The Repeal of PASPA
May 17, 2018 | By Kevin Vela
On Monday the Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), the federal ban on sports betting. In a 6-3 ruling, SCOTUS held that PASPA unconstitutionally commandeers state legislatures by dictating what they “may and may not do.” In other words, Congress can’t require that states enact, or refrain from enacting, any certain law. PASPA violated this rule by prohibiting states from repealing their anti-gambling laws.
Note that SCOTUS did not rule on the legality of sports betting, but rather returned that power to the states. A huge shout-out to New Jersey and its public coffers, as the case marks the end of New Jersey’s six-year battle to legalize statewide sports betting and opens the door for other states to follow suit.
What will states do now?
We expect to see states quickly respond to this ruling. New Jersey’s legislature is ready to move forward with its legalization measure, and the state could have gambling operations set up within weeks. Other states, anticipating a favorable outcome in New Jersey’s litigation, have already taken significant steps toward passing similar laws.
Delaware has previously allowed certain forms of betting, but should quickly begin offering a broader array. The state passed legislation to legalize sports betting in 2008 and has since implemented the infrastructure and regulations necessary to begin full operation. The state has also allowed parlay bets on NFL games since 2009.
Pennsylvania is not far behind. Last fall, the state enacted a law to legalize sports betting upon the repeal of PASPA. Under the law, casinos will pay a $10 million (TEN MILLION!!??) licensing fee and a 36% tax to offer sports betting within the state. Betting could begin by early fall (i.e. football season).
West Virginia’s legislature similarly passed a bill in March that legalizes sports betting upon PASPA’s repeal. The Lottery Commission will draft rules to regulate the industry, and each of the state’s gambling facilities is required to pay $100,000 to allow sports betting. (Note that $100k < $10M.)
Mississippi adopted DFS legislation in 2017 that lifted the state’s ban on sports betting. While some lawmakers in the state have threatened to reinstate the ban, it is likely that legalization is here to stay and we could see some legal sports gambling in the state by the end of the year. DFS doesn’t equal gambling (remember that DFS is a game of skill), but it opens the door.
New York passed legislation in 2013 that authorizes sports gambling in the event of PASPA’s repeal, but current Governor Anthony Cuomo says he is not in a rush to take further action. The state’s Gaming Commission will need to pass regulations before operators can begin offering betting.
Other states have made preliminary moves toward legalization; Oregon, Rhode Island, and Connecticut will likely be the next states to fully adopt sports betting.
Major DFS operators, such as DraftKings and FanDuel, have signaled their intention to move into the sports betting arena as quickly as states can adopt laws allowing for their operation.
Unfortunately, Texas is far behind, with no legislative session until next summer, but we are hopeful that nationwide acceptance of gambling and the revenues it can generate for states will appeal to legislators.
Is nationwide gambling in our future?
While the repeal of PASPA is a progressive step forward, it will be years before the U.S. enjoys nationwide gambling. Instead, we’ll be left with a mishmash of state rules.
For now, each state that legalizes gambling will invoke its own rules – replete with licensing fees, integrity rules, guidelines on the house take, and standards of operation. Those rules are likely to be vastly different. As a result, operators will have significant compliance costs (i.e. $10M just for a casino license in PA). Think about the difficulties in navigating multiple state regulations. This should serve to filter bad actors, but also could limit competition.
The American Gaming Association states that 97% of the estimated $150 billion gambled each year in the U.S. is gambled illegally. Turning those dollars into taxable revenues will be a boon for states and send a lot of bookies back to school. I personally don’t buy the argument that gambling leads to more serious vices, especially not in a country that drinks as much as we do and is close to nationwide legalization of marijuana. Thus, the repeal of PASPA was a huge win for the gambling industry (and another victory for states’ rights). At some point in time the federal government may step in and create a nationwide framework to harmonize what the states are doing on an individual basis. But that is years away.
What does this mean for DFS?
As far as DFS is concerned – the repeal of PASPA has interesting consequences. The stampede of gambling establishments getting in line for high dollar licenses will likely be long and loud. Could states look at DFS and see another pot of money?
DFS has solidly established itself as a game of skill, and is currently legal, or interpreted as legal, in 41 states (35 yes and 6 maybe). While some states have imposed fees on DFS operators in their states, the fees are generally in the 4 or 5 figure range. Not 7 or 8. Other than FanDuel, DraftKings, Yahoo, and one or two more, most operators wouldn’t be able to afford significant licensing fees in multiple states.
DFS does not have the history or deep pockets that the gambling industry does. Thus, DFS is at an interesting junction – saddle up with the gambling lobby in statehouses around the country and risk losing its identity as a “game of skill,” or remain independent and continue the long and expensive fight to educate legislators around the country.
My preference would be whatever is best for the small DFS operators. Competition is good for players. And the more operators, the more innovative and fun the game will be. Lumping DFS with gambling could speed up acceptance in the remaining states (9 no states and 6 maybes) and subject DFS operators to unreasonable, or untenable, licensing fees. If, however, DFS can support gambling, but be governed by rules and requirements appropriate for skill contests (I mean, you wouldn’t charge $10,000,000 for a license to host other skill contests, like foot races or spelling bees, would you?), then I could get behind that.
The views herein are solely mine and do not reflect the position of the FSTA or any other organization.
About the Author(s)
Kevin Vela
Kevin is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, M&A, fund representation, and gaming law.
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