Third-Party Funding for Future PASPA Challenges?

In an article penned for Deadspin earlier this week, I laid out an accelerated timeline for legalizing sports betting nationally. The most accelerated path, as I explained in the piece, would be through future court challenges lodged by other states. In my opinion, the quickest path to legalized sports betting would occur through a combination of lobbying and litigating, with an emphasis on the latter. The more litigation pressure, especially if one state succeeds, the quicker the four major professional sports leagues would lobby Congress to repeal or amend the Professional and Amateur Sports Protection Act ("PASPA"), the federal law that prohibits states (like New Jersey) from authorizing or licensing sports betting.

But one of the major obstacles facing potential state challengers is one of "cost," that is, how can states--constrained by budgetary considerations--afford to finance a potentially multi-year, multi-million dollar litigation battle. After all, the final tab for New Jersey, as reported earlier today, was $5.1 million.

It turns out, however, that New Jersey taxpayers did not end up footing the bill--at least not directly. As exclusively reported by John Ensslin of the Bergen Record, the legal fees associated with the New Jersey sports betting case were paid by the state's gaming industry. As Ensslen's article explains:

Taxpayer funds are not being used to pay for the sports betting litigation, according to Leland Moore, a spokesman for the U.S, Attorney's Office. Instead, the legal effort is being funded through fees paid by the gaming industry to regulatory agencies, Moore said. Three-quarters of the costs are paid by fees paid to the Casino Control Fund of the [New Jersey] Division of Gaming Enforcement. An additional 25 percent comes from fees paid to the state Racing Commission, he said.

While taxpayers are "indirectly" footing the bill through a diminution in regulatory services (e.g., less money is available for other gaming regulatory functions), this financing model could serve as an example for other states contemplating a similar legal challenge to PASPA. For those states hampered by budgetary deficits or shortfalls, the New Jersey example illustrates that there are alternative approaches to funding.

The states are not alone in desiring sports betting: the largest stakeholder in this arena is the U.S. gaming industry, which across 40 states, generates nearly $73.5 billion in annual income. Certainly, those stakeholders would have a built-in economic incentive (and strong desire) to assist states in their quest to legalize sports betting by partially or wholly funding future litigation efforts. After all, legal sports betting would be an economic juggernaut to the gaming industry. It is estimated that legal sports betting in New Jersey would have generated over $1 billion in annual gross gaming revenues for New Jersey's racetracks and casinos. For a state like Mississippi, with more than three times the number of commercial casinos and the allure of the Gulf Coast, the potential economic reward is even greater. The gaming industry, if called upon, would likely embrace the opportunity to participate in this fashion, given the significant economic boost that legalized sports betting would provide to gaming venues. Call it a true "public-private partnership," if you will.