Sports betting gets day in court

A legal fight that began five years ago with New Jersey’s attempt to help its struggling casino industry will go before the U.S. Supreme Court on Monday, as the highest court in the land is scheduled to hear oral arguments over whether states have the power to legalize sports gambling.

The case, which is being closely watched in the racing industry, involves a 1992 federal law, the Professional and Amateur Sports Protection Act, which prohibits most states from passing laws authorizing betting on sports. The Supreme Court decided to hear the case earlier this year, and it is expected to issue a ruling in the spring, with the potential to send seismic waves through the U.S. gambling landscape.

Since the PASPA was passed, casinos have sprouted in nearly every state in the U.S., Americans’ opinions on gambling have softened considerably, and some sports leagues that had distanced themselves from wagering on their contests have modified their stances.

That has led to an unusually strong coalition of support behind the effort to strike the law from the books among actors that would benefit from a ruling against the PASPA, even though experts don’t have a strong read on which way the court’s nine justices might rule in a case that hinges more on states’ rights and a little-litigated principle known as commandeering than on gambling.

“There are so many rulings in their past jurisprudence that point in different directions, and there is so little case law that pertains to the anticommandeering principle that it is hard to come to any conclusion,” said Marc Edelman, a professor at Baruch College at the City University of New York who specializes in sports and gambling law.

For the racing industry, the expansion of sports gambling holds both peril and opportunity. If the law is struck down and states move to legalize sport wagering, racetracks and offtrack betting outlets could be designated in some jurisdictions as licensed sports-betting facilities, as was the case in the various attempts in New Jersey to authorize the practice. That could mean significant new revenue streams to those locations fortunate enough to receive a license, along with the potential to put their racing product in front of a large number of sports-wagering customers, particularly on weekends.

In addition, many accountwagering companies have been champing at the bit to offer sports betting to their existing customers, especially when considering that among all types of gamblers, horseplayers and sports-betting players share the most characteristics. Those companies also have already built up Internet gambling operations that have mostly ironed out the bugs of serving their existing customer bases, which could lead to an easy transition into the sportswagering world if states also allow betting over the Internet.

“We are focused on our core business here, horse racing, but like everyone in the industry, we are keeping an eye on what’s happening with the New Jersey case,” said Kip Levin, the chief executive of Betfair US, which owns the account-wagering company TVG and the only exchange-wagering platform in the U.S., which is restricted to New Jersey residents. “If it happens, we feel expanded sports wagering would provide new audiences and a substantial growth opportunity for racing.”

At the same time, horse racing does not have a rosy history when it comes to confronting new competition. Despite more and more Americans gambling over the past 20 years, along with a sizable increase in tolerance for the risk associated with betting, annual handle on horse racing has shrunk considerably in the casino era, dropping from $14.3 billion in 2000 to $10.7 billion last year, a decline of 25.2 percent, using numbers unadjusted for inflation.

That decline occurred even as horse-racing betting enjoyed a near-monopoly on legal online gambling, protected by federal laws that exempted the sport from Internet-gambling prohibitions. If sports gambling becomes a competitor in that space, with its low vigorish and support from deep-pocketed marketing and operating budgets that racing can’t match, horse racing could see its market share sink even lower. For that reason, some racing organizations have considered opposing the spread of sports wagering, if only by quietly registering their opposition with their state and federal representatives.

No matter which way the court rules, it’s likely that the federal legislature will take a new look at the PASPA in the wake of the ruling, in large part because of lobbying pressure from pro-gambling forces, including the American Gaming Association, which has recently funded a number of studies to support the legalization of sports betting, and the league offices of several major sports that see gambling on their events as way to hold onto their fan bases amid a rapidly fragmenting media landscape.

For that reason, Edelman said it’s worth paying more attention to what is happening on Capitol Hill than how the Supreme Court rules, especially when viewing the case in the context of states’ rights instead of gambling law.

“The decision of the Supreme Court will have a long-lasting impact on understanding the contours of the commandeering laws, but it will only have a short-term effect on the legality of sports gambling,” Edelman said.