New Jersey Internet Gamblers Excited and Sports Bettors Disappointed in the …

Hartley Henderson
New Jersey Internet Gamblers Excited and Sports Bettors Disappointed in the Same Week:


By Hartley Henderson – Exclusive to OSGA.com
Mar 4, 2013, 13:47


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New Jersey residents were thrilled last week when Governor Christie passed the amended online gambling bill which will allow New Jersey residents to wager online from anywhere in the state. Christie vetoed similar legislation in 2011 stating that he was worried the original bill would violate New Jersey’s constitution which requires all state gambling to take place in Atlantic City but he also said he wanted a referendum on the issue. Most insiders, however, surmised at the time that Christie’s opposition to the bill had more to do with his plans to run for the Republican ticket in 2012 and he believed that being seen as the first governor to legalize online gambling would be seen as a negative with Republican delegates. This seemed to prove prophetic since Christie’s stance on gambling seemed to change overnight once he decided not to run for the presidency in 2012. Almost immediately after announcing his plan not to run, he welcomed a referendum on sports betting and even announced he would be voting in favor of the sports legislation and he seemed to soften on his stance towards online gambling. In fact in early 2012 Christie stated:

“I think New Jersey should be in that (online gambling) business. I think we should be an epicenter for that business.”

With that encouragement, the assembly and senate reintroduced and almost unanimously passed the bill at the end of 2012 requiring all online betting to take place on servers in land based Atlantic City casinos. Christie again rejected the bill but said he would be happy to sign it with some modifications. Included in that was an increase in state tax on gambling profits from 10% to 15%, the requirement that all citizens set up their wagering accounts at land based casinos in Atlantic City, an increase in funding from operators for problem gambling and a 10 year trial period at which point the law would have to be signed again. The assembly ceded to Christie’s will and last week the governor signed the bill into law.

It appears that there were 3 main factors that convinced Christie to get on board with the online gambling law. First and foremost, the staunchest opponents to online gambling in the Republican Party have either left office or softened their stance. According to a Republican delegate I spoke to, many Republicans just refused to get on board with any legislation that was brought forth by Barney Frank and with Frank as the champion of the bill they would never pass it. But with Frank now out of office, a number of Republicans took a closer look at the legislation and realized that online gambling was going to occur in the U.S. one way or another and there was no point in paddling against the tide. In fact John Kyl even acknowledged the same thing when he partnered with Harry Reid to introduce the Kyl-Reid bill to legalize poker. This was evident when the DoJ worked with PokerStars to have them purchase Full Tilt, and most Republicans were on board. Consequently, being seen as a pro gambling governor nowadays just doesn’t have the same stigma that it did almost 2 years ago.

The second impetus was that other states were already introducing legislation to legalize online gambling and there was no move by the federal government to stop it. Delaware and Nevada already passed legislation and up to 5 other states including California seem prepared to pass similar laws in the near future. With the feds clearly not interested in introducing a federal bill, the states have now taken their own lead and New Jersey clearly doesn’t want to be left behind.

The third impetus was near the end of 2011 when the Department of Justice stated that the Wire Act only applies to sports betting. The UIGEA always exempted intrastate online gambling but the DoJ under the Bush administration made it clear that in their view all gambling on the internet was interstate in nature and hence any states that introduced online gambling would be in violation of The Wire Act and subject to federal intervention. Legal experts stated that the constitution is clear that if an activity is legal in one state and it is also legal in another state then it’s legal between the states and the previous DoJ stated that as a result it infringed on the 1961 federal law even if cross state betting failed to occur. Now, however, even if the states do create interstate networks, it won’t violate federal law provided the betting doesn’t involve sports betting. The only requirement now would be that the betting is legal in the state law where the operation is set up. For that reason, all the major poker companies are trying to buy up land based operations and PokerStars put in a bid for a major Atlantic City casino to meet the New Jersey requirements that bets take place at servers located in land based Atlantic City casinos. If interstate poker networks are created, chances are that the revenues will be divided up based on where the bets are actually placed based on the IP address of the bettor.

Two sticking points to the new law are the WTO and Caesars. Antigua has already announced it will be going back to the WTO requesting a new ruling on compensation for the case it won regarding gambling services, and if interstate online wagering is permitted in the U.S. then the morals argument made by the USTR used to convince the WTO appellate court on compensation will prove to be unjustified. Antigua was awarded compensation based on what the courts deemed they would lose by not being allowed to offer horse racing as a result of the Interstate Horse Racing Act, but if poker and casinos are added to the award then the amount will grow exponentially. That said, the U.S. never seems to be too concerned with what the WTO says and sees the organization as a hindrance to be ignored except when the decision is for the U.S. at which time the U.S. government demands immediate compliance. With the U.S. in a big fight with China over numerous issues from subsidized auto parts to software piracy, the U.S. has to be somewhat concerned, however, that China will use the decision by the U.S. to ignore the WTO ruling for Antigua as a possible reason for China not to comply with WTO rulings either.

