Good Law | Bad Law #95 - Game on! After a historic Supreme Court decision, sports betting is a go. w/ Chris Soriano
Aaron Freiwald: Welcome back to Good Law Bad Law. My guest on today's episode is Chris Soriano he's a partner at the Duane Morris firm and his specialty is gaming law and no he doesn't just sit in his office and play video games. He's really an authority on sports betting and the gaming industry in general. And we're talking about a very important sweeping Supreme Court decision that came out in May of this year that is changing the landscape of casino betting racetrack betting and online betting all across the country. This is the start of the professional football season first weekend of games. You're not going to want to miss a fascinating conversation on how sports betting has completely changed a formerly 15 billion dollar industry. And it's I think only going to get bigger and bigger after this important Supreme Court decision. Chris is a great guest. Fascinating conversation. I know you'll enjoy.
Aaron Freiwald: My guest today on Good Law Bad Law is attorney Chris Soriano and we're talking about the recent Supreme Court case that in effect legalized sports betting sports gambling across the country. So first of all Chris thanks so much for being here and being on the program.
Chris Soriano: Thanks so much for having me Aaron. This has been really exciting.
Aaron Freiwald: Yeah this is really exciting for anybody who's interested in sports and I think that's just about everybody and the large number of people interested in sports who've been waiting for this Supreme Court to rule on a case that in effect legalizes sports betting across the country and you have a particular background in this and expertise in this I thought would be great to have you here to talk about how this came about and what this means for sports fans and those interested in this type of betting which I think is a lot of people right. This is this is not a small group of people that are interested in this.
Chris Soriano: This is not at all a small group of people if you've ever been or if any of your listeners has ever been to a casino in Las Vegas during the Super Bowl or during March Madness or some other major sporting event. You see how hard it is to get near a sportsbook and how difficult it is to get a bet in and how you know I'll give you for example. I was in Las Vegas for a convention last year and it was a Monday Night Football game and we had gone over to one of the restaurants that's also a sports betting lounge. In order to get a table during a Monday Night Football game there's a minimum 150 dollar food and beverage for each person sitting at the table. That's how popular it is to get a table in a restaurant where you can also bet on sports. So now imagine that that's now just not in Las Vegas. That's in Atlantic City and that's in Philadelphia. And that can be in so many different places and you can get some sense of the scope of what's actually going on here.
Aaron Freiwald: Well we have to talk about how it is that sports betting has been allowed in Las Vegas as an exception to a law that the Supreme Court invalidated and declared unconstitutional but we'll get to that in a moment. First I want to get to you and your background. So tell us a little bit Chris about about yourself and your background and how you got involved in this issue.
Chris Soriano: Sure. Well I introduced myself as as a gaming lawyer and people look at me and they say no and they say what's what kind of law do you practice and I say I'm a gaming lawyer and I often just get a blank stare and they're like well what do you mean.
Aaron Freiwald: It sounds like you play games.
Chris Soriano: You play games or video games really you know what are you actually doing. I've been accused of playing games in other areas of my practice before but.
Aaron Freiwald: Hopefully not by a judge.
Chris Soriano: I never by a judge but I dispute any such allegation I will say. But I grew up in New Jersey I grew up near the racetrack in North Jersey actually and it was just something it was always interesting a topic that was always interesting to me. You know we you saw legalized gaming expanding in New Jersey you would read a lot about it. It was just something that I found interesting. I went to law school with no intent of being a gaming lawyer. I thought I was going to be a traditional litigator. And when I started working at the Wolf, Block, Schorr, and Silas-Cohen firm back in 2003 which that firm is no longer with us the firm had a gaming law practice which was a small group of lawyers who got involved in gaming because of because they were active in New Jersey politics in the late 1970s early 1980s when gaming when gaming first became a part of New Jersey law.
Aaron Freiwald: And we're not far from Atlantic City here in Philadelphia so that also makes sense.
Chris Soriano: Right. So the opportunity came up and it was it was interesting it was one of those first week on the job emergencies where anyone who had a law degree was needed in a conference room to help out with a project. And I walked in and it was a big gaming law project with the gaming law group. And I thought to myself wow there's a whole area of law that surrounds this.
Aaron Freiwald: Yeah.
Chris Soriano: And I became friendly with those lawyers and started more and more practicing in the field of gaming which is as it's been growing and as we've now gotten into things like internet sports betting and moved on from you know 2003 when I first started doing this really you still had Atlantic City and Connecticut and Nevada and not much else in terms of legalized gaming. Now when you look at legalized gaming and how it's expanded it's expanded both territorially where you've got so many different states that have forms of gambling. But it's also expanded in scope beyond the lottery and beyond horseracing. Now you've got larger scale casinos in a lot of places and you've got Internet you've got sports and you've got E-sports you know people betting on videogames and all these new cutting edge areas of gaming law that have really made our practice grow and have really been exciting to watch and to apply things that you see going on in the everyday world into the gaming field and to see where the industry's going has really been interesting. It's a neat practice.
Aaron Freiwald: And now you're at the Duane Morris firm in their new jersey office is that right.
Chris Soriano: I am actually our entire practice our entire gaming law practice. When the wolf block firm dissolved in 2009 we joined Duane Morris as a group as did our entire office in Cherry Hill and so we've been practicing at Duane Morris now for the last nine years.
Aaron Freiwald: Gotcha. OK so let's set the let's set a little bit of the scene with some history because we need to understand how this law comes about in the first place. The law that the Supreme Court took on in this decision that came down at the toward the end of the Supreme Court's term in the spring in May and it's a it's a law called the Professional and Amateur Sports Protection Act that was passed I think in 1992 with one of the lead sponsors being former New Jersey Senator Bill Bradley obviously also a former professional basketball player. So and if anybody is a fan of The Godfather movies which I am you know a little bit of the background of how places like Las Vegas got started. So set the scene a little bit for this important case and with some of the background as it relates to sports gambling particularly.
