March 2018

Marching Through the Madness – Legal Issues Surrounding Your Bracket Pool

By Daniel De La Cruz

Sheppard, Mullin, Richter & Hampton LLP

Most people understand that betting on sporting events is illegal in California. However, these same people tend to gloss over this fact when March rolls around. At the risk of becoming a social outcast, participating in March Madness, the NCAA’s College Basketball Tournament, whether in a group of friends or an office pool, is now the norm. Not to put a damper on all the fun, but the legality of this participation is tenuous at best, and criminal at worst.

In California, participants of betting pools with $2,500 or less at stake may be charged with an infraction, punishable by a $250 fine. Cal. Pen. Code § 336.9. If more money is at stake, the punishment becomes heftier. A first-time offender who makes or participates in a betting pool of more than $2,500 can be charged with a misdemeanor, punishable by up to one year in jail and a $5,000 fine. Id. § 337a(a). Repeat offenders could be charged with a felony, punishable by up to one year in jail and a $15,000 fine. Id. § 337a(c).

Under federal law, three main statutes exist that may prohibit participation in March Madness pools. The first such statute is the Interstate Wire Act of 1961, which prohibits individuals from being “engaged in the business of betting or wagering [through the knowing use of] a wire communication facility for the transmission in interstate or foreign commerce.” 18 U.S.C. § 1084(a). The second statute is the Uniform Internet Gambling Enforcement Act of 2006, which prohibits individuals “engaged in the business of betting or wagering [to] knowingly accept” funds in connection with the participation of another person in unlawful internet gambling. 31 U.S. § 5363.

The third and most important statute is the Professional and Amateur Sports Protection Act (“PASPA”), which was enacted expressly to prohibit participation in sports betting. Under PASPA, a person may not operate a wagering scheme based on a competitive game in which professional or amateur athletes participate. 28 U.S.C. §§ 3701-3704. The law further prohibits states from passing laws that are intended to legalize sports betting. Four states – Delaware, Montana, Nevada, and Oregon – which already permitted sports betting at the time the law was passed, are exempt from the law.

In 2011, the New Jersey legislature held a referendum asking New Jersey voters whether sports betting should be permitted, and 64 percent voted in favor of amending the New Jersey Constitution to permit sports betting. As a result, the state legislature enacted the Sports Wagering Act to codify regulations pertaining to sports betting and wagering.

Five sports leagues, including the NCAA, sued to enjoin the state law as violative of PASPA. Christie v. Nat’l Collegiate Athletic Ass’n, Case No. 16-476. The sports leagues prevailed at the district and appellate court levels, and, on December 4, 2017, the Supreme Court heard oral arguments in the case. Briefing and argument focused primarily on two legal doctrines: pre-emption and commandeering. Under the doctrine of pre-emption, Congress can essentially override a state law on a particular subject because Congress has been vested with the power to regulate that area to the exclusion of the states. See McCulloch v. Maryland, 17 U.S. 316 (1819). Under the doctrine of commandeering, however, Congress may not compel a state’s legislative process to enact and enforce a federal regulatory program. New York v. United States, 505 U.S. 144 (1992).

The debate, then, is whether PASPA constitutionally preempts state laws regarding sports betting, or whether PASPA unconstitutionally commandeers state legislatures to prevent them from passing laws to legalize sports betting (thereby enforcing a federal policy of prohibiting sports betting).  To be sure, the distinction is hazy and seems to pit the two doctrines against one another. Nevertheless, the Supreme Court will ultimately be tasked with determining whether PASPA will remain the law of the land, or whether states will get the final say in legalizing sports betting.

Eighteen states submitted amici curiae briefs in support of New Jersey’s efforts to strike down PASPA. California was not one of them. However, gaming experts believe that California would authorize sports betting – if given the opportunity – by 2025. As it stands, however, sports betting remains illegal in the state.

If you aren't keen on the whole March Madness thing, these issues likely do not impact you.  On the other hand, if you filled out a bracket this year, think about rooting for the state of New Jersey for a change.