The second and bigger issue is Caesars. Joe Brennan Jr., the President of iMEGA told me that he doesn’t expect Caesars to challenge the new law because “they need this,” but people I spoke to at Caesars have made it clear they still want a federal online gambling law with limitations. Caesars clearly believes that if the law was federal, they could get by far and away the largest market share, particularly if the law excluded licensing for 2 years for companies which catered illegally to the U.S. after the passing of the UIGEA (especially PokerStars) – a requirement that many states have bandied around. But if online gambling laws were left to each state to decide by itself, it would limit Caesars influence and control. Obviously the company will still offer online gambling in New Jersey from their Atlantic City casinos if the law does get implemented in New Jersey but this isn’t the route they wanted. The question, therefore, is how much sway Caesars has with the federal government to somehow try and block legislation and push more for a federal law. The answer unfortunately for Caesars seems to be “very little,” and New Jersey will likely begin offering online gambling services that are currently being offered at Atlantic City casinos in the near future.

While New Jersey residents were celebrating that news, they were also dealt a great blow when the federal courts ruled against New Jersey’s passing of the sports betting law stating that PASPA still applied and the federal legislation trumped the recently passed state law. U.S. district court judge Michael Shipp sided with the NCAA and professional sports leagues stating that PASPA still applies, despite the fact that it may treat the state unfairly. Shipp suggested that passing a law in violation of a federal law is not the way to proceed and that if New Jersey wants the law to change they should seek to appeal or amend the law, not just violate it. iMEGA in conjunction with Senator Lesniak have started that process but they were hopeful that the court would simply decide that PASPA wasn’t legal.

Joe Brennan Jr. was not surprised by the ruling:

“The decision is not a surprise to us. Not because we thought we’d lose on the merits, but because lower courts are typically conservative and tend to maintain the status quo. This was always intended to move on to the appellate court, and that is where you normally see laws challenged on their constitutionality are overturned. The US 3rd Circuit, where we move on to, has a long history of overturning Federal laws upheld at the trial level. So, while we would have preferred to win, especially so that New Jersey’s struggling casinos and race tracks could have taken advantage of the earning power of legal sports betting, we’re confident in the course we’ve taken and the potential outcome in the 3rd Circuit. The other side is aware of this, too. They’re not exactly celebrating a big win over there.”

Legal experts I spoke to concur. Most believed that this case is “very important” and will be challenged all the way to the U.S. Supreme Court for a final decision.

“There’s no question that PASPA is unfair but it still may not be unconstitutional. There are a lot of things in American law that are unfair but are still upheld legally,” a famous lawyer with expertise in gambling law told me. “The real question is whether the courts are prepared to upset the sports leagues by striking down PASPA since the leagues are far more popular with citizens in the U.S. than are casino operators. One issue that the courts can’t ignore though is that some U.S. leagues did set up operations in Europe where sports betting is legal and accepted. The leagues will have to explain to the courts why betting in New Jersey on an Arizona Cardinals game is detrimental to the sport but wagering on the London Monarchs was not. The fact that the league is now defunct is irrelevant.”

Christie and the New Jersey legislature should be commended for their unwavering determination to ensure that the state is not left behind in the area of online gambling and neither the sports leagues nor Caesars should cause them to change course. Americans, including New Jersey residents continue to wager on sports, casinos and poker offshore threats from the DoJ can stop them. Placing a wager online in the U.S. is not a crime regardless of where that bet is made. Only online gambling operations are subject to arrest. It’s pretty clear that the state will have few issues with poker and casino offers given the DoJ opinion last year on the Wire Act but sports betting is still questionable since the leagues are playing hard ball (pardon the pun).

The truth, however, is that sports wagering will continue to grow worldwide and the only question is whether revenue from that betting will go to American based operations and the government or online companies in foreign jurisdictions. The rest of the world has seen the light and even Canada is starting to offer online betting (including sports) with revenues being split between the operators and the government. Rather than fighting it, the sports leagues should work with the government to ensure they get a piece of the pie from gambling (as happens in the rest of the world), and they can have a part in writing the legislation such as demanding that any strange betting patterns be sent to league officials immediately. Putting their head in the sand and hoping that the states will simply drop their request to offer sports betting won’t work. There’s just too much revenue to be made from the activity and it can be done without raising personal taxes. Let’s just hope that the sports leagues realize this sooner rather than later.

Contact Hartley via email at hartley[at]osga[dot]com.

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