Chris Soriano: Sure. So as I alluded to a little bit earlier let's let's rewind the clock and take a look at what the state of gaming in the United States looked like in let's say the late 1980s early 1990s. There were only two shows in town you only had casino gaming in the United States in Nevada and in New Jersey. And that was it. They were the only two places where you could go and place a casino wager in the United States. Now in the late 1980s early 1990s you're starting to have some discussion about the tribes becoming recognized in Connecticut to offer sports wagering. And you're starting to have other states to offer casino gaming not sports wagering per se. You're starting to have other states take a look at legalized gaming and say well if Nevada and New Jersey are making all of this revenue why aren't we. Because you've got tax revenue you've got jobs you've got all those things and so there's they're starting to develop a bit of an inquiry around the United States by state legislatures about well why don't we have some form of legalized gaming.
Aaron Freiwald: How do we get on that.
Chris Soriano: How do we get in on it and also keep in mind that there was always the view that you know it's the slogan today what happens in Las Vegas stays in Las Vegas. There was always the view. I think culturally that Las Vegas you know Sin City it's there if you want to go engage in because there are large portions of the country to this day still view gaming as it is an immoral thing that should be prohibited. And that's certainly a viewpoint that that's out there and that holds a lot of sway in a lot of places. So the view I think was always well Las Vegas is there if people want to go sin and they can go to Las Vegas and sin all they want. Well then New Jersey legalizes gambling.
Aaron Freiwald: Which was huge.
Chris Soriano: Which was huge it was a sea change.
Aaron Freiwald: The creation of a casino business industry really.
Chris Soriano: Yeah.
Aaron Freiwald: First of all we wouldn't probably have a President Trump among many other consequences if not for Atlantic City.
Chris Soriano: Absolutely absolutely So Atlantic City opens in 1978. Now Atlantic City's been open for say 10, 12 years and I think a bunch of states start looking around and saying well you know what. The sky hasn't fallen like they you know. It's like from the musical The Music Man. You know somebody think of the children like protect the kids all that the world hasn't fallen apart. The mob has not taken over the casino industry. People are using it has it has resulted in increased tourism in New Jersey and Atlantic City and maybe it's not so bad. So let's start looking into it. And once that starts to happen the professional sports leagues and their very powerful government affairs folks start looking at this and saying well here's our concern. Our concern is the expansion of sports wagering even if it's legalized sports wagering will lead to the negative perception of our games the belief that that kicker didn't miss that game winning potential game winning field goal because he shanked it. He missed that potential game winning field goal because that would have changed the results on the spread and somebody got to him.
Aaron Freiwald: Right.
Chris Soriano: And if we have that this is the league's position if we have that taint that potential taint over our games that's going to undermine our games. People aren't going to want to watch our games.
Aaron Freiwald: That ref didn't make just a bad call. They made an intentionally bad call.
Chris Soriano: Right.
Aaron Freiwald: To affect the outcome.
Chris Soriano: And their view is the appearance of impropriety is enough to undermine the public's confidence in their games and all they have going for them is their games and so if they can't maintain that confidence they run the risk of undermining the value of their product. So what they say is this sports betting is subject to a bunch of criminal laws and the underground sports betting that's taking place and is still taking place to this very day. It is out there and everybody knows it's out there and there's federal and state criminal laws in place to try to stop it. And we think we the sports leagues think that there's enough going on there that we're able to keep that in check. But our concern is if this legalized sports wagering expands throughout the country into these new states that are considering gaming then they'll be more and more sports wagering and more and more opportunity for people to do something untoward with respect to our state. So they go to Congress through Senator Bradley who is the primary sponsor and they get this statute enacted and then this statute goes on the books. As you said in 1992 and it becomes the law of the land and through and it stops the spread of legalized sports wagering by doing some pretty interesting things that ended up leading to its undoing. In terms of how statutes work.
Aaron Freiwald: Well let me throw a couple of numbers out to just to give people a sense of the scope of this the enormous scope of this and this is covered in what constitutionally is a pretty dry Supreme Court case it's the case of Murphy versus the NCAA the National Collegiate Athletic Association. But the sections that talk about the history of gaming and sports betting in particular are pretty fascinating. And as we always do we'll post a link to the opinion of people on it. Take a look at it. But we talked about Atlantic City and the changes there with Las Vegas being all the way on the other end of the country the creating of a gaming casino industry in Atlantic City turned Atlantic City I'm reading right from Justice Alito's his own words in the opinion turned Atlantic City into the most popular tourist destination in the United States. I mean the impact on Atlantic City and New Jersey generally was enormous. And you know you mentioned the underground sports betting market. I think it's in this opinion to the court talks about a 15 billion dollar black market economy in sports betting that in effect was created by outlawing gaming through this 1992 law. So this is huge
Chris Soriano: You're talking huge amounts of numbers. And let me and you know we'll get into it I'm sure in more detail. Let me point out the other interesting thing about where the revenue comes from in sports betting because I think it's important to keep in mind the actual sports betting is interesting in a couple ways one the actual revenue to the casino just from the sports betting is not a large portion of the casinos overall revenue. Because if you think about it you're taking in a whole bunch of bets but you're paying winners and oftentimes you're going to try to have your actions split close to the middle so that no matter what happens you have the opportunity to pay your winners without the casino potentially losing its shirt. So the margin on sports betting the average the amount that the casino keeps of each dollar is about five cents. It's only about a 5 percent gross margin on on sports betting which is you know slot machines it's typically 10 to 12 in some states it's even higher. Table games it's only around 1 to 2 but the volume is so much higher
Aaron Freiwald: Is that right. I never win at blackjack. They're making some money on me.
