), the Third Circuit ruled that an earlier New Jersey law authorizing sports gambling was unconstitutional under the Supremacy Clause of the U.S. Constitution.

Most legal observers had assumed that New Jersey's effort to overturn the federal law had concluded in June when the U.S. Supreme Court declined to hear the state's petition for certiorari from the Third Circuit's ruling. But, with its casino industry reeling, New Jersey breathed new life into an issue that has drawn nationwide attention and has pushed professional sports leagues to grapple with the ethical and legal boundaries of sports wagering in the United States. While New Jersey's latest loss in federal district court was not unexpected, the ruling sets up a renewed showdown in the Third Circuit where New Jersey hopes to break its losing streak once and for all.

The four major professional sports leagues and the NCAA (the leagues) brought the 2014 case, also named NCAA v. Christie (Christie II), to prevent implementation of a law signed by Governor Chris Christie in October purporting to repeal New Jersey's ban on sports betting. The repeal statute is based on a creative interpretation of the 2013 Third Circuit opinion that would allow New Jersey casinos and racetracks to offer sports betting without running afoul of federal law so long as such betting is not sponsored, operated or regulated by the state.

The leagues principally argued that the repeal law is simply a de facto authorization of sports gambling by another name. On Oct. 24, U.S. District Judge Michael Shipp of the District of New Jersey granted the leagues' request for a temporary restraining order, halting the start of legalized sports betting at Monmouth Park racetrack while the court considered the leagues' request for an injunction. A month later, on Nov. 21, Shipp ruled in favor of the leagues and granted summary judgment, concluding that the repeal law "while styled as a partial repeal…necessarily results in sports wagering with the State's imprimatur, which goes against the very goal of PASPA—to ban sports wagering pursuant to a state scheme."1 New Jersey's appeal to the Third Circuit is pending.

The case has received national attention given its possible implications for federalism and states' rights issues under the Supremacy, Commerce and anti-commandeering clauses of the Constitution. The central legal issue in the case is whether the federal PASPA can preempt any state effort to permit or sanction sports betting without commandeering states' autonomy in violation of the Tenth Amendment.

The case has also provoked a compelling policy discussion among politicians, the gambling community and the sports industry regarding the wisdom of PASPA's national sports betting ban at a time when overseas Internet sports betting is commonplace, league-sponsored fantasy gaming is immensely popular, and states are increasingly embracing other forms of legalized gaming as an alternative source of revenue in a recovering economy. While the leagues continue to oppose state efforts to legalize sports wagering on the grounds that it would threaten the integrity of the games, influential voices within the industry, including the commissioner of the NBA, have publicly acknowledged that permitting sports betting in a legal and regulated way is sensible and inevitable.

Should New Jersey ultimately succeed in overcoming the federal ban on sports wagering, other states with legal gaming would surely follow suit. New York, for its part, has taken steps toward legalizing gaming in recent years. The state already operates numerous racetracks and off-track betting sites, and, in 2013, voters approved a constitutional amendment authorizing commercially operated casinos. But the state could balk at the prospect of antagonizing the leagues by permitting sports wagering given their strong ties—all four major professional sports leagues have their headquarters in New York City, and New York is home to eight professional teams across the leagues.

The Leagues Win Round One

New Jersey's battle to legalize sports betting began in 2012 when the Legislature enacted the Sports Wagering Law, which authorized legalized, regulated sports betting at the state's casinos and racetracks but not elsewhere. The leagues sued, contending that the law conflicted with PASPA, 28 U.S.C. §3702. Enacted in 1992, PASPA prohibits states or state-owned entities from "sponsoring, operating, advertising or promoting…a lottery, sweepstakes, or other betting, gambling or wagering scheme based directly or indirectly…on one or more competitive games in which amateur or professional athletes participate…or on one or more performances of such athletes in such games" and moreover bans states from "licensing or authoriz[ing] by law or compact" any such gambling activities.

In recognition of the state's existing casino industry in Atlantic City, New Jersey was given the opportunity to be exempt from the law at the time PASPA was enacted, but the state declined. However, voters reversed course in 2011 and passed a referendum amending the state's Constitution to permit the Legislature to legalize sports wagering. The Sports Wagering Law was enacted shortly thereafter, and the leagues and the Department of Justice responded by suing to stop the law from taking effect.

