Betting on the NFL Goes on Trial (Part 1)

Cold, Hard Football Facts for Aug 30, 2012



This is the first in a three-part series that looks at the state of New Jersey's effort to throw a long bomb over the heads of federal gaming laws.

By Kevin Braig, Esq.
Cold, Hard Football Facts gaming law expert

Paging Sid Gillman ...

“Every fan who loves ‘the bomb’ should be grateful to [Sid] Gillman,” Ron Jaworksi, Greg Cosell, and David Plaut wrote in The Games That Changed The Games: The Evolution of the NFL in Seven Sundays.Chris Christie

Football fans in New Jersey who would like to make a bet on an NFL game without leaving their home state may say the same thing about Governor Chris Christie someday.

Last spring, Christie threw a bomb of his own when he announced that New Jersey will defy federal law and let Christie’s constituents bet on NFL games at Atlantic City casinos and the state’s horse-racing tracks, perhaps in time for the 2012 NFL season this fall.

The NFL—as well as the NCAA, Major League Baseball, the NBA, and the NHL—want Christie’s deep pass to fall incomplete. On August 7, those leagues filed a lawsuit in federal court seeking to stop Christie from completing his plan to bring sports betting to New Jersey.

In order to understand the NFL’s lawsuit, one first must understand Christie’s masterful design, which, philosophically, resembles Gillman’s signature play.

Christie’s announcement followed New Jersey residents’ approval by a 2-1 margin of a November 2011 ballot referendum that authorized the legalization of sports betting in the state.

“The voters of New Jersey have spoken, and he’s listening to them” Robert Griffin, CEO of Trump Entertainment Resorts, said after Christie made his announcement.

Like Christie, Gillman listened to the people when he took over the Los Angeles Chargers in the fledgling American Football League in 1960.

“People wanted to see us throw the ball,” Gillman said.  “They didn’t give a damn about who caught it, but they wanted that ball in the air.”

Christie definitely has put the sports betting ball in the air in New Jersey.

The Professional and Amateur Sports Protection Act—also known as “PASPA” or the Bradley Amendment after its sponsor, former New York Knicks star and New Jersey Senator Bill Bradley—is the federal law that prohibits the establishment of sports betting in any state that did not have such betting prior to passage of the Act in 1992.

In its unconventionality, Christie’s challenge to PASPA resembles the great design of Gillman and his philosophical successor, San Francisco’s master play designer, Bill Walsh, who once said Gillman’s play designs were “the foundation of my philosophy on offense.”

“The NFL was a ground-oriented league in the 1960s,” Jaworski and his co-authors wrote in The Games That Changed The Game of the era when Gilman thrived, “so the AFL decided it could attract fans by passing—a lot.”   

As the AFL did, Christie’s and Monmouth Park’s bold intentions to pass over the top of PASPA and establish NFL betting in New Jersey without first asking a court for permission to do so has attracted fans. 

“I love the idea of playing offense…,” said Tony Rodio, the president of Tropicana Entertainment.

While Rodio has good reason to like Christie’s play design, the executive is a little confused as to which side will be on offense and which side will be on defense in the federal courtroom where the game to change the sports betting game will be played by the NFL and New Jersey.

In the courtroom, the best offense is a good defense.

On the football field, Vince Lombardi and others believed the best defense is a good offense.

In the courtroom, however, the opposite is true: The best offense is a good defense.

“We intend to go forward and allow sports gambling to happen, and if someone wants to stop us, then they’ll have to take action to stop us,” Christie said when he announced that New Jersey intended to begin permitting its residents to bet on NFL games in the face of PASPA. 

“Now, am I expecting there may be some legal action taken taken against us to try to prevent it? Yes,” the Governor said.  “But that’s going to be their burden to try to prevent it.  That’s why we’re doing it the way we’re doing it.  So I have every confidence that we’re going to be successful.” 

Some legal scholars have criticized Christie’s strategy and advocated that New Jersey should go on the offensive in the courtroom, rather than in its casinos and at its race tracks.

“What the governor should have done in my view is either file a lawsuit or ideally file a declaratory judgment action, just asking a federal court to please let us know ahead of time before we build this up and license this process out to go ahead and tell us whether or not PASPA prohibits us from doing what we want to do,” sports law professor Jeffrey Standen of Willamette University said on Chad Millman’s June 27, 2012, Behind the Bets ESPN podcast.

“I thought it was bizarre, really, for Chris Christie to say, ‘OK, come and get me coppers,’ to violate a major federal antigambling statute,” Whittier Law Professor Nelson Rose told the Philadelphia Inquirer.  “It certainly is bad lawyering.”

But there is a different way to look at Christie’s strategy that suggests his design is not “bad lawyering,” but rather  is the only way that dramatic, systemic change is achieved.

In football terms, Standen’s and Rose’s recommendation that Christie ask for permission to establish betting on NFL games before New Jersey attempts to do so is tantamount to a recommendation that the Governor run the ball into the teeth of a defense stacked with eight men in the box that has been designed specifically to stop any running play.

Gillman and Walsh did not change offensive NFL football by taking such a conservative approach.