Chris Soriano: It's over. Remember that's over a million. That's over the law of averages over a million hands in one night at the casino. That law of averages can be very very different. I think it's happened to all of us. We've all been outside the realm. But you've got something that also sports betting costs a fair amount of money to offer. You've got to have a sports wagering lounge you've got to have tellers you've got to have TVs for the signal so the overhead on it is pretty high. The casino can lose at sports betting the casino cannot lose in the long run and slot machines or blackjack or anything like that because the casino's always there. You could go in and you could win the million dollars on that slot machine but that slot machine over its lifetime will take in far more than the million dollars it paid you. That's just simple math and the fact that the machine is there. So you say you've got that. The casino by setting a bad line or by setting a bad point spread or mismanaging the odds can actually lose money by not having the action balanced on both sides so there's some risk in the game for the casino as well which makes it kind of different from a normal casino game. What I'm getting to though is the real revenue that a casino sees from sports betting is not just that 5 percent. It's the fact that you've now got people in the door who otherwise wouldn't be in the door. So if you think about Atlantic City you think about you know now you know we're in September it's still a pretty busy season between Memorial Day and Labor Day in Atlantic City if you run a casino and you can't make money. You don't deserve to be in business because you've got the beach you've got people there nonstop you've got the concerts you've got the entertainment that first Sunday in February when it's about 25 degrees out you can go on a casino floor in Atlantic City and swing a fish not hit anyone. Now if I'm a casino and I can now take bets on the Super Bowl and do all sorts of creative wagers and I can do themed events around the wagering that I was taking and I can promote or I can do it during March Madness. Where also I don't know where I've got those thousand rooms but nobody's staying in them. Now I can bring in a bunch of people to go see a show stay in the restaurant watch the Super Bowl and bet on it and do all of those things. So capturing that revenue that revenue is huge because now I've got people in the door who otherwise wouldn't have been in the door. And maybe they'll play in the casino and maybe they'll go to the restaurant and maybe they'll do all these things but they're the kind of people who want to bet on sports and maybe don't like playing casino games but now they're still here using my amenities.
Aaron Freiwald: So the casinos were I'm sure very interested in seeing this 1992 law done away with.
Chris Soriano: You know the casinos were very interested in it. But the real driving force behind it in New Jersey were the racetracks. So the one of the named parties the casinos the New Jersey Casino Association is the trade industry that the trade group that represents the casinos in New Jersey. Interestingly enough they did not take a position in the litigation. The litigation was brought by the state of New Jersey really really was brought by the leagues. I know the names get reversed for the Supreme Court but to simplify it the case was brought by the League to stop the state of New Jersey from legalizing sports wagering the state in the name of the governor or the director of the Division of Gaming Enforcement and the director of the racing commission fought the case. But the intervenors in the case other parties to the case were the Senate president and the Assembly speaker because their view that their role as legislators was opened and the New Jersey Thoroughbred Horsemen's Association was the other party to the case. And the reason for that is that two of the three operating racetracks in New Jersey were also granted the right to offer sports wagering in the potential legislation that was at issue in this case. And they viewed the opportunity to have sports wagering as the way to save the racing industry in New Jersey which is a big industry. But attendance has been down and handle has been down in large part because of competition from nearby states that have forms of gambling at the racetrack. So you go to Parx just north of us here in Philadelphia just north of us here in Philadelphia in Bucks County. They've got those slot machines there and tables and under Pennsylvania law a portion of the revenue from those slot machines and tables goes to subsidize the purses that you're paying at the racetrack. You go to New York. So we're surrounding New Jersey you go to New York you go to Yonkers or aqueduct. You've got slot machines at those tracks. And that revenue is going to the Horsemen to have larger purses to track in New Jersey. We have no such thing. There's no.
Aaron Freiwald: You can't get slot machines at the New Jersey racetracks.
Chris Soriano: The constitutional amendment that allows for casino gambling in New Jersey is limited to the city of Atlantic City. And so any effort to expand that has been vehemently opposed by the casino industry and by others. So this the race tracks don't have that advantage of the higher purses that surrounding states can offer. So the logic is we've got competition right next to us. They're able to offer 100,000 dollar purses on races were only able to offer 25,000 dollar purses. They're getting better horses in those races which means they're getting more wagers on those races which means they're getting more people showing up at the track. We can't compete.
Aaron Freiwald: So in a certain way Atlantic City and the casinos there might not have been such a big fan of this because although they see boost they are also going to seek increased competition within New Jersey from racetracks that would be allowed to have sports betting.
Chris Soriano: That's correct. But I think on balance they view the additional revenue opportunities that sports betting provides as a you know as outweighs the additional competition that they'll have to face because keep in mind the racetracks can offer some amenities they can't offer the overnight stays and the fancy restaurants and you know.
Aaron Freiwald: Unless they start building hotels at the track.
Chris Soriano: Yeah which is possible I don't I don't see that really as the capital as the likely capital investment at the racetracks. I think the racetracks in New Jersey you know think of the Meadowlands and Monmouth Park both of which are now offering sports wagering. They're concentrating more on improving the physical plants at the racetracks and on improving the quality of the racing so that they can continue to be active both of those tracks are operated by gentlemen who are very very strong patrons of the racing industry. Jeff Gural who operates the Meadowlands has been a standard bred horse racing guy for 40 years and Dennis Drazin who operates Monmouth Park has been a thoroughbred racing guy for 40 years and those guys are really committed to preserving the racing industry so I think the money that they make they're going to use to try to improve the racing product.
Aaron Freiwald: Ok. So and then on the other side opposing this we have to talk a little bit more about that. You said the leagues. I mean this is really all the major professional and collegiate leagues NCAA football baseball basketball and tennis and so on that now are going to see huge huge dollars invested in betting on their games. And the concern that as you said this might be a taint on those sports and there's it's not like there's no basis for that. And again the Supreme Court talks about this in their opinion going back to the days of Shoeless Joe Jackson in the 1919 World Series. It's not mentioned but I was thinking of Pete Rose. There's a little bit of a different issue with Pete Rose because he was in baseball and betting on baseball. But still I think you know if you think about betting and sports it's hard not to think about Pete Rose.
Chris Soriano: Of course.
Aaron Freiwald: Certainly from the standpoint of the damage to reputation on the sport so there's a powerful interest there. But the Supreme Court gave no deference to these very very powerful sports leagues on this issue.
