Instant Expert Legal Analysis Of The Federal Sport …

On a Wednesday, exactly six days before Christmas, Sens. Orrin Hatch (R-UT) and Chuck Schumer (D-NY) elected to drop a 101-page federal sports betting bill on the world.

The bill closely follows a discussion draft circulated weeks earlier. While it was known that the previous draft had input from more than just Hatch, there was confirmation Wednesday that Hatch’s writing partner was indeed Schumer.

This is the first of a two-part look into the federal sports betting bill.

Before we get too excited

The bill notes that two readings are required before it can be sent to committee, so do not expect the bill to become law overnight. This draft bill is likely the start of a conversation regarding federal governance over some aspect of sports betting.

The bill’s purpose is hard to say with a straight face for states’ rights advocates:

To acknowledge the rights of States with respect to sports wagering and to maintain a distinct Federal interest in the integrity and character of professional and amateur sporting contests, and for other purposes.

Nonetheless, this was alluded to on the first page of the discussion draft.

The findings section

The key changes to the findings section include the wording in finding No. 9 (10 in the discussion draft, but six and seven were combined in the submitted bill). The finding reads:

All forms of gaming have historically been regulated predominantly at the State level, but sports wagering, which often involves individuals across numerous States placing sports wagers on a sporting event that takes place in yet another State, affects interstate commerce more than other forms of gaming that are generally contained within the walls of a gaming establishment.

This is a significant addition as it likely was included to head off an isolated betting market that Justice Clarence Thomas alluded to as not implicating interstate commerce.

I happen to think Justice Thomas is right, that betting does not, by default, implicate interstate commerce, but these findings are normally taken without much scrutiny by courts in justifying the exercise as a constitutional use of the government’s Commerce Clause powers.

The definitions section

The definitions section of the bill saw a number of additions, including the definitions of “gambling disorder” and “anonymized sports wagering data.” A few definitions are missing from the federal laws and these include “sporting event” (relevant to the Wire Act), which is defined as “any athletic competition.”

For the first time, we have a federal definition of “sports wager.” This could be important moving forward and might be a move away from our painful skill-versus-chance debate.

IN GENERAL.—Except as provided in subparagraph (C), the term “sports wager” means the staking or risking by any person of something of value upon the outcome of a sporting event, including the outcome of any portion or aspect thereof, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.

The definition of “sports wagering” has also been changed from the draft in that it now only applies to the acceptance of a sports wager by a sports wagering operator. This type of definition, where it is designed to fit the bill as opposed to a workable, common-sense definition, has the potential for trouble down the road.

For instance, the bill’s definition of sports wagering does not include wagers placed with non-licensed operators. It is unclear what the thinking is here, but this causes potential problems.

Title I — Sports Wagering

The filed bill contains a federal ban on accepting sports wagers (by those not complying with state social gambling laws or otherwise licensed.)

This is a big deal. Federal statutes in the sports gambling realm have almost exclusively dealt with those in the business of betting. This does not require a business component.

Is this constitutional as a valid type of Commerce Clause legislation? Maybe, maybe not. This is a major (on paper) intrusion to the domain of the states.

Gone is the explicit requirement that the transaction takes place in interstate commerce (or across state lines). As with the draft bill, illegally accepting sports wagers is a civil penalty, as opposed to a criminal provision.

While this bill has only a civil penalty, it does not foreclose on criminal penalties under the Wire Act, the Illegal Gambling Business Act or other federal criminal statutes.

Attorney general approval

This version of the bill maintains the attorney general approval system of state sports wagering programs. The constitutionality of this provision likely comes down to the implementation regulations.

For example, if the attorney general’s office has a checklist of things that states need to do to offer sports wagering, which is likely a valid exercise. However, if the attorney general is given the unfettered ability to approve or deny applications in an arbitrary manner, then this bill may have some constitutional deficiencies.

Conceivably, those standards would be determined by the conditions set forth in Section 103 of the bill, which include:

  • Geo-blocking technology
  • Acceptance of wagers only on certain types of events
  • An ability for organizations to request restrictions on the types of wagering

Prohibited bettors

There is a big addition to the “prohibited bettors,” which now includes those “credentialed or accredited by the sports organization; and prohibited from placing a sports wager by the terms of such credential or accreditation.” It is not yet known if some teams will implement such restrictions, but there might be some nervous journalists.

The other significant addition to the prohibited bettors' class is relevant to anyone convicted of a violation of the Sports Bribery Act. This is currently a small group of people, but nonetheless, a lifetime ban on violators ever wagering again is likely a severe punishment for match-fixers.

This provision has a chance to establish some fascinating case law regarding the “right to bet,” though as a practical matter is of very little consequence.

Official data mandate

Congress has elected to extend the period for required official data for two years longer than in the discussion draft. This provision continues to be nonsense, but likely stems from concerns about giving sports leagues an indefinite property right to sports data.

There remain First Amendment issues regarding this provision, and I would expect major media outlets to grow concerned about the government mandating the use of a particular source of information if this bill moves forward.

This provision sets a dangerous precedent for the government to interfere with the free market for information. There would be a slippery slope, Orwellian in nature, if a bill were to pass with such a provision.

Responsible gambling

Title I of the bill further mandates that operators set aside “an appropriate percentage of the revenue for sports wagering” for treatment of gambling disorders and education about responsible gambling.

The draft bill continues to contain provisions that may make those daily fantasy sports companies who operated in prohibited states or offered contests based on a single event nervous, as the bill appears to deem such entities unfit for licensing.

It is unclear what effect this might have for Major League Baseball, as a partial owner of DraftKings, if DraftKings were deemed unfit for operating in Texas or having contests based on a single round of a golf tournament.

Would MLB be eligible to reap the rewards of the official data clause while being ineligible to get a license? Such a result would seem perverse.

Additional items

The bill maintains a lot of the common-sense recordkeeping provisions that appeared in the draft. These provisions are things that nearly all reputable sports books already do, but codifying best practices may serve to force the few outliers into compliance.

The filed bill continues with the draft’s requirement that there is a mandate to report suspicious transactions for sports wagering operators. Banks must comply with similar requirements.

Again, as was noted with the draft, there is no reciprocal obligation on the sports leagues to notify the National Wagering Commission. That obligation has been proposed so that sportsbooks can be aware of potentially corrupt games. Such a one-sided commitment is not helpful to the integrity of the market, particularly when MLB remains part owner of a sportsbook.

Clearinghouse information

The National Sports Wagering Clearinghouse proposed in the bill would represent the interest of the sports betting universe. The clearinghouse would be responsible for, amongst other things:

  • Serving as a resource center
  • Coordinating public and private sports wagering interests
  • Disseminating best practices information
  • Disseminating anonymized data to state regulators

This organization would be funded with the lesser of $3 million or the revenue collected during the previous year from the 0.25 percent federal excise tax on sports wagering for the years 2019-21.

In Part 2 tomorrow, we look at the four other provisions of the bill.


The post Instant Expert Legal Analysis Of The Federal Sports Betting Bill – Part 1 appeared first on Legal Sports Report.

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