US: New Jersey – Sports Pool Betting to be legalized?

New Jersey recently amended its State Constitution and revised its legislative scheme to permit certain types of sports wagering at licensed casinos and racetracks. Pursuant to the amended legislation, the New Jersey Division of Gaming Enforcement (the “Division”), the primary agency governing gambling houses in the State of New Jersey, issued a rule proposal on June 8, 2012 that would permit the Division to hear and decide applications for a license to operate a “sports pool,” which is defined as “the business of accepting wagers on any sports event by any system or method of wagering.” While the Division is poised to adopt regulations governing the standards for the issuance of a license and the operation of a sports pool offering in Atlantic City, including, among others, regulations allowing “sports wagering lounges” and setting the percentage of fees paid by a prospective licensee, there is a real question as to whether or not such an offering will be exploited by Atlantic City casinos.

The Professional and Amateur Sports Protection Act, 26 U.S.C. 3701, et. seq. (“PASPA”), governs wagering on professional or amateur sports in the United States. The United States Congress passed the legislation in 1992 as an extension of its authority pursuant to the Commerce Clause of the United States Constitution. An enumerated power identified in Article I, Section 8, Clause 3 of the Constitution, the Clause states that Congress has the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” In light of the Interstate Commerce Clause (referring to the “among several States” phrase), Congress adopted PASPA as negative legislation, making certain behavior a criminal offense punishable by imprisonment, fines, and more. Specifically, PASPA proscribes: “(1) a government entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or (2) a person to sponsor, operate, advertise, promote, pursuant to the law or compact of a government entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.”

While PASPA clearly excluded those States where lawful sports gambling schemes were in operation at the time of adoption and provided a one year window of exemption from the effective date for any State to legalize sports wagering, New Jersey is among the forty-six other States that failed to take affirmative action and, as a consequence, is arguably prohibited from legalizing sports wagering contrary to PASPA. In effect, only Nevada and, to a limited extent, Delaware are legally authorized to permit wagering on professional or amateur sports.

Down but not out, New Jersey is one of several states that have contemplated a challenge against PASPA. New Jersey recently amended its State Constitution to make it lawful for the State Legislature to authorize by law wagering “on the results of any professional, college, or amateur sport or athletic event, except that wagering shall not be permitted on a college sport or athletic event that takes place in New Jersey or on a sport or athletic event in which any New Jersey college team participates regardless of where the event takes place.” Arguably relying upon the 11th Amendment to the United States Constitution, which provides that all those powers not expressly conferred upon Congress are reserved to the States, among other Constitutional provisions, New Jersey appears positioned to test the limits of PASPA and, in turn, the United States’ powers under the Interstate Commerce Clause. Many will argue that the “sports pool” offering now being contemplated by New Jersey is not a “true” form of sports wagering; rather, it is the act of wagering on events and circumstances outside of PASPA’s jurisdiction. It remains to be seen whether or not Atlantic City casinos will take advantage of this expanded gaming offering for fear of criminal prosecution pursuant to PASPA, or whether New Jersey further expands the offerings relative to sports wagering in the future in reliance upon its 11th Amendment rights.

Comments to the proposed set of new regulations are due by August 31, 2012. The full extent of the rule proposal may be found here: http://www.nj.gov/oag/ge/proposed_rules.htm.