Chris Soriano: No they didn't. And I think one of the interesting things about the about the Supreme Court's opinion is it starts out very very stridently saying we are not here to be the supreme arbiter. So I'm summarizing obviously but we're not here to be the supreme arbiters of what gambling policy should look like in the United States. It is not up to us. It is and has traditionally been a state by state issue about what forms whether and what forms of gambling a state chooses to offer has been a policy question left to the state and the Supreme Court says we're not weighing in here on any of these arguments. We see convincing policy arguments on both sides about whether sports betting should be permitted whether states should not whether the league's position is right whether it is and the Supreme Court really says our sole question the sole question in front of us is the constitutionality of this 1992 law from a federalism perspective.
Aaron Freiwald: Right.
Chris Soriano: Not from do we think sports betting is a good idea or not.
Aaron Freiwald: Well since this is a law program we should say a little bit about a little bit more about what that means because as I said in the beginning and we've talked about this from a constitutional perspective this is a fairly dry legal issue right. It's really as I read it it's about this idea of this doctrine of anti commandeering and the 10th Amendment in the Constitution which gives the states or other sovereign responsibilities and rights that are not specifically carved out for the federal authority in the Constitution. And there is no specific authority that Congress has to regulate or to tell states that they have to regulate when it comes to sports betting. So I mean that's really as I read that is the issue.
Chris Soriano: Yeah.
Aaron Freiwald: It doesn't really have much to do with gambling at all.
Chris Soriano: It doesn't it doesn't. And you know let's let's take this to its irreducible minimum here for a second. If Congress wanted to say the following Any wagering on sports in the United States is a federal crime. It probably could have done that under the commerce clause powers. As long as there is some nexus to interstate commerce and I think it's going to be hard to say that a sporting event doesn't have a nexus to interstate commerce. And you know if it's taking place in another state and you're wagering they could have just said this is a federal crime it is illegal. You got a shot Las Vegas down.
Aaron Freiwald: Yeah.
Chris Soriano: And you've got to you've got to get over the political hurdles to do that. But from a constitutional law perspective I don't think there's any reason why Congress could not would not have had a very good argument that it had the authority under the commerce clause to say sports betting is illegal in the United States.
Aaron Freiwald: And especially with the rise of Internet gambling. You think Internet activity crosses the state lines.
Chris Soriano: Sure.
Aaron Freiwald: And that may be a hook to get Congress its authority. I don't think they're going to do that. I don't think you do either.
Chris Soriano: No but they could have.
Aaron Freiwald: Right.
Chris Soriano: In the early 90s when they were considering this bill and they chose to regulate in a really really strange way. Instead when they enacted PASPA PASPA but did not say.
Aaron Freiwald: That's the Federal.
Chris Soriano: That's the federal law we're talking about when they enacted it they did not say thou shalt not wager on sports. What they said is more nuanced than that and more strange than that. And it said no government entity which is defined as a state or a tribe may do six things. And there are six things listed out and it may not I might not remember all six of them off the top of my head. But it's sponsor promote advertise license authorize by law. And I'm forgetting one but the important ones are license or authorize by law a betting gambling or wagering scheme based on sports. So think about what we've done here what we've said is not sports betting is prohibited because PASPA doesn't say sports betting is prohibited. What it says is a state shall not license or authorize by law sports betting. Very odd way for Congress to regulate.
Aaron Freiwald: Right.
Chris Soriano: Because.
Aaron Freiwald: Well you're telling the states what they can and what they can and can't do.
Chris Soriano: Because typically if Congress wants to regulate something what do they do. Well they either preempt you or they impose a thorough federal regulatory scheme on something and either preempt the field or expressly preempt and we don't have to get too far into our preemption cases.
Aaron Freiwald: But they'd have to pass a law to do that.
Chris Soriano: They'd have to pass a law to do that. To say there is a federal scheme for regulating sports betting and there's no room for the states. Ok. They couldn't tell if they wanted to they didn't or the other way Congress typically regulates is through funding. So you don't have to comply if you're a state. You don't have to comply with the Federal Highway standards for interstate highways if you don't want to. But if you want the hundreds of millions of dollars to fix the bridge you're going to comply with our standards. And that's another way Congress could have regulated they could have made contingent on some federal program funding. if you don't allow sports betting in your state they could have done that and they chose not to do that either. They picked this weird way of enacting a statute that says to the state legislature you may not license or authorize by law sports betting. And the only way traditionally that a form of gambling takes place in a state on a legal basis when it is licensed or authorized by law by the state because almost every state has a criminal law that says all forms of gambling are illegal. And that's always Section 1 gambling is illegal. Section 2 it shall be legal to have a state lottery. Section 3 it shall be legal to have sports wagering. But it starts with the broad statutory language in pretty much every state that gambling is illegal. And so you've got to then carve out the different things so the only way a state was going to have legalized sports wagering is if it licensed or authorized by law. So that's where and that's where this thing falls apart.
Aaron Freiwald: So there's no going back right at this point that we can see you don't or do you expect Congress for some reason to try to get the political will together to pass something at the federal level that will change the course of that we're on now.
Chris Soriano: We'll see if Congress can get the political will together to pass a budget and figure that out. You know I think that well here's.
Aaron Freiwald: It sounds like it's really at this point going to be a state by state.
Chris Soriano: I don't think you can put the toothpaste back in the tube at this point. So you now have a number of states that have already taken advantage of this decision and have implemented sports betting. I don't see there being the ability in Congress to outlaw it to go completely go back and outlaw it what there has been talk about and what there's been some discussion about Senator Hatch and Senator Schumer both you know obviously one prominent Republican one prominent Democrat in the last few weeks have talked about the concept of a federal framework for sports wagering and their view is that looks like something like a set of minimum standards that a state would have to implement in order to have sports wagering. You know you're talking nobody no person under 21 and you've got to account for the money properly and if a state has those minimum standards it can offer sports wagering.
Aaron Freiwald: Why even get involved at this though. I mean what would be the rationale is there worry still about organized crime is there is there some concern about what we've talked about already taint on these professional or collegiate sports.