New Jersey argued in Christie I that PASPA is unconstitutional because it commandeers state officials to enforce federal law in violation of the Tenth Amendment to the U.S. Constitution. But both the District of New Jersey and the Third Circuit rejected this argument and struck down the Sports Wagering Law as violating PASPA. On the issue of PASPA's constitutionality, the Third Circuit ruled 2-to-1 that PASPA did not conscript or coerce states to act in a certain way; rather, PASPA merely prohibits states from authorizing sports gambling. Critically, the Third Court ruled that PASPA does not "prohibit New Jersey from repealing its ban on sports wagering" or require it to "keep any law in place."2 Rather, the court stated that PASPA permitted New Jersey either to "repeal its sports wagering ban" or "to keep a complete ban on sports gambling" but that it would be "left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be."

The finding that PASPA only bars states from authorizing or sponsoring sports betting—but does not also bar states from repealing their own laws on the subject—played a significant role in the outcome. Had the Third Circuit concluded that the federal statute prohibited New Jersey from repealing its own sports wagering ban, it may well have struck down PASPA in light of prior Tenth Amendment anti-commandeering precedent.

The majority also rejected New Jersey's arguments that PASPA violated the Commerce Clause and that, by exempting four states with legal sports betting that pre-dated PASPA from the nationwide ban—including, most notably, Nevada—the law violated principles of equal sovereignty among the states. Notably, one judge on the Third Circuit panel, Judge Thomas Vanaskie, dissented, primarily on the basis of New Jersey's anti-commandeering argument.

Although New Jersey sought to appeal the Third Circuit's decision to the U.S. Supreme Court, the court declined to hear the case in June 2014. Three days later, in response to the Third Circuit's ruling, the New Jersey Legislature passed a bill that purported to "repeal" the state's prohibition on sports wagering only at casinos and racetracks. But Governor Christie vetoed the bill, viewing it as a transparent attempt to evade the Third Circuit ruling and seemingly bringing the matter to an end.

New Jersey Doubles Down

With Atlantic City's casino industry teetering in late summer, New Jersey suddenly took steps to bring the sports wagering issue back to life. First, in September, the state Attorney General issued a law enforcement directive seizing on that portion of the Third Circuit's decision stating that PASPA does not prohibit New Jersey from repealing its own ban on sports wagering. The directive claimed that the 2012 Sports Wagering Law itself repealed the state's sports betting ban and that this portion of the law had survived the Third Circuit ruling.

The directive therefore instructed law enforcement and prosecuting agencies not to enforce any state laws against sports betting at casinos and racetracks. At the same time, lawyers for Governor Christie moved in district court to clarify or modify the existing injunction on sports betting to conform to this interpretation of the Third Circuit ruling. In response, the leagues blasted the propriety of the Attorney General's directive, calling it a "blatant attempt to circumvent" the injunction and a backdoor authorization of sports betting.

Then, in October, while the state's motion was still pending before the district court, the New Jersey Legislature once again passed a law that formally repeals New Jersey's ban on sports betting at the state's casinos and racetracks but keeps all other prohibitions in place. This time—perhaps recognizing that the Attorney General's directive was on shaky legal ground—Governor Christie signed the bill into law. On the same day, the state withdrew its motion to clarify or modify the injunction. The legislation echoed the argument put forward in the Attorney General's directive that the Third Circuit opinion expressly allows New Jersey to repeal its sports betting ban without violating PASPA. One state-licensed racetrack, Monmouth Park, declared that it would begin taking bets on NFL games on Oct. 26, forcing the leagues to act quickly.

The Leagues Dig In

The leagues responded by filing a new lawsuit, Christie II, seeking to enjoin implementation of the "repeal" legislation and requesting a temporary restraining order to stop Monmouth Park from accepting bets. The repeal legislation put the leagues on precarious legal footing, since they and, to a greater extent, the Department of Justice (which mostly sat out this round of briefing) argued in Christie I that New Jersey was entitled to repeal its sports wagering ban without violating PASPA. But the leagues forcefully argued that the legislation, far from constituting the type of repeal envisioned by the Third Circuit, is instead a flagrant de facto authorization of sports betting.

The leagues noted that the legislation did not deregulate sports wagering across New Jersey but instead purported to selectively repeal the prohibition on sports betting only at state-licensed gambling venues, in essence granting these businesses an exemption that authorizes them to sponsor sports betting. In their brief, the leagues quoted numerous statements by New Jersey legislators touting the repeal as the means for bringing about legalized sports gambling in New Jersey.

In opposing the leagues' motion, New Jersey argued that the 2014 repeal legislation did exactly what the Third Circuit said the state could do when it held that PASPA did not prohibit New Jersey from repealing its law and determining the contours of its sports wagering prohibition. Citing heavily from the Third Circuit's ruling, the state argued that the new legislation is a "partial repeal" that merely decriminalizes and deregulates, but does not authorize or license, sports betting at casinos and racetracks. The state moreover argued that the leagues are trying to have it both ways by maintaining that PASPA does not prohibit a state from repealing its sports wagering laws while claiming that New Jersey's attempt to do just that violates PASPA.