Moreover, Gillman and Walsh did not change the way NFL offenses acquire territory by timidly seeking permission to do so.  Rather, those master play designers dared to employ aggressive, unconventional designs that boldly took the territory they wanted and dared opposing defensive coordinators to stop them.

Likewise, Christie will not change the status quo and break Nevada’s monopoly hold on legal betting by politely asking whether the federal government’s grant of a sports betting monopoly to Nevada violates the United States Constitution’s Commerce Clause or whether PASPA violates the Tenth Amendment by encroaching too far on the states’ traditional role as the primary regulator of gambling.

Sure, at some point, if Christie and New Jersey prevail in the NFL’s lawsuit, the court likely will say that PASPA is unconstitutional in order to make everything look tidy. 

But, since New Jersey has entered this game as a defendant and not as a plaintiff, Christie may not have to prove PASPA is unconstitutional in order to establish legal betting on NFL games in New Jersey.

Christie’s bold contrarian play design may yet fail.  But his play design appears to bear the signature characteristic of a master play designer.

By ensuring that his state will enter the courtroom to debate the legality of betting on NFL games in New Jersey as a defendant, Christie may have enabled his state to take advantage of what several law professors have called “an American revolution” that has been quietly unfolding in federal courthouses since the United States Supreme Court decided a fairly unremarkable patent case in 2006.

In order to stop New Jersey from permitting its residents to bet on NFL games, the NFL will have to obtain a permanent injunction. 

In eBay, Inc. v. MercExchange, L.L.C., the Supreme Court held that to obtain such an injunction, the federal government must show:

  1. that it has suffered an irreparable injury;
  2. that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
  3. that, considering the balance of hardships between the plaintiff and the defendant, a remedy in equity is warranted;
  4. and that the public interest would not be disserved by a permanent injunction.

In a law review article published in the Columbia Law Review just prior to Christie’s announcement, three distinguished law professors—Mark Gergen of California-Berkeley, John Golden of Texas, and Henry Smith of Harvard—noted that the Court’s eBay decision has had a “cataclysmic effect” and caused “far reaching changes.”

“In federal courts throughout the country,” these three professors stated, “and for violations of almost any kind of statutory, regulatory, or judge-made law, the four factor test from eBay has overrun and abrogated prior judicial approaches, all in the name of restoring traditional equity practice.”

The “revolutionary” eBay standard, however, does not apply when a plaintiff initiates a declaratory judgment action.  Thus, by exercising discipline, restraint, and patience, Governor Christie may have obtained a design advantage for New Jersey.   

According to these three professors, the rules of the game that will govern the NFL’s attempt to stop New Jersey residents from betting on NFL games changed after eBay.

In their complaint, the NFL and the other sports leagues and associations alleged that PASPA recognizes “the fact that the spread of state-sponsored gambling on the outcome of sports events would irreparably harm sports leagues and organizations like … the NFL ….”

However, Congress clearly did not state anywhere in PASPA that it found the spread of sports betting to states such as New Jersey would cause irreparable harm to the NFL or any other league or association.  Contrary to the NFL’s complaint, the statute simply does not say that.

Moreover, since the Supreme Court handed down its eBay decision, most federal courts of appeals have held that in assessing the possibility of irreparable harm, courts must not presume that the plaintiff will suffer such harm, but rather must make an independent determination based on the evidence without the aid of a “thumb on the scale” in favor of issuing an injunction.

In other words, if the NFL and the other leagues and associations are going to stop Christie’s sports betting play, they are going to have to prove irreparable harm and that stopping the expansion of sports betting to New Jersey is in the public interest.  As in an NFL football game, the referee is not going to give the game to the NFL.  Rather, the NFL will have to earn any win.

How will the NFL prove that permitting New Jersey residents to bet on NFL games will cause irreparable harm under PASPA when the statute permits residents of Nevada to bet on the exact same games?

How will the NFL prove that the public interest would not be disserved by stopping New Jersey residents from betting on NFL games when those residents recently voted by a 2-1 margin in favor of a constitutional amendment authorizing the same betting?

State Senator Raymond Lesniak (D-Union), one of the champions of New Jersey’s effort to establish sports betting in the Garden State and an attorney, does not think the NFL can meet these burdens.

“There’s no way the leagues could prove irreparable harm,” Lesniak reportedly said on August 16.

In their law review article, the three law professors stated that the result of the Supreme Court’s eBay decision is “a threat of extended uncertainty as many lower courts discard established approaches to injunctive relief and begin working from a relative tabula rasa.”

Both Gillman and Walsh took advantage of a similar tabula rasa to achieve success.

In time, Gillman’s and Walsh’s offensive play design became the most duplicated blueprint for success in NFL history.

It’s a copy-cat league … and country.

If Christie’s bold new play design to establish legal betting on NFL games in New Jersey is successful, it will not take long for other states in the U.S. to copy his approach and for new sports books to establish operations in those states.

Indeed, the copying and infiltration already has begun.

On May 29, the California Senate passed by a 32-2 margin a bill that would permit licensed gambling establishments such as race tracks—including those at Del Mar and Santa Anita—and  tribal casinos to offer sports betting in the Golden State.  According to the bill sponsor’s consultant, the bill is “enjoying bipartisan support” in the California legislature, where it awaits a hearing in the Assembly Appropriations Committee.