Chris Soriano: Let me put my cynical hat on and tell you exactly what I think is happening here and I'm not I'm nowhere near alone in having this view. The professional sports leagues having fought this battle for many many years have now taken the position that they've lost and because they've lost and because sports betting is now going to take place on what they view as their product that they are under an obligation but they look at it analytically they look at this two ways. Some have said they are under an obligation. We the sports leagues I'm going to speak as the sports leagues are under an obligation to now conduct enhanced monitoring and policing of the games and that's going to cost us money and the casinos in the states are making money off of sports wagering and we should be getting a piece of that money in order to conduct this enhanced monitoring because it's an additional cost to us. The other analysis is we have a vested property right in our games that there are games. It's our thing.
Aaron Freiwald: It's our content.
Chris Soriano: Yes. And you're making money off of that content and either as a matter of general equity or IP law which I do not touch it that we should be entitled to something as a result of that. Now the leagues have been approaching states as states have been enacting their sports betting laws to try to get a share of the revenue. They called them integrity fees. And what I can only characterize as one of the greatest cases of chutzpah I've ever seen when New Jersey was considering the sports wagering legislation they sent two people from MLB to testify in front of the assembly the state Assembly committee that was considering legislation to ask them to put a 1 percent fee on revenue to go to the leagues for integrity monitoring which the chairman of the committee in no uncertain terms said wait a minute you've spent eight years fighting this in court. On this and now you're here asking for a piece of the money. One of them actually said I I'm not sure if it was actually said during the hearing or if it was said to the press afterwards or if it was insinuated but it was basically a statement made by a state legislator that the effect that it cost us 10 million dollars in legal fees and we've lost for seven years of not having this We've lost hundreds of millions of dollars in revenue. So when you reimburse us for that we'll give you a quarter of a percent integrity fee or something like that. Write us a check today and then we'll tell you about something like that.
Aaron Freiwald: Well it's no longer about integrity right now it's about money.
Chris Soriano: But here's why. Why I think you can't necessarily count out some sort of federal structure. The leagues have been striking out in the States in trying to get this integrity fee through. They've just that they're trying and they're failing. And I think now I'm speculating a bit but I think that this is within the realm they view that they may have some more sway in Congress and some more ability to get an integrity fee or a license fee or whatever we want to call it let's just call it dollars.
Aaron Freiwald: Right.
Chris Soriano: To get dollars. If Congress enacts some sort of federal framework versus going state by state because keep in mind now you've got five states or so that have legalized sports wagering. The bills are done the taxes are being collected. Nobody is now going to say well we're getting X dollars in revenue in taxes it's going to be X minus whatever because we're going to start paying some of that over the leagues that that ain't happening. That money is baked in
Aaron Freiwald: It would be a lot more efficient to get a sweeping federal law that would impose some type of fee to go state by state.
Chris Soriano: Politically for the leagues I think it's an easier lift and I think it's a lot more efficient for them as well. Now the question becomes Can Congress could you get a majority in both houses of Congress and the president to sign a bill that does that. Because here's my question. If you're going to go that route well then what's the framework what does it look like. Keeping in mind you've got a bunch of states still that do not believe that gambling should be expanded. So you need votes from senators from states that are generally speaking anti gambling. You need votes from senators from states that have now legalized sports wagering and they're going to say we can do it fine on our own. We don't need the federal government coming in and telling us.
Aaron Freiwald: And we're doing it.
Chris Soriano: We're doing it great.
Aaron Freiwald: What are those five states.
Chris Soriano: So far the states that have legalized sports wagering at least some form and are working to get operational or operational so forth. You've got Nevada you've got New Jersey.
Aaron Freiwald: And we'll go ahead and list them and then I want to come back to that one.
Chris Soriano: Nevada New Jersey Mississippi has gone has gone live and started taking and started taking sports wagering. West Virginia has gone live and has started taking sports bets. Pennsylvania has legalized sports betting but it has not gone online yet. The Pennsylvania Gaming Control Board is in the process of working on implementation.
Aaron Freiwald: When will that happen do you think.
Chris Soriano: I would expect that it would probably mean it could be late in the NFL season this year. There's no it will not be. You know there were a couple of states like West Virginia and Mississippi and New Jersey that really wanted to be live in time for the opening of the NFL season which is tonight that will not happen in Pennsylvania. It's there. They're not.
Aaron Freiwald: Just not moving that quickly.
Chris Soriano: They're not far enough along. So the way it's working in Pennsylvania is the Gaming Control Board is in the process of promulgating regulations to govern sports betting so that each of its meetings they've been promulgating more and more chapters of the regulations. And at the same time the casinos have been working to get partners to offer sports betting. And now those partners will have to go through licensing the gaming licensing process and be licensed by the Gaming Control Board to do something like that so that process takes a little bit of time and then the build out of the system takes a little bit of time in complying with specific state regulations takes a little bit of time. So you know I would say Pennsylvania could you know. Could it be within the next few months maybe early next year.
Aaron Freiwald: And we just touched on just to touch on this briefly. Las Vegas has had sports betting in this area since 1992 when it's been illegal. Everywhere else in the country because an exception with carved out.
Chris Soriano: Yes.
Aaron Freiwald: Las Vegas right.
Chris Soriano: Well there was an exception carved out in PASPA for four and a half states interestingly enough. And I'll give you that. I'll tell you why you have that there was one exception in PASPA that said that if a state prior to the enactment of PASPA if the state law permitted casinos in the state to offer sports wagering then it would be grandfathered in. OK there was one state that fell into that bucket and that was Nevada. There was another provision that said if a state had a provision in place that through a state lottery or otherwise authorized sports wagering in some way shape or form then that could be grandfathered in. So there was Delaware Montana and Oregon. Now back to Delaware in a second on that. And then there was a third provision that said that if a state has legalized casino gambling it has one year from the enactment of PASPA to authorize sports betting. And there was only one state New Jersey and in 1993 they couldn't get the political will together to do it. And if you ask 10 people why that didn't happen you'll get 12 different answers. But to keep it real short the view that the New Jersey Supreme Court took at the time. There were a lot of legal machinations in 1993 to try to get in under this window. Interestingly enough the Casino Association of New Jersey was at the forefront of that. And one of the big players in the casino industry is in New Jersey in 1993 was of course Donald Trump and he was driving this litigation hard because he and the other casino owners really wanted to have this the New Jersey Supreme Court took the position that the only way that sports wagering could be authorized in New Jersey would be through a constitutional amendment because as I mentioned earlier about how most states start with every form of gambling is illegal and there are exceptions. Well in New Jersey that's a matter of constitutional dimension.
