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The Supreme Court Sports-Gambling Primer

The high court could strike down restrictions against sports betting. Here’s what you need to know.

Getty Images/Ringer illustration

It’s impossible to know exactly how much money is illegally bet on sports in America every year, but conservative estimates are about $150 billion annually. To put that figure in perspective, it’s nearly enough to buy every franchise in the NFL, NBA, and MLB, per the Forbes sticker prices. There are reasons to doubt that number, which comes from the American Gaming Association, but nobody doubts that the illegal sports-gambling market is massive—and none of that money ends up in the hands of team owners, players, casino vaults, or the IRS.

An impending Supreme Court case might change all of that. Depending on the verdict—which the court could render as soon as Tuesday or as late as June 25—states might be allowed to legalize gambling as they see fit. Legalized sports betting could be coming to a state near you, even before Week 1 of the NFL season. Have some questions? Here’s a primer for what to expect:

Can You Give Me the Basics?

The Case: Murphy v. NCAA (formerly Christie v. NCAA)

The Background: In 2011, New Jersey voters passed a referendum to allow sports gambling at New Jersey casinos and racetracks. After the New Jersey Legislature passed a law in 2012 to enact that referendum, the NCAA, NFL, NBA, MLB, and NHL sued to stop it from happening. The leagues claimed New Jersey was violating the Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits sports gambling everywhere except Nevada, Delaware, Oregon, and Montana.

The case, which revolves around whether the federal government can compel states to enforce federal law under the 10th Amendment, bounced around the legal system until last year, when the Supreme Court agreed to hear it. The most recent ruling came in the Third Circuit Court of Appeals and upheld previous rulings that found New Jersey’s law violated PASPA. If the Supreme Court finds PASPA unconstitutional, legislators in nearly half of U.S. states might attempt to legalize sports betting by the end of 2018.

Why Were the Leagues Hesitant to Allow Sports Gambling?

When the initial lawsuit reached the deposition phase six years ago, the commissioners of the NBA, NFL, MLB, and NHL (the NCAA is also a plaintiff, but the professional leagues have been more outspoken) all spoke out vehemently against sports gambling.

“The one thing I’m certain of is New Jersey has no idea what it’s doing and doesn’t care because all it’s interested in is making a buck or two, and they don’t care that it’s at our potential loss,” then–NBA commissioner David Stern said in 2012.

Then–MLB commissioner Bud Selig took the criticism a step further, calling sports gambling “corruption.”

Yet just a few years later, league executives changed their tune. By 2015, the NBA, MLB, NHL, and 91 percent of NFL teams had deals with either DraftKings or FanDuel, the daily fantasy sports companies that operate in a murky legal space. In November 2014, one day after the NBA announced its equity stake in FanDuel, NBA commissioner Adam Silver wrote an op-ed in The New York Times advocating for Congress to legalize and regulate sports gambling so it can be “brought out of the underground and into the sunlight where it can be appropriately monitored and regulated.”

The NBA is now leading the charge among leagues to take advantage of sports gambling, and the NFL owners discussed following the NBA’s lead at their meeting in March. (Mind you, the leagues never dropped the fight against New Jersey. We’re getting there.)

What Changed League Officials’ Minds?

Gambling already indirectly benefits the leagues by keeping fans attached to their screens for games they might not otherwise be interested in. The potential to grow and destigmatize sports gambling is a way to further engage fans, but the leagues also have their eyes on being compensated.

If legalized, the leagues say they would “need to invest more in compliance and enforcement,” according to NBA spokesman Mike Bass, and thus want an “integrity fee” to cover those costs. In January, the NBA floated integrity fees of 1 percent of all wagering activity, which made the casino industry balk. The American Gaming Association, a casino trade group, responded with a press release titled “AGA Statement on NBA Proposal to Skim Money from American Taxpayers.”

“A legal Nevada sports book realizes 3.5-5 percent in revenue,” AGA president and CEO Geoff Freeman wrote. “A 1 percent ‘integrity fee’ on all money wagered legally by Americans, as proposed by the NBA, amounts to 20-29 percent of total revenue.”

In addition to the integrity fee, the NBA wants sportsbooks to use official league data for bets rather than their own tallies (i.e., counting yardage to determine the answer to “Will Cam Newton throw for over/under 100 yards in the fourth quarter?”) as another anticorruption measure. The NBA has already entered into a six-year, $250 million agreement with Sportradar and Second Spectrum to handle and monitor its data for gambling overseas, and the leagues may charge sportsbooks for using their official data. That’s before even getting to the revenue potential of partnerships between casinos and sports teams.

“[The leagues] make the product,” said Daniel Wallach, a gaming and sports law lawyer from Becker & Poliakoff who’s been following the case for five years. “They create it. There’s a certain economic value that they have generated and created that they think they should be paid for instead of having others take it for free.”

The players unions have been silent in this discussion until Thursday, when the NFLPA, NBPA, MLBPA, and NHLPA issued a joint statement arguing that the players deserve a cut, too.

How the leagues classify new revenue in their accounting could heavily affect the share of money that players get from the public betting on their games.

