On May 14, 2018, the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) in Murphy v. NCAA. PASPA was passed in 1992 to prevent the expansion of sports gambling by the states. Prior to PASPA, only four states, Nevada, Delaware, Montana and Oregon, had legalized sports wagering. Until the Supreme Court’s decision, PASPA prevented any additional states from joining their ranks.
The Supreme Court was presented with a challenge to the state of New Jersey’s attempts to repeal prior states laws prohibiting sports wagering. The state argued that its actions could not be constitutionally prohibited under principles of state sovereignty. The Supreme Court agreed, reasoning that, under the Tenth Amendment, the federal government could either pass its own federal legislation regulating sports wagering and thereby pre-empt state legislation or leave the states to regulate sports wagering as they saw fit, but it could not compel state legislatures to enact state laws in service of federal interests.
Although the decision leaves open the possibility that the federal government could pass legislation prohibiting sports wagering affecting interstate commerce, unless it does so, the right to authorize sports wagering has been returned solely to the states. Several states in addition to New Jersey, including New York, Pennsylvania, Connecticut, Mississippi, and West Virginia, recently passed legislation authorizing sports wagering in anticipation of PASPA being struck down. Nearly 20 states have separately passed legislation to allow for fantasy sports gaming, including most of New England, New York, and the Mid-Atlantic, as well as a collection of states across the Southern and Midwestern United States.
As states rush to change their laws, industry experts estimate that the sports wagering industry could grow to tens or even hundreds of billions of dollars in gross revenue. Although some commentators have already issued warnings about the regressive nature of gambling taxes and the limited profitability of sports wagering, many states are betting on a sports wagering payday and tacking revenue raising measures onto these legalization efforts. A new Pennsylvania law, for instance, requires a license fee of up to $50,000 to conduct fantasy contests and a 15% tax on gross gaming revenues, the total revenue after deducting prizes paid out, and a $10,000,000 license fee and a 34% tax on gross gaming revenue. A new Mississippi law will charge a license fee of $5,000 to fantasy sports operators and impose a tax on 8% of revenues. Legislation introduced in Kentucky would charge a $250,000 initial license fee to sports wagering operators and impose a 20% tax on gross gaming revenue. Although New York has already passed authorizing legislation, it is considering a modified law that would enable mobile sports wagering and charge a tax of 8.5% on gross gaming revenue. As for Massachusetts, it has already legalized fantasy sports gaming through July 31, but is now proposing a permanent provision that would also add a $100,000 license fee and a 15% tax. At this rate, the main wager may be whether the new laws will be fully operational in time for football season.
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