Aaron Freiwald: Which was created to allow for Atlantic City.
Chris Soriano: Yes. But the state constitution says no form of gaming may be authorized by the legislature. Period full stop. And then there's been a series of amendments since then that allow the lottery that allow horseracing that allow simulcasts and then you talk about the 1976 casino 1976 amendment that allowed the enactment of the Casino Control Act for operation in 1978. So the Supreme Court said New Jersey Supreme Court said because the expansion of gambling has been so narrow and because in 1976 when the Casino Control Act was passed and when the referendum was being put out sports betting was not really considered to be a part of this in order to have sports betting you've got to have a referendum.
Aaron Freiwald: So how did they get so quickly into this once the Supreme Court in May came down with this decision. Did they have something ready and waiting.
Chris Soriano: Yes. So knowing that all of this was likely to happen. So what set this battle in motion actually was New Jersey's decision in 2011. To say you know what enough is enough. Our gambling industry is hurting. We've got so much regional competition. We'd like to offer sports betting PASPA be damned. And New Jersey took the preemptive step in 2011 of enacting a constitutional amendment by referendum that passed 70 30 or some by some horribly lopsided number. That said that the legislature may authorize sports wagering and the legislature did it and a couple of weeks after the amendment passes the legislature amends the Casino Control Act and sports wagering is legal. Go for it. And the division of gaming enforcement and the racing committee it's legal at racetracks and casinos and the Division of Gaming Enforcement which oversees the casinos and the racing commission which oversees the tracks said great we're going to issue regulations and give you license go for it and professional sports leagues say well wait a minute. And they say yeah we know but come stop us.
Aaron Freiwald: Right.
Chris Soriano: And they did. They filed a lawsuit and say this violates PASPA and the state said you're absolutely right it does PASPA is unconstitutional.
Aaron Freiwald: That's case then that goes all the way to the Supreme Court.
Chris Soriano: So that's not the case does all the way the court interestingly enough.
Aaron Freiwald: OK.
Chris Soriano: OK. So that's not how we got to the Supreme Court. It started us get to the Supreme Court. That case on the constitutionality of PASPA goes through the district court which concludes the PASPA is constitutional. It goes to the court of appeals for the third circuit which concludes that PASPA is constitutional. En banc is requested and denied.
Aaron Freiwald: That means the whole.
Chris Soriano: The whole third circuit of appeals denies consideration and they petition for cert and it's denied in 2014. OK. Now here's where things got fun. Not that this whole process has been fun but here's where creative loitering comes into play and here's why. You know somebody who I started with one of my early mentors at Wolf Block always said you know when writing in a brief in an appellate court you know less is more say as few words as possible because you never know when something you say is going to come back and haunt you. So two things happen. Remember we talked about how earlier how PASPA really says is that the state may not authorize or legislate so New Jersey takes the position that violates the 10th Amendment because it says we can't do something. And you're commandeering us. And there's a whole debate over does commandeering only apply when Congress says you must do something not you may not do something. So the legal construct that the courts come up with to save the constitutionality of PASPA is this statute PASPA does not tell the state you must do something. OK. What it says is you may not do something and if it gave the state absolutely no choice we could see how the must and may not would be the same thing because really then what you're saying is you must keep sports betting illegal in your state because it's illegal as a matter of criminal law. What the third circuit and what the DOJ say in this first case interestingly enough is New Jersey has a choice. It's not commandeered because what can New Jersey do under PASPA while it can't authorize sports betting while it can't license sports betting there's nothing here in PASPA or in constitutional law that says it can't repeal its criminal prohibitions on sports betting and the DOJ goes on to say in whole or in part. So the Third Circuit says the state has lots of policy flexibility to determine if it wants to do a repeal. Now keep in mind what a repeal would look like. It can repeal you can repeal the criminal prohibitions on sports betting but you can authorize it by law or license it. In other words out of my law office in Cherry Hill I could hang up a little sign that says sports betting here and nobody could stop me because it can't be authorized or licensed but it can be not a crime. OK so so let's look at that for a second. Seizing on this language after New Jersey loses the first time a bunch of creative lawyers in the state legislature in Trenton they do the following. They say we were told by the third circuit by the DOJ that we could repeal or prohibitions on sports betting. The DOJ says we could repeal in whole or in part. They enact the law in 2014 that sets the criminal prohibitions on sports wagering in the state of New Jersey. Any statute in the state of New Jersey. It starts with the famous notwithstanding any provision of a lot of the country any statute in New Jersey that would prohibit sports wagering at a casino or racetrack by persons aged 21 years of age or older is repealed not a crime for casinos.
Aaron Freiwald: Decriminalize.
Chris Soriano: Decriminalizes.
Aaron Freiwald: Yeah.
Chris Soriano: Not a crime does not say it can be licensed or authorized by law. All it is is saying this isn't a crime. Now the incongruence of this from a policy perspective is pretty fascinating because I don't know how familiar your listeners might be with the area of casino regulations I'll give you the 10 seconds. Everything you do in a casino is regulated okay. Everything when you're walking around on a casino floor and you see them spread the cards on the table a certain way and when the dealer collapses his or her hands before changing dealers that's all in the regulations. OK. Every aspect of a casino's operation is regulated. I have the binder in my office with Title 19 of the New Jersey administrative code that applies to the casinos.
Aaron Freiwald: Is that a thin binder.
