SPORTS GAMBLING REGULATION AND YOUR GRANDFATHER (CLAUSE)

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1 26 STAN. L. & POL Y REV. ONLINE 1 August 6, 2014 SPORTS GAMBLING REGULATION AND YOUR GRANDFATHER (CLAUSE) John T. Holden, Anastasios Kaburakis & Ryan M. Rodenberg* INTRODUCTION The Professional and Amateur Sports Protection Act ( PASPA ) was a piece of federal legislation passed in The statute granted Major League Baseball ( MLB ), the National Football League ( NFL ), the National Basketball Association ( NBA ), the National Hockey League ( NHL ), and the National Collegiate Athletic Association ( NCAA ) (collectively the Sports Leagues ) the ability to enforce the statute alongside the Department of Justice ( DOJ ). 2 PASPA deputizes the Sports Leagues and DOJ to file for injunctive relief to stop the spread of state-sponsored sports gambling in states not offering a comparable scheme at the time of enactment. 3 Gambling on sports is big business. In Nevada, where sports gambling is legal under PASPA s grandfather clause, $3.5 billion was recently wagered in a single year. 4 Outside of Nevada, federal agencies conjecture an illegal market of up to $380 billion per year. 5 The latter remains elusive from taxation and This article is based on portions of a Supreme Court certiorari stage amicus curiae brief submitted by the authors in Christie, et al. v. NCAA, et al , 979, 980 (Mar. 14, 2014). * Holden is a doctoral student at Florida State University. Kaburakis is an assistant professor at Saint Louis University. Rodenberg is an assistant professor at Florida State University U.S.C (2012). 2. Id. at PASPA enforcement is not limited to these sports leagues. Under certain conditions, the statute authorizes any professional or amateur league to bring suit to enforce the law. 3. Id. 4. DAVID G. SCHWARTZ, NEVADA SPORTS BETTING TOTALS: , LAS VEGAS: CENTER FOR GAMING RESEARCH (2014), pdf. 5. NAT L GAMBLING IMPACT STUDY COMM N, GAMBLING IN THE UNITED STATES 2-14 (1999), 1

2 2 STANFORD LAW & POLICY REVIEW ONLINE [Vol. 26:1 may encompass several additional aspects of illegal activity (e.g. money laundering, loan sharking, and sports bribery). Recent litigation involving the Sports Leagues and the DOJ versus Governor Chris Christie of New Jersey has brought attention to the legality of statutory grandfather clauses. 6 The Third Circuit addressed the issue in NCAA v. Governor of New Jersey. 7 Therein, the majority opinion held that the Sports Leagues have standing to sue and preempt non-grandfathered states from enacting legislation contrary to PASPA s provisions. 8 It also held that: (i) PASPA was within Congress s Commerce Clause power to regulate interstate commerce; (ii) gambling and sport contests constitute interstate commerce; and (iii) PASPA did not unconstitutionally regulate purely state or local affairs. 9 Importantly, the Third Circuit s majority also held that PASPA did not commandeer the legislative process of states by compelling them to enact and enforce a federal regulatory program. 10 PASPA, according to the Third Circuit s opinion, also did not run afoul of the Tenth Amendment, as it did not oblige states to assume an affirmative regulatory action and absorb the financial burden of implementing a federal regulation. 11 Further, the Third Circuit held that PASPA did not violate New Jersey s equal sovereignty by preferentially treating Nevada. 12 Judge Vanaskie, in partial dissent, argued that PASPA violates the Tenth Amendment s anti-commandeering principle. 13 The provision of PASPA perpetually grandfathering favored states from the law s requirements has three distinct problems. First, PASPA creates a de facto intellectual property right in the offering of existing sports-wagering schemes in the favored states. This is inconsistent with the limited Times provision of the Constitution s Intellectual Property Clause. 14 Second, if the standard for upholding a grandfathering clause is that it is derived from clear legislative intent, as is implied in the Third Circuit s decision in NCAA, 15 then PASPA s provision fails given Justice Stevens contrary PASPA-specific find- 6. See NCAA v. Governor of N.J., 730 F.3d 208 (3d Cir. 2013), cert. denied, 82 U.S.L.W (U.S. June 23, 2014) (No ); NCAA v. Christie, 926 F. Supp. 2d 551 (D.N.J. 2013). 7. See NCAA v. Governor of N.J., 730 F.3d 208 (3d Cir. 2013). 8. Id. at Id. at Id. at 227 (quoting New York v. United States, 505 U.S. 144, 161 (1992) (quoting Hodel v. Va. Surface Mining & Reclamation Ass n, 452 U.S. 264, 288 (1981))). 11. Id. at (distinguishing New York v. United States, 505 U.S. 144 (1992) and Printz v. United States, 521 U.S. 898 (1997)). 12. Id. at Id. at 251 (Vanaskie, J., dissenting). 14. See U.S. CONST. art. I, 8, cl See NCAA v. Governor of N.J., 730 F.3d 208, 240 n.18 (3d Cir. 2013).

