Last Tuesday the Third Circuit Court of Appeals ruled against New Jersey, with the majority ruling a 2014 law that would allow certain New Jersey businesses to offer legal sports betting was a violation of the federal Professional and Amateur Sports Protection Act signed in 1992.
The ruling affirmed a judgment tendered in November of 2014 by US District Court Judge Michael Shipp.
This is just the latest in long line of setbacks the state has suffered since first broaching the issue of legalizing sports betting in 2009 when State Senator Raymond Lesniak made it one of his pet issues.
For the New Jersey state legislature and potential gubernatorial candidate Lesniak, it’s back to the drawing board. The trick is to craft legislation that will not run afoul of the 1992 Professional and Amateur Sports Protection Act (PASPA), but this has proven easier said than done.
It’s starting to appear that short of federal action, New Jersey simply won’t be able to get around PASPA and pass some sort of sports betting bill without being sued (and likely losing in court, based on history) by the NCAA and professional sports leagues.
But there are alternatives to move the ball downfield. One possibility is to legalize Daily Fantasy Sports.
Can DFS close the gap?
With the state’s efforts to legalize sports betting stymied by the courts, legalizing DFS presents a simpler, less controversial way for New Jersey casinos to expand gaming options.
Legalizing DFS would also move New Jersey closer to legalized sports betting.
It wouldn’t be the revenue generator sports betting would be for the state’s casinos and racetracks, but DFS could get the ball rolling, paving the way for legal sports betting if things were to change at the federal level.
In fact, the legalization of DFS contests in a state like New Jersey could accelerate federal action on sports betting – which seems a matter of when not if at this point – as the two are seen as close cousins by many.
So a state looking to legalize sports betting could be able to use DFS to bridge the gap and lessen the distance it has to travel to get from point A to point B.
DFS headed toward day of reckoning
DFS could hasten a change to federal sports betting law because in the not-so-distant future, DFS is going to be a subject of debate on the state and federal level.
- Should DFS be regulated by gaming commissions?
- Is DFS gambling?
- Does DFS fall under UIGEA’s fantasy sports exemption?
These are all questions that statehouses are wrestling with, and this debate is likely to seep into the federal discussion, particularly if New Jersey (and perhaps other states) continue to push for legal sports betting.
If this happens, it’s quite likely Daily Fantasy Sports will drop its current false front where it claims to be a game of skill and therefore not gambling. The problem with that argument is the two terms “gambling” and “skill” are not mutually exclusive.
It’s not a certainty, but there is a reasonable chance that DFS will be designated as gambling, at least in some locales, in the next couple of years. This reclassification would allow New Jersey to claim it already offers some forms of legal sports betting through its DFS contests.
It may not change the court’s position, but it could help shape the debate at the federal level.
The evidence that DFS legislation is coming
On top of the numerous bills that have been introduced in statehouses across the U.S., there is a growing tidal wave of evidence indicating DFS is headed towards what I’ll call a day of reckoning:
- Amaya Gaming’s entrance into the DFS market.
- The general consensus that DFS is a very close cousin to sports betting.
- Indications by the Nevada Gaming Control Board that it is currently looking into DFS.
- MGM CEO Jim Murren’s comments on DFS (here and here) where he challenges anyone to tell him DFS is not gambling.
- The procurement of a gambling license in the UK by DraftKings for the express purpose of offering DFS contests. The UK mandates DFS operators receive gambling licenses.
- New Jersey State Senator Lesniak noting that sports leagues host games in locations with legal gambling (Canada, London) as well as the leagues’ affiliations with DFS sites.
- UIGEA architect Jim Leach’s recent comments in which he indicates they [Congress] did not anticipate DFS when they crafted the fantasy carveout for UIGEA, and it wasn’t their intention to exempt such an activity.
- Gamblers Anonymous adding DFS to its list of problematic activities.
With all of this activity, New Jersey could become an early adopter of regulated DFS and use it as a springboard towards its ultimate goal: legal sports betting.
Could DFS be prohibited?
There isn’t much concern among the “DFS isn’t gambling” crowd that more states will prohibit DFS contests, except in maybe in Utah or a few other pockets. Therefore, New Jersey shouldn’t fear federal legislation prohibiting DFS.
The reason the DFS industry is fighting the gambling designation is to prevent states from regulating the industry and extracting their pounds of flesh in the form of taxes on gross gaming revenue, something the industry believes could disrupt its current business model and render it unprofitable in both the short and long-term.
Regulation (taxation and licensing fees) is the fear that is pervasive in the DFS industry, not prohibition.