Chris Soriano: It is not by any way shape or form is that a thin binder. Every aspect of a casino's operations are regulated and you're going to say this whole new area of law of gaming is unregulated and it's taking place in the most regulated spot in the maybe maybe a hospital or is more regulated than a casino. Maybe. But it's taking place in the most regulated space you can imagine and the incongruence of that was fascinating. Of course we never got to that point because the professional sports leagues came back and said what you've done you've called it a repeal but it's not. It's an authorization. Clearly it's an authorization because it's so narrow and it's so that this is just an end run.
Aaron Freiwald: It's just changing the language.
Chris Soriano: Just messing with the language. And when we said you could repeal it in whole or in part. We didn't mean that part. We just we meant that if you wanted to repeal it like to say that it's not a crime for you and I to bet five dollars on the Eagles game. And you know then you could do that. That's not a crime but to allow a casino to do it, it's exactly contrary to what Congress intended when it enacted this. The District Court says we agree. Issues an injunction stops the the repeal the partial repeal from taking effect. It goes to the Third Circuit. The Third Circuit says the Third Circuit affirms in a 2 1 decision where the dissenting opinion is Judge Julio Fuentes that's important for one reason the majority opinion upholding the constitutionality of PASPA the year before was written by Judge Julio Fuentes who says I wrote that opinion. I know what we were trying to say in that opinion and you can't read that opinion to say that this partial repeal is wrong. This partial repeal is fine. OK. Congress wrote a bad statute.
Aaron Freiwald: Yeah.
Chris Soriano: We interpreted it as constitutional. But now they're stuck with that interpretation and then it went en banc and in a 9 3 decision the Constitution and the partial repeal was held to violate PASPA in a 9 3 decision and that's the decision that went to the Supreme Court. Now what did the Supreme Court do?
Aaron Freiwald: I'm glad I asked by the way. That is a fascinating trip to the Supreme Court
Chris Soriano: What the Supreme Court do though. What did the Supreme Court do. They didn't care about the partial repeal. They didn't grant cert. In 2014 when constitutionality was at issue they granted cert in 2017 when the partial repeal was an issue and ruled unconstitutional.
Aaron Freiwald: Right.
Chris Soriano: So that's that's why they're the Supreme Court. They get paid the big bucks they get to make those kinds of decisions. It was interesting and a lot of people thought that the second time around there was a lesser chance of cert being granted because the constitutional question was not as squarely presented. Really it was a statutory interpretation question of does this partial repeal comport with PASPA and the Supreme court grants cert and says now we're going to look at constitutionality.
Aaron Freiwald: And I know you told me this before that you actually attended the Supreme Court argument at the Supreme Court. You didn't really. You weren't really sure that the Supreme Court was going to come down the way they did. It's always hard to tell what the Justices are thinking.
Chris Soriano: Yeah. It's it's hard to tell. It's really are you know how many times we were we were talking before and for the lawyers who listen and how many times you've walked out of the appellate argument or trial court argument thinking that you had it nailed. And then two days later you get the order.
Aaron Freiwald: Or the other way around. You thought oh my god. They gave such a hard time.
Chris Soriano: And they came around to you know that happens. It was it was a little hard to predict but when we were walking out of the room and then all the lawyers who have been following this from New Jersey for a long time all kind of started kibitzing on the plaza afterwards and trying to figure it out. We had come to the fact that it was likely it could be a 5 4 or 6 3 that the statute's unconstitutional. Just reading the tone of the questions. What we didn't know is was it going to be that the entire statute's unconstitutional or are they going to try to redline the statute and line out certain portions of it and keep it keep certain portions of it so that functionally they could continue this ban on sports betting. Were they going to adopt this partial repeal and say that we don't need to reach the constitutional because interestingly Justice Gorsuch asked the question very early on in the argument to Ted Olson who was representing the state saying you know we didn't spend a lot of time in the briefing on this partial repeal but are you still taking the position that this partial repeal comports with the statute. And Olson said Well you know we think the statutes unconstitutional. But if it is constitutional then we think it does and Justice Gorsuch said well if we were to rule that way it would give you a win and we would avoid the constitutional question and we all know the federal courts typically try to avoid a constitutional question when they can. And then some of us that are we're scratching our heads and saying wait do we have to revisit this question now of the most regulated space in the state now offering something that's completely unregulated and will any other state do that. You know that was then the other question is does any other state have the compunction to want to engage in this essentially unregulated sports betting. But the court ended up striking the entire statute.
Aaron Freiwald: And I think by 7 to 2 right.There were some joining opinions.
Chris Soriano: It's a six and a half to two and a half really. Interestingly enough justice Breyer finds himself on both sides. You had six justices conclude that the statute is unconstitutional its entirety two concluded that it was that it was constitutional and Justice Breyer concluded that the statute was unconstitutional but could be redlined in such a way as to save it. So he dissents. It was a severability issue which would not get too far into the technical language but he dissents he concurs in part and dissents in part saying that as written it's unconstitutional but I don't think we have to strike the whole thing. I think we can narrow it in and get there that way.
Aaron Freiwald: Right. Ok. I mean I'm so glad we took a detour down there because that is that is fascinating. We have a few minutes left and I want to say something have you say something about the implications of this. Obviously this is big for casinos. I didn't realize but you've showed us how this is also big for the racing industry. But you can bet now from your phone. And I know in your practice you represent and have represented not only casinos but also the technology companies that are part of this universe. And how important this is going to be to to Internet gaming. And you know I think a lot of people have probably heard about the rise of for instance Internet poker. But now we have sports betting accessible to everybody. Although I'm sure the casinos want you to come to Atlantic City and come to the Philadelphia casinos and all of the hard physical spaces where you can do these things. But the fact is that you can. And you mentioned this earlier this morning you can sit on your sofa and watch the football game tonight and you can bet on the game from your phone. So what does this mean for the future of this whole industry. This huge market really.