Court Sides With the Leagues

Two days before Monmouth Park was set to open its doors to bettors, the district court granted the leagues' request for a temporary restraining order, halting implementation of the repeal while it considered the leagues' application for an injunction. A month later, after hearing oral argument, the court ruled that the 2014 repeal legislation violated PASPA and granted summary judgment to the leagues.

The court first reviewed the Third Circuit's decision in Christie I, finding that the Third Circuit interpreted PASPA to offer two choices—full prohibition on sports betting or complete repeal and deregulation. Next, applying a preemption analysis based on the Supremacy Clause of the Constitution, the court concluded that New Jersey's 2014 law was only a partial repeal because it only applied in casinos and racetracks, and only to persons 21 or older, and because it excluded collegiate games played in the state or by a New Jersey school.

The court then cited legislative history surrounding PASPA to conclude that PASPA preempted the type of partial repeal that New Jersey sought to enact. Such a partial repeal, the court noted, would achieve the same effect of the 2012 authorization—sports wagering at New Jersey's casinos and racetracks with the state's imprimatur—thereby contravening PASPA's goal of banning sports wagering pursuant to a state scheme.

In sum, the court concluded, "New Jersey's attempt to allow sports wagering in only a limited number of places, most of which currently house some type of highly regulated gambling by the State, coupled with New Jersey's history of attempts to circumvent PASPA, leads to the conclusion that the 2014 Law is in direct conflict with the purpose and goal of PASPA and is therefore preempted." The court also granted a permanent injunction, notwithstanding New Jersey's "strong policy arguments" in favor of the 2014 law, because the violation of federal law itself constitutes irreparable harm.

Judge Shipp was clearly cognizant that a ruling in favor of New Jersey could lead other states to follow suit. Toward the end of his opinion, he noted that New Jersey was not alone among states questioning the wisdom of PASPA and rethinking their prohibitions on sports wagering. But he suggested that the primary remedy for New Jersey or any other state that disagrees with PASPA is through repeal or amendment of PASPA in Congress.

Showdown at Third Circuit

Judge Shipp's decision constitutes an undeniable setback for New Jersey, but state officials have long viewed a renewed appeal before the Third Circuit as their best opportunity for victory. The key issue on appeal will be the Third Circuit's interpretation of its own ruling in Christie I when it held that New Jersey could repeal its sports wagering ban without violating PASPA and that it was "left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be." New Jersey will aim to convince the Third Circuit that this language permits a partial repeal like the one it enacted. Arguments are expected to take place in March or April 2015.

In the meantime, the ongoing legal wrangling has plunged New Jersey's casinos and racetracks into murky legal waters. Prior to Judge Shipp's ruling, only Monmouth Park had signaled a willingness to accept bets based on the repeal legislation. Even if the district court's decision is overturned and the 2014 repeal law held constitutional, sports betting remains illegal under federal law, and any casino or racetrack that chooses to proceed would risk prosecution under federal anti-organized crime statutes.3 The hope, it seems, is that if a federal court were to declare sports betting legal in New Jersey, the federal government might choose to forgo enforcement of federal criminal statutes, as it has done in states that have legalized the use of marijuana.

At the same time, external dynamics continue to shape the parties' actions and legal arguments in evolving and unpredictable ways. New Jersey's casino industry is in the midst of one of its most turbulent years ever, with four Atlantic City casinos shutting their doors in 2014. This downturn likely explains Governor Christie's sudden reengagement on the issue as he prepares for a possible presidential run beginning in 2015.

On the other side, certain of the leagues have taken steps toward embracing legalized gambling in recent months. This year, Major League Baseball, the National Hockey League and the National Basketball Association all announced partnerships with operators of daily fantasy sports leagues, which some view as indistinguishable from traditional sports wagering.4 Adam Silver, who became commissioner of the NBA in February, recently told the Bloomberg Sports Business Summit that he viewed legalized sports betting outside of Nevada as "inevitable" and signaled the NBA's willingness to participate in it.5 Then, just a week before the summary judgment hearing in Christie II, Silver became the first major sports commissioner to advocate in favor of a federal framework for the legalization of sports betting in a New York Times op-ed (though Silver was careful to reiterate the view that New Jersey's state-by-state approach is unlawful).6

Whether any of these developments might alter the legal outcome or even lead the leagues to abandon their opposition to legalized sports betting remains to be seen. For now, the leagues remain unified and unbeaten, while New Jersey's roll of the dice has turned what was thought to be a closed case into a renewed battle that is certain to keep legal observers and sports fans hedging their bets for months to come.