The State of West Virginia – or, rather, certain legislators in the State of West Virginia – have decided that they want to legalize sports gambling. This has created a kerfuffle in the Commissioner’s office, which has lobbied hard against the bill. Said Rob Manfred last Friday regarding the bill: “Major League Baseball and the other professional sports also have a strong interest, because it is, after all, our product that people are seeking to bet on… Unfortunately in West Virginia, there’s only one interested group that has dominated the substance of this bill, and that’s the gaming industry – the people seeking to make money from sports betting.” Manfred also voiced concerns that the proposed legislation doesn’t sufficiently protect gambling addicts.
Assuming West Virginia governor Jim Justice signs this bill, West Virginia will have legalized sports gambling. For our purposes, “sports gambling” means pretty much what it sounds like — things like betting on the outcome of baseball games. West Virginia wants to legalize it to make money off of it; fees and the like appended to sports gambling are expected to generate $30 million for the state’s coffers in just the first year.
Unfortunately, if Governor Justice does sign the bill as expected, sports gambling still won’t be legal in West Virginia, thanks to a federal law called the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), which says this:
It shall be unlawful for—
(1) a governmental entity to sponsor, operate, advertise, promote, license, or authorize by law or compact, or
(2) a person to sponsor, operate, advertise, or promote, pursuant to the law or compact of a governmental 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.
PASPA besically makes sports gambling illegal everywhere (except Nevada, which is exempted), no matter what state law says. That’s because of a part of the U.S. Constitution called the “supremacy clause.” The supremacy clause basically says that where a state law and federal law conflict, the federal law prevails.
A few years ago, the State of New Jersey filed a lawsuit (a case called Christie v. NCAA) saying that PASPA was unconstitutional. That’s because the supremacy clause only allows the federal government to “preempt” (or, overrule) a state law if the federal government otherwise has power to do that thing in the first place. To understand that better, a brief lesson on the structure of the United States is required.
The United States is, basically, 50 separate sovereign entities (the states) which ceded power to a unifying government (the federal government) for important stuff — things like a military, a common currency, social-welfare programs. But the federal government has (in theory, anyway) limits on its power: it can only do what the Constitution says it can do. The Supreme Court laid out some of the boundaries in a case called New York v. United States (which dealt with, of all things, toxic waste dumps). And New Jersey is saying that the federal government exceeded its authority with the passage of PASPA.
Here’s why: in New York v. United States, Justice Sandra Day O’Connor explained that, while the federal government could regulate trade between and among the states, it couldn’t regulate solely intrastate activity by requiring a state to do something. Here’s the money quote:
While the Framers no doubt endowed Congress with the power to regulate interstate commerce in order to avoid further instances of the interstate trade disputes that were common under the Articles of Confederation, the Framers did not intend that Congress should exercise that power through the mechanism of mandating state regulation. The Constitution established Congress as “a superintending authority over the reciprocal trade” among the States, The Federalist No. 42, p. 268 (C. Rossiter ed. 1961), by empowering Congress to regulate that trade directly, not by authorizing Congress to issue trade related orders to state governments.
New Jersey is hanging its hat on that holding, suggesting that because PASPA says that state governments are required to prohibit sports gambling, PASPA is unconstitutional. Says New Jersey: “One of the essential postulates derived from the structure of the Constitution, is that state legislatures are not subject to federal direction. . . . [but] PASPA compels States to regulate — indeed, prohibit — sports wagering and therefore exceeds Congress’s authority.”
*Although I agree that the Supreme Court will strike down PASPA, I tend to think it’s a slightly closer call than Calcaterra does. That’s because the Supreme Court already ruled in a case called Gonzales v. Raich that the federal government can regulate solely intrastate activity. Even though recent jurisprudence has retreated somewhat from Gonzales, the Court could rule that PASPA simply tells a state what it can’t do, unlike in New York v. United States, where the Court struck down a law that told states what they must do.
In any event, the Supreme Court will be ruling on New Jersey’s case shortly. If PASPA is ruled unconstitutional, West Virginia’s law goes into effect and we have legalized sports gambling there. And that’s why MLB has lobbied so hard against the bill. In fact, MLB and other professional sports have sued before to block sports gambling in New Jersey.
But there’s one last wrinkle. You see, MLB didn’t always oppose West Virginia’s law. In fact, the Charleston Gazette-Mail reports that “Major League Baseball and the National Basketball Association had sought [in the bill] a 1 percent fee on gross wagering, to fund enhanced efforts to promote player integrity in the event that legalized sports betting expands nationwide.” That’s what is called an “integrity fee.”
And now you’re wondering: “what’s an integrity fee?”
An integrity fee is a 1% tax that goes to the sport on which the bet is being made. While 1% doesn’t sound like a lot, remember if PASPA falls, sports gambling could become legal everywhere if states allow it. An integrity fee is a way for the leagues to get a piece of the action, as it were. It’s not a small piece, either: one estimate had MLB’s annual cut at $480 million in integrity fees nationwide. Integrity fees are industry standard in France and Australia. It’s called an integrity fee because — in theory, at least — the funds would be used to guarantee the integrity of the game isn’t compromised by the wagers.
The problem is that MLB and NBA, who created the idea, have been remarkably vague on what, exactly, those integrity-ensuring procedures would be. In fact, Adam Silver, commissioner of the NBA, admitted that the integrity fee was “a royalty to the league” for use of the league’s “intellectual property.” Despite this, as anticipation for the Court’s ruling in Christie grows, more and more states are passing or introducing legislation with integrity fees built in. So if PASPA is nullified, it seems another large revenue stream will open to MLB owners.
Sheryl Ring is a litigation attorney and General Counsel at Open Communities, a non-profit legal aid agency in the Chicago suburbs. You can reach her on twitter at @Ring_Sheryl. The opinions expressed here are solely the author's. This post is intended for informational purposes only and is not intended as legal advice.