Sport lotteries: the professional sports leagues take on the state of Delaware, again!

Moorman, Anita M.

Introduction and Background

The Professional and Amateur Sports Protection Act of 1992 (PASPA) prohibits state lotteries that employ a wagering scheme related to the outcome of sports contests (Professional and Amateur Sports Protection Act, 2010). Four states (Oregon, Nevada, Delaware, and Montana) which had operated sports betting schemes before the passage of PASPA were provided a limited exemption from PASPA. PASPA "grandfathered" gambling schemes in these states "to the extent that the scheme was conducted by that State" between 1976 and 1990. Following the passage of PASPA, only two states, Nevada and Oregon, still actively continued wagering on sporting events (Levinson, 2006).

However, the landscape of sports betting faced a radical change in March 2009 when the Governor of Delaware, Jack Markell, proposed legislation authorizing sports betting and table gaming at existing and future facilities in Delaware. Delaware intended to implement a sports betting scheme including wagers where winners would be determined based on the outcome of professional sporting events, including auto racing. Collegiate sporting events involving Delaware colleges or universities, and amateur or professional sporting events involving a Delaware team were excluded from the betting scheme. All of the major professional sport leagues as well as the NCAA opposed the implementation of Delaware's planned sports betting scheme and filed suit challenging Delaware's legislation.

Delaware's proposed sports betting scheme would have included single-game betting in addition to multi-game (parlay) betting (Office of the Comm'r of Baseball v. Markell, 2009). Delaware intended to commence its sports betting scheme on September 1, 2009, in time for the start of the upcoming NFL regular season. On July 24, 2009, the National Football League, the National Basketball Association, the National Hockey League, the Office of the Commissioner of Baseball, and the National Collegiate Athletic Association (collectively, leagues) filed a complaint alleging that elements of Delaware's proposed sports betting scheme violated PASPA. The leagues sought an injunction to prevent Delaware from implementing the sports lottery until the case had been decided on its merits. When the United States District Court denied the leagues' request for an injunction, the leagues pursued an expedited appeal to the United States Court of Appeals for the Third Circuit. The Third Circuit accepted jurisdiction over the appeal and addressed whether the language of PASPA permitted or prohibited Delaware's planned sports lottery scheme based upon Delaware's exemption under PASPA. The Third Circuit held that Delaware's sports betting schemes were a violation of PASPA (Office of the Comm'r of Baseball v. Markell, 2009).

PASPA & the Delaware Sports Lottery Scheme

PASPA prohibits any person or governmental entity from sponsoring, operating, advertising, or promoting: 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 (Professional and Amateur Sports Protection Act, 2010). The statute contains four exceptions, only one of which was raised in this case. That exception provides PASPA's general prohibition against sports betting shall not apply to: "lottery, sweepstakes, or other betting, gambling, or wagering scheme in operation in a State or other governmental entity, to the extent that the scheme was conducted by that State or other governmental entity at any time during the period beginning January 1, 1976, and ending August 31, 1990" (Professional and Amateur Sports Protection Act, 2010).

The parties disagreed concerning the meaning of the phrase "to the extent that the scheme was conducted by the State" in this exception.

Delaware contended that its sports betting scheme qualified for the exception because Delaware conducted a sports lottery at some time between January 1, 1976, and August 31, 1990. The State also argued that the exemption was broad in scope, and nowhere states that it restricted Delaware to operating particular lottery games for a particular sport. Delaware's broad interpretation effectively would mean it is allowed to conduct any sports lottery under State control because it did so in 1976. Delaware previously only conducted a three-game parlay lottery on NFL contests, but now planned to permit single-game lotteries on all professional league games, NASCAR events, and collegiate sport contests not involving a Delaware college.

The Third Circuit questioned Delaware's interpretation that because state law previously authorized a broad lottery encompassing many types of games and many sports, it could now institute a broad lottery with the expanded features. Instead, the Third Circuit agreed with the interpretation offered by the leagues that the exception applied only to lotteries or other schemes "to the extent" that such lottery or scheme "was conducted" by the State between January 1, 1976, and August 31, 1990. The appellate court agreed that it is not sufficient that a particular lottery may have been contemplated, or even authorized, but rather must consider the specific means by which the lottery was actually conducted.