California Governor Jerry Brown has not indicated if he will sign the bill if it passes both houses. However, a recent Field Poll showed a majority of registered California voters - 58 percent to 35 percent - support legalization of sports betting.

Like almost every other state, California and New Jersey face daunting budget deficits that threaten the jobs of many of their public employees.  Gaming analysts estimate that legal sports wagering would add $120 million annually to New Jersey’s coffers.

As a result, New Jersey’s and California’s aggressive moves to legalize sports betting created tremendous political pressure for the federal government to remain passive in the face of Christie’s challenge to PASPA.

It clearly appears that William Hill PLC, the British sports bookmaking company, agreed.

Since its founding in 1934, William Hill has grown to be the largest bookmaker in Great Britain—where such business activity has long been legal—with over 2,300 licensed betting offices throughout the country.  The company went public and has been listed on the London Stock Exchange since 2002. 

Yet, for over 75 years, William Hill never sought to expand its operations to Nevada.

That ended in April when William Hill purchased three Nevada sports books—Leroy’s, Lucky’s, and Club Cal-Neva—for approximately $55 million.

Does William Hill’s sudden attraction to those three sports books indicate that it is interested merely in colonizing the already ultra-competitive Nevada market?

Perhaps it indicates no more than that.  But it seems unlikely that simply becoming another sports book in Nevada would be enough to draw William Hill across the Atlantic Ocean now after decades of confining itself to comfortably servicing punters in merry old England.

More likely, William Hill is betting that the United States sports betting market will expand beyond Nevada’s monopoly in the not too distant future just as former Enron Corporation—yeah, that Enron—executive John Wing bet in the late 1980s that Prime Minister Margaret Thatcher would conquer the coal monopoly long held by the miners’ union in Great Britain.

“To Wing, the next big opportunity—the place where Enron could make a spectacular amount of money—was not in the United States but abroad,” Bethany McLean and Peter Elkind wrote in The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

“Specifically, it was an industrial region in northeast England known as Teeside, England: where coal was king, where power plants were built by state-owned British utilities, and where gas-fired plants were not only unheard of; they were illegal.  But never mind all of that.  John Wing was convinced that the best prospects were in in England, so that’s where he headed.”

As McLean and Elkind pointed out, Wing was making a contrarian bet “that was rooted in powerful logic and exquisite timing.”

“What he realized was that England was poised to begin deregulating its energy industry, just as the United States had done a decade before,” McLean and Elkind wrote.  “Ronald Reagan’s great ally, Prime Minister Margaret Thatcher, was still in power, rapidly moving her country away from government monopolies and toward free-market economics.  An American company that got in early—a company that was willing to work with the government—would serve as a poster child for the benefits of privatization.  Wing thought Enron ought to be that company.”

Similarly, it appears that William Hill thinks that it ought to be that company—or at least one of those companies—in the context of sports betting in the United States.

In April of 1993, Wing and Enron got their gas-fired power plant at Teeside.

Initially, the Teeside power plant, which provided about three percent of Great Britain’s electricity needs, was hugely profitable due to Wing’s creative financing—Enron’s 50 percent equity stake in Teeside was granted in return for the company’s role in conceiving the plant and serving as general contractor.  In other words, Enron laid out almost no cash for the project and still owned half of a plant valued at $1.6 billion.

In the long-run, however, bad deals with suppliers who provided gas to the plant from the North Sea turned against Enron and contributed to the intense financial pressure that drove future Enron executives Jeffrey Skilling and Andrew Fastow to take greater and greater risks and, ultimately, engage in the extensive fraud that destroyed Enron in a super nova-like burst.

But that could never happen to the NFL even if Christie’s bold play design succeeds and New Jersey and other states join Nevada in offering legal betting on NFL games.

Could it?

NEXT:  In the second of a three-part series, the QuantCoach examines how the Chicago “Black Sox” sold short in the 1919 World Series and whether similar events could occur, be detected, and harm the NFL in the 21st Century if legal betting on NFL games expands to New Jersey and perhaps other states beyond Nevada’s borders.   

***

Kevin P. Braig is a partner in the litigation department at Dinsmore & Shohl, LLP, in Columbus, Ohio, where he is a member of the firm’s Gaming Law Group. Mr. Braig has frequently served as lead trial counsel in complex cases in federal court seeking injunctive and other equitable relief during his 19-year career as a litigator.  In addition, he has counseled clients on legal issues relating to charitable gaming and fantasy sports.  In 2004, his article “A Game Plan to Conserve the Interscholastic Athletic Environment After LeBron James” was published in the Marquette Sports Law Review.  In 2007, the Florida Student Athlete Recruiting Task Force and the Florida Office of Program Policy Analysis and Government Accountability recommended modified versions of some of the article’s proposed reforms to the Florida state legislature for inclusion in legislation governing high school recruiting in Florida.  In 2008, his article “Quantifying NFL Coaching: A Proof of New Growth Theory” was published in the Journal of Quantitative Analysis in Sports.


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