Chris Soriano: Well it's interesting. There's a bunch of layers to to where this could go. One of the interesting things that you still have to keep in mind is Internet or phone bets on anything either poker sports or otherwise are intrastate only. I cannot send that bet across state lines. So if I am you know we're sitting here in Philadelphia right now I have an app. I have a new jersey sports betting app on my phone. If I were to pop it open right now and try to use it I would be blocked because it would locate my phone as being outside the state of New Jersey. And that's the creature of federal law that applies to sending wagering transactions across state lines. So I cannot send that across state lines so the industry the growth of the industry from the online perspective can be stunted a bit because you don't have that opportunity to send wagers across state lines. So if I live in New Jersey if I'm sitting in New Jersey I can only bet with a casino or a racetrack in New Jersey when Pennsylvania comes online if I live or sit in Pennsylvania it has to be a Pennsylvania racetrack in a Pennsylvania casino.
Aaron Freiwald: So you're placing your bet with the casino facility where.
Chris Soriano: The casino or racetrack is the one who has to accept the bet. Now it's fascinating because you're right I can be sitting on my couch in New Jersey placing a bet on a sporting event that I'm watching on my couch with a New Jersey casino without having to leave my house. So there's a couple interesting products that come out. First of all now you know now there's some talk of one of the sports betting companies signed a marketing deal with the Buffalo Wild Wings last week. So the question then becomes are states going to change their laws to allow you to be engaging in sports betting from a Buffalo Wild Wings or are we going to put pads or something like that there that would allow that to take place. Maybe that's where the industry goes. A fascinating area of betting that we have no familiarity with in the United States. But that is incredibly popular in Europe where you can essentially bet on any sporting event. Is the concept of in play betting and in play betting only works through the Internet or through phones really because it's so instantaneous. But the way in play betting will work I'll take European soccer matches for example because that's where it's popular. You could be sitting in the stadium or sitting at home watching a soccer match. And there will be a penalty kick you know a penalty will be called to require a penalty kick and on your phone a push notification will come to your phone saying does he make the kick.
Aaron Freiwald: Wow.
Chris Soriano: Minus 130 that he makes it. Do you want the bet and you pull your phone out and you have ten seconds to take it or not because you only have until he kicks it to take it or not. You know how many yards is the quarterback going to throw for in this quarter over or under 100. And we'll push that out to your phone. And you can accept it or not accept it but it's a whole other layer of wagering now. But here's what it is. Let's think about how it increases the value of the product. If you're a sports league or if you're an advertiser you will now have people watching games that they would ordinarily have absolutely no reason to watch because if it's a 21 nothing blow out in the fourth quarter I'm going to start flipping channels and see what's you know particularly if it's not a game it's one of my teams something I'm not particularly interested in. I'm just hanging out on a Sunday afternoon and the national game is some disaster with some blow out. I would stop watching. I'd go do something else. But if I'm a betting type and I like these kind of bets I'm going to hang out and I'm going to watch that game because you know what. There might be some but I have for this entire quarter on whether it is running back is going to a X number of yards or something.
Aaron Freiwald: Well I'm a I'm a Georgia Bulldogs fan by marriage my wife went to Georgia and we were watching the first game over the weekend and it was a blowout. Georgia won 45 nothing and people started leaving the stadium. They even cut the the second half short by five minutes because there was no chance they could catch up and that would be an example of a game that has a whole different level of interest even late in that game.
Chris Soriano: Yes.
Aaron Freiwald: If you if you allow that type of betting. Is that type of betting already in existence or is this something that has some special regulation that has to be created to allow that.
Chris Soriano: So no regulation has to be created to allow it. The existing regulations in New Jersey Pennsylvania etc. would permit it. It is in full operation it's full up fully operational in Europe it's all over the place on any European sporting event. We are so new to this in New Jersey we're only a couple of weeks into online wagering that it's being rolled out slowly. And I think it's the spot you're right now in New Jersey. From a technology perspective and from an operators perspective is it again. This is so new online wagering and New Jersey is less than 30 days old. So operators are taking their time because you want to make sure you get it right the first time you don't want to have the technology fail you don't want to pay a bad bet. You don't want to have some product. So it's the progress has been made. If you look at the fact that this Supreme Court decision came out on May 14th and here we are on September. I don't even know what day it is fifth or sixth something like that. And there is online wagering on sports in New Jersey. That's you know that's seven months. You know that's that's six months in which five really five months a lot has happened. So these remaining products are going to be rolled out over time you know over time just to make sure everything's right with them.
Aaron Freiwald: Well I mean betting has winners and it has losers. And we talked about this so if you're a casino or a racetrack and you're allowing this type of betting I imagine you also have to have an infrastructure where those bets are created and vetted and thought through and this is a good bet for us even to offer because the concept of having that type of betting is one thing. The reality is once you start offering those bets some people are going to lose and some people are going to win.
Chris Soriano: Yes and that the books the sports books have professional oddsmakers who analyze all sorts of data and have really powerful computer programs to aggregate all of this data and to try to determine is this a good bet or a bad bet and they make constant adjustments to the lines and it's very very heavily data driven. You know what the mob been in the 50s with the chalkboard you know they would do which you know it's something everybody everybody knew about.
Aaron Freiwald: I think of the movie the Sting.
Chris Soriano: Yeah you think of that but it was really you know they're just trying to like come up with a line. You know it's it's a couple of local experts here trying to come up with a line for the neighborhood for all intensive purposes to try to make it so that they could make money. That is now done by you know people who are like quant traders are getting involved in this and the computer technology that's being used to predict these lines and to try to figure out where you can. Where do you set a line based on statistics so that you as the House have the most opportunity to make money and really what you want to do is you want to set that line so that you can kind of split the betting public down the middle and balance your risk. But the way they do that now is through instantaneous data and it's statistical and it's not based on a whim or some some oddsmakers view or somebody erasing something on a chalkboard. It's done by supercomputers.
Aaron Freiwald: It really does change the meaning overall of the idea of Moneyball. I mean it's just completely different meaning.
Chris Soriano: It has a completely different meaning.
Aaron Freiwald: Chris this is such a fascinating conversation I can't thank you enough. You're going to be very busy in the coming year. I think. This whole sector continues to grow and the law has to bob and weave keep up with it so good for you. Thanks so much for being on Good Law Bad Law.
Chris Soriano: Thanks so much for having me. This was great.