Wait, If the Leagues Can Make All This Money, Why Did This Case Go to the Supreme Court?

[Emerges from dark corner of an empty parking garage.]

[Takes long drag from a Juul.]

Now you’re asking the right questions.

If PASPA is upheld, the leagues can turn around and address the legality of sports gambling in Congress, where they can lobby for a new federal law to supersede it. A federal solution could create uniform sports-gambling regulations across the country, baking the various “integrity” and rights fees—worth potentially billions of dollars to the leagues—into the legislation. But if New Jersey prevails and PASPA is ruled unconstitutional, it’ll be up to individual states to legalize sports betting and introduce their own regulations. That state-by-state approach might be a lot less profitable for the leagues than a federal solution, Wallach said.

“In state legislatures that have had any kind of commercial gambling, the lobbying effectiveness of the gaming industry is pretty strong,” Wallach said. “They’ve forged relationships with lawmakers, they’re a frequent lobbying force at the state legislative level, where the sports leagues by contrast have much more involvement lobbying before Congress. In many states, the gaming industry’s interests are so entrenched that they may have the upper hand in advancing what they consider more favorable legislative measures.”

Look no further than West Virginia, which has no professional sports team but plenty of casinos. Despite a personal plea from MLB commissioner Rob Manfred to add a 1 percent “integrity fee,” the state Legislature passed a bill without one.

Laws that vary by state can also be significantly more difficult to comply with.

“The fear for the leagues is … that [a New Jersey victory] will lead to a patchwork of different and divergent state regulatory approaches,” Wallach said.

Let’s lay out the potential scenarios, as Wallach sees them.

Scenario 1: The Leagues Win

The Verdict: PASPA is ruled constitutional, and New Jersey’s attempt to legalize sports gambling is struck down.

The Fallout: Anyone hoping to legalize sports betting would turn to Congress. This is the least climactic scenario and, Wallach said, the least likely.

Scenario 2: A Gambling Avalanche

The Verdict: PASPA is ruled unconstitutional. The law, which says states cannot “sponsor, operate, advertise, promote, license, or authorize” sports betting, is invalid.

The Fallout: With sports betting legalized, there would be a flurry of state legislation. New Jersey racetracks and casinos, which have mobilized ahead of time, would be taking bets before the end of the summer. Other states wouldn’t be far behind. Pennsylvania, Connecticut, West Virginia, and Mississippi have already passed bills, and an additional 14 states have already introduced bills in case PASPA is ruled unconstitutional.

Whether each state would accept bets in person, online, or both would depend on the specific laws each one passes.

Scenario 3: New Jersey Becomes the Wild, Wild East

The Verdict: Either New Jersey’s law does not violate PASPA, or only part of PASPA is ruled unconstitutional.

The Fallout: This is the most complicated scenario, but also might be the most likely, Wallach said. For a full breakdown of the legal specifics, you can check out Wallach’s explainer. While the two pathways the court could take here are legally complex, they arrive at the same destination: New Jersey gets unregulated sports betting. But the same approach wouldn’t necessarily work for other states. That’s because New Jersey is attempting to repeal a state prohibition on sports gambling, and the court would be ruling either that a repeal of a current law doesn’t rise to an “authorization” of sports gambling, which is what PASPA prohibits, or that PASPA cannot constitutionally stop states from repealing laws prohibiting sports gambling.

“New Jersey would certainly have sports gambling almost immediately; it just wouldn’t have any kind of state regulatory oversight,” Wallach said. “The other state bills would largely go away unless they choose to follow New Jersey’s blueprint, which is a repeal of any and all state prohibitions on sports betting. In essence, it would leave the state out of the business of regulating sports betting.”

That scenario would grant New Jersey a de facto sports gambling monopoly on the East Coast (Delaware exclusively allows NFL parlays), a potentially astonishing result that could buoy Atlantic City’s struggling casino industry.

Jersey’s gain could be everyone else’s pain. Without any regulation or input from the leagues, the types of bets offered could multiply. The potential for corruption could skyrocket; just imagine a scenario in which a casino is accepting bets on whether a starting pitcher’s first pitch will be a ball or a strike, and that pitcher has a cousin in Atlantic City for the weekend.

“There would be no regulation, no ability for the leagues to demand a cut of the action, or any required use of data,” Wallach said. “It would be the worst nightmare for the leagues to have this kind of unregulated sports betting occurring so close to two major markets, New York and Philadelphia.”

It would also be deeply frustrating for state legislators across the country hoping to create additional tax revenue and the casinos and sportsbook operators hoping to grow their businesses to suddenly see New Jersey be the only beneficiary of the legal sports-betting boom.

“With that kind of an outcome, where they’re able to effectively negate all these other state bills, I think the leagues would be incentivized to lobby Congress for a change in PASPA, as would the gaming industry,” Wallach said. “So I think it would put all stakeholders pretty much on course for congressional reform.”

In other words, if anything can unite sports leagues, the gambling industry, and state legislators, it’s Chris Christie getting his way.

This piece has been updated to clarify what the court would be ruling on as it relates to the Professional and Amateur Sports Protection Act (PASPA).