The Third Circuit referred to the statutory language and found there to be a clear distinction between wagering schemes that were merely "authorized" and those that were "conducted." See 28 U.S.C. [section] 3704(a)(2) (which applies to a wagering scheme that was both (i) "authorized by a statute as in effect on October 2, 1991," and (ii) "actually was conducted during the period beginning September 1, 1989, and ending on October 2, 1991"). Regardless of the breadth of the lottery authorized by Delaware state law in 1976, PASPA requires a determination of "the extent"--or degree--to which such lottery was conducted in order to determine whether the scheme is exempted under PASPA

To determine what scheme Delaware could conduct in 2009 (as compared to the scheme Delaware actually conducted in 1976), the Third Circuit reflected on the well-known and often cited 1977 case of NFL v. Governor of Delaware. In NFL v. Governor of Delaware, the National Football League sued the State of Delaware to prevent the state from conducting an NFL-themed sport lottery, alleging trademark infringement. While the NFL was not successful in the 1977 case, the lottery scheme conducted by the State of Delaware in 1977 was well documented in the case. The only sports betting scheme "conducted" by Delaware in 1976 involved the three Scoreboard games. That betting scheme was limited to multi-game parlays involving only NFL teams. No single-game betting was "conducted" by Delaware in 1976, or at any other time during the time period that triggered the PASPA exception (NFL v. Delaware, 1977, p. 1385). Thus, the only sport lottery actually conducted by the State of Delaware between 1976 and 1991 was a three-game parlay lottery game involving only NFL contests.

The Third Circuit therefore held that any effort by Delaware to allow wagering on athletic contests involving sports beyond the NFL would violate PASPA. And, since single-game betting was not "conducted" by Delaware between 1976 and 1990, such betting was held to be beyond the scope of the PASPA exception and thus prohibited under the statute's plain language. The Third Circuit did, however, confirm that under federal law, Delaware could institute multi-game (parlay) betting on at least three NFL games, because such betting was consistent with the scheme conducted by the state in 1976. Delaware petitioned the United States Supreme Court to review the decision of the Third Circuit, but the Court denied the Petition For Certiorari on May 3, 2010 (Markell v. The Office of the Commissioner of Baseball, 2010).

Implications for Sport Managers and Marketers

The presence of gambling in sport is most commonly decried as a threat to the integrity of sport (Fecteau, 2003; Ostertag, 1992). It is estimated that Americans illegally wager between $80-380 billion annually on sporting events (Levinson, 2006). Faced with mounting budget deficits, states are looking for new revenue sources (Millman, 2009). Thus, it is not surprising that the State of Delaware would seek to benefit from American consumers' interest in sport betting. However, the professional sports leagues as well as the NCAA have vehemently opposed any form of gambling connected to the outcome of their sports contests. Interestingly, despite their vehement opposition to sport gambling tied to the outcome of their sport contests, the leagues are continuing to enter into their own marketing, sponsorship, and advertising relationships with gaming enterprises to increase team and league revenues.

McKelvey (2004) examined the relaxation of rules used by the major sports leagues to regulate advertising and promotional activities of the league and the teams. These relaxed rules are clearly evident in a number of recent marketing and sponsorship agreements. For example, the Milwaukee Brewers signed a multi-year sponsorship agreement with Potawatomi Bingo Casino. The team acknowledged the sponsorship will help offset revenues lost when another of its major sponsorship agreements concluded. The casino will display its logo on tickets as well as locations throughout the baseball facility (Associated Press, 2009a). Horseshoe Casino purchased rooftop advertising space at Wrigley Field to promote its new casino near the stadium. The casino also offered special transportation between Wrigley Field and its new location during its grand opening (Casino City, 2010).

