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2009 Gambling Year in Review - 5 Stories that Dominated the News: Part I...By Hartley Henderson

Many in the industry had hoped that 2009 would bring a new sense of sanity in regard to the U.S. federal government's philosophy and actions regarding online gambling. Unfortunately those who believed things would be different under a Democrat regime were surely disappointed. In fact 2009 proved to be even more of an assault on gambling, because for the first time the federal government challenged the states' right to offer forms of land based gambling. The following are the 5 main gambling industry related stories from 2009.

1- The State of Delaware and the Issue of Sports Betting.

In 1992 the U.S. Federal government passed PASPA (the Professional and Amateur Sports Protection Act), which made it illegal for states to offer sports betting. In order to pass it, the government grandfathered in Nevada and any other state that had offered sports betting previously, which included Oregon and Delaware (both had offered sports lotteries). The law also allowed any state with casinos (New Jersey) a one year time frame to receive a similar type of exemption. New Jersey chose not to take the government up on the offer, and hence was permanently barred from offering sports wagering in the state.

While Delaware had the right to offer sports betting after that ruling, the state government chose not to do so immediately, but maintained its right to change its mind at a future date. And in 2009 Delaware announced it was interested in offering sports betting to its citizens in an effort to raise revenue, and also to generate more interest at its racetracks. The plan was to have Las Vegas style sportsbooks at Dover Downs and Delaware Park where bettors could bet on sports, as well as the races. The Delaware government indicated that they would be offering single game sports betting and believed yearly revenues would be in the millions. While gambling has always been a state issue, the Federal government decided to challenge Delaware on the law, spurred on mostly by lobbying pressures from the NFL and other sports leagues. As well, letters were sent to AG Eric Holder from anti-gambling fanatics John Kyl and Spencer Bachus, along with Orin Hatch, Heath Shuler and Gregory Meeks. The letter asked Holder to intervene and stop Delaware in its tracks since they believed the law did not permit the type of wagering Delaware was planning. The case was first heard by the Delaware Courts, which ruled that the state could offer any form of sports wagering it wanted since there were no stipulations within PASPA stating what forms of sports betting could be offered. But on appeal Justice Thomas Hardiman of the 3rd circuit court ruled that the state was limited to the exact same type of sports betting it had in 1976, meaning it could only offer parlay betting of 3 games or more, and only on the NFL.

The case was significant for many reasons. First, it signified that the sports leagues had an undue amount of power over the courts. But more importantly, it was a slap in the face of states' rights, since states always controlled their own decisions in the areas of gambling. New Jersey had planned to offer sports betting as well, and California is planning on offering an intrastate poker network. So the decision effectively told the states that the Feds were now in charge of decisions relating to gambling. Furthermore, because Bachus, Kyl, etc. were sticking their noses into the issue of land based gambling, it clearly demonstrated that all the hyperbole spouted by them earlier about the dangers of internet betting was a red herring. After all, in denouncing internet wagering the rhetoric was that no one could trust the internet like they do land based casinos since the internet failed to have the same safeguards that ensured all bettors were of legal age, weren't problem gamblers, etc. Thus Bachus, Kyl, Goodlatte, etc. weren't really concerned about the dangers of internet wagering, they simply wanted all forms of gambling outlawed because of their own personal agendas (possibly because of pressure from their religious backers).

At the start of NFL season Delaware did offer an NFL sports lottery, as was permitted by the courts, and revenues have been higher than expected, but they are still far less than what they could have been generated with single game sports betting. In fact Ed Suitor, the CEO of Dover Downs, stated that revenues were disappointing and that the amounts being generated didn't come close to the millions the facility spent upgrading in preparation for single game sports betting. It's also clear the lottery hasn't helped generate interest in racing. Furthermore, the lottery only allows NFL games, which will be a concern when the NFL season ends. This issue is far from over and will almost certainly be a major story going forward as Delaware and Governor Markel decide what to do next.

2- The State of New Jersey and the Issue of Sports Betting

New Jersey Senator Raymond Lesniak has been trying to offer legalized sports betting in New Jersey for some time, and Governor Corzine decided this was the year he would launch it to help bolster interest in casinos. Immediately the anti-gambling forces, the sports leagues and the courts came forward and reminded the state that they opted out of PASPA and thus had no recourse to change its mind now. Lesniak argued that things change and they shouldn't be held to a decision made 20 years ago, and also suggested that PASPA was supporting crime:

"Sports betting in the U.S. is unregulated, untaxed and illegal"..."Rather than supporting thousands of jobs, economic activity and tourism, the federal ban supports offshore operators and organized crime"

Nevertheless, his arguments seemed to fall on deaf ears, so New Jersey pursued a new avenue instead. The state partnered with iMEGA (the Interactive Media and Gaming Association) who brought forward a challenge to the constitutionality of PASPA itself. iMEGA argued that PASPA violates the 1st, 5th, 10th, 11th and 14th amendments to the constitution. Most notably it violates the Commerce Clause since PASPA allows an activity to occur in 3 states to the exclusion of the other 47 states, which according to Lesniak and iMEGA is unconstitutional and must be struck down. Governor Jon Corzine asked to be a part of the lawsuit, but the Department of Justice fought hard to exclude Corzine from being a part of the proceedings, stating that his inclusion would be biased and that he had no standing. But in November, the courts ruled that Corzine could be a part of the iMEGA challenge to PASPA. Unfortunately for Corzine he lost a recent election to Chris Christie, but Joe Brennan Jr., the President of iMEGA, said he is confident that the incoming administration will continue with Corzine's policy. After all, not only is defeating the law in New Jersey's interest, but the motion to ask Congress to change the law already passed the New Jersey Senate. And polls indicated that 2/3 of New Jersey residents want sports betting legalized. As was the case with Delaware, Eric Holder and others are trying to stop the action from happening, but Holder may be disqualified from trying the case anyway since he has a past history with the NFL. ESPN noted that Eric Holder once served as an attorney for the NFL, and in fact according to ESPN is still being paid by Covington & Burling for his NFL work. Regardless, the league executives are still the main opponents to any form of sports betting, as they like to romanticize their leagues and believe that they are beyond reproach. And they honestly believe that by keeping the betting underground it will somehow stop any match fixing.

As of December 15th there were no major developments in the New Jersey situation, but Joe Brennan did acknowledge that he expects the case to be tried over a few years, as the leagues and DoJ do everything in their power to have it thrown out of court. In fact leagues are already getting lobby groups ready in the state. But in the end, Brennan believes that the law has a glass jaw and the courts will have no option but to rule PASPA unconstitutional. "PASPA is going down," Brennan said, "it's just a matter of when". Many states are following this case closely, as they are looking at sports betting for a new source of revenue.

Part II will be published 12-17-09.

Hartley Henderson

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