Even the NFL, which has historically been the league most staunchly opposed to any association with gaming enterprises, has recently approved the use of team names and logos for state lottery tickets, with prizes including league-licensed merchandise and special event tickets. The NFL made the announcement on May 21, 2009. The following day the New England Patriots announced the team had negotiated a deal with the Massachusetts State Lottery, in which the team's logo is featured on a scratch-off lottery ticket. Other teams such as the Detroit Lions, Tennessee Titans, Buffalo Bills, and New York Jets and Giants have indicated interest in similar deals (Abelson, 2009; Associated Press, 2009b). Like league commissioners before him, NFL Commissioner Roger Goodell distinguishes between lottery tickets and sports books, arguing that lottery tickets are not tied to an NFL game's outcome and therefore do not comprise the game's integrity. Critics disagree and assert Goodell's concession was driven by the need for additional revenue sources to offset smaller sponsorship revenues in the economic downturn (Abelson, 2009).

The Third Circuit's decision is a good reminder that lotteries and even promotional activities tied to the outcome of a sports contest are problematic and that the leagues will aggressively seek to prevent these types of activities. However, clearly a number of marketing activities are still permissible under the law and desired by sports teams as well as sport consumers.

References

Abelson, J. (2009, May 22). Pats plan lottery tie-in after NFL eases stance. The Boston Globe. Retrieved from http://www.boston.com/business/articles/2009/05/22/pats_plan_lottery_tie_in_after_nfl_eases_stance/ Associated Press. (2009a, January 8). Brewers sign deal with casino.ESPN.com. Retrieved from http://sports.espn.go.com/mlb/news/storyTid=3819834

Associated Press. (2009b, May 21). Pats get lottery deal, other teams talking. ESPN.com. Retrieved from http://sports.espn.go.com/nfl/news/story?id=4197088

Casino City, Inc. (2010). Horseshoe Casino takes over Wrigley Field. Casino City, Inc. Casino City Times. Retrieved from http://www.casinocitytimes.com/news/article/horseshoe-casino-takes-over- wrigley-field-177772

Fecteau, M. P. (2003). All for integrity of all for naught: The battle over state-sponsored sports betting. Gaming Law Review, 7(1), 43-49.

Levinson, M. (2006, Spring). A sure bet: Why New Jersey would benefit from legalized sports wagering. Sports Lawyers Journal, 13, 143-178.

Markell v. The Office of teh Commissioner of Baseball, LEXIS 3712 (2010).

McKelvey, S. M. (2004, Winter). U.S. professional sport organizations policies shift to embrace legalized gambling entities: A role of the dice? Journal of Legal Aspects of Sport, 14, 23-41.

Millman, C. (2009, July 24). Sports leagues sue to block betting. ESPN The Magazine. Retrieved from http://sports.espn.go.com/espn/print?id=4353948&type=story

National Football League v. Governor of the State of Delaware, 435 F. Supp. 1372 (D. Del. 1977).

Office of the Comm'r of Baseball v. Markell, 579 F.3d 293 (3rd Cir. 2009).

Ostertag, T .J. (1992). From Shoeless Joe to Charlie Hustle: Major League Baseball's continuing crusade against sports gambling. Seton Hall Journal of Sports Law, 2, 19-49.

Professional and Amateur Sports Protection Act, 28 U.S.C. [section] 3701, et seq. (2010).

DISCLAIMER: Professor Anita M. Moorman, JD, teaches sport law in the sport administration program at the University of Louisville.

The materials in this column have been prepared for informational and educational purposes only, and should in no way be considered legal advice. You should not act or rely upon these materials without first consulting an attorney. By providing these materials it is not the intent of Professor Moorman to enter into an attorney-client relationship with the reader. This is not a solicitation for business. If you choose to contact Professor Moorman through e-mail, please do not provide her with any confidential information.

Inquiries regarding this feature may be directed to Anita M. Moorman at amm@louisville.edu.

Anita M. Moorman, JD, is an associate professor in sport administration at the University of Louisville, where she teaches sport law and legal aspects of sport. Her research interests include commercial law issues in the sport industry, and legal and ethical issues related to sport marketing practices, brand protection, and intellectual property issues in sport.