3 2014] SPORTS GAMBLING REGULATION 3 ing in Greater New Orleans Broadcasting Ass n v. United States. 16 Third, legislative construction has historically allowed for the classification of grandfathering clauses into either ameliorative legislation or containment-based legislation. Ameliorative legislation is that which allows for the continuation of programs with perceived positive effects. Containment-based legislation is that which seeks to stop the spread of a purportedly undesirable activity. While there is no historical precedent for disfavoring perpetual ameliorative grandfathering provisions, there is a much more limited time horizon historically attached to containment-based grandfathering such as the PASPA-derived sports gambling regulation here. A. Limited Times and Monopolies I. PASPA ANALYSIS The use of grandfather clauses has a long constitutional and statutory history. Black s Law Dictionary defines grandfathering or grandfather clauses as [a] provision that creates an exemption from the law s effect for something that existed before the law s effective date. 17 The legal usage of grandfathering is lengthy, with American roots in the Constitution. For example, Article II, Section I, Clause 5 of the Constitution allows for the exemption of non-natural born citizens to be eligible for the Presidency, provided they were citizens at the time of Constitutional adoption. 18 This exemption would see a termination period extending no further than the death of the last (non-natural) person born and naturalized before adoption. The Constitution further grandfathered President Truman from the limitations imposed on presidential term limits pursuant to the 22nd Amendment. 19 The grandfathering exemptions contained in both Constitutional instances are of limited and foreseeable duration. PASPA exempts a certain number of favored states that had their gambling schemes in place prior to the enactment of the law, including Nevada, from its prohibition. 20 The notion that PASPA confers a monopolistic property right can also be inferred from the statute s grandfathering clause s legislative history See Greater New Orleans Broadcasting Assn., Inc. v. United States, 527 U.S. 173, (1999) (finding PASPA to have obscured congressional purposes ). 17. BLACK S LAW DICTIONARY 560 (7th ed. 2000). 18. See U.S. CONST. art. II, 1, cl See U.S. CONST. amend. XXII, U.S.C (2012). 21. See Professional and Amateur Sports Protection Act: Hearing on H.R. 74 Before the Subcomm. on Economic and Commercial Law of the H. Comm. on the Judiciary, 102nd Cong. 74 (1991) (statement of William C. Byrne, Athletic Director, University of Oregon); Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the

4 4 STANFORD LAW & POLICY REVIEW ONLINE [Vol. 26:1 For example, the House testimony of C. William Byrne noted that the State of Oregon s sports lottery scheme generated $4.5 million, a revenue-generating option non-favored states lack under PASPA. 22 The opening remarks of Senator Dennis DeConcini confirmed that the intent of the legislation is not to interfere with existing law, operations or revenue streams. 23 In grandfathering the sports-wagering processes in the exempted states (e.g. Nevada, Delaware, Oregon, and Montana), Congress granted an intellectual property right to such states, allowing existing sports gambling schemes to stay in place and drawing the invocation of Article I, Section 8, Clause 8 of the Constitution. 24 PASPA results in a monopoly for the favored exempt states. PASPA goes even further when granting a property right to these states. Under PASPA, certain sports leagues (and the DOJ) are deputized to enforce the property right granted to favored states such as Nevada while simultaneously excluding non-favored states. 25 The Supreme Court has addressed the interpretation of the promotion of science and the useful arts provision in the Intellectual Property Clause. In Eldred v. Ashcroft, the Intellectual Property Clause was found to promote the desirability of spreading useful and novel creations while providing the creator with protection. 26 PASPA s conferral of a property right to the grandfathered states does the opposite it provides protection for certain favored states from what was characterized as undesirable spread of sports gambling. While the Intellectual Property Clause does not require the incentivization of new works, 27 it would be inconsistent with Court precedent to posit that the Intellectual Property Clause allows for the implementation of an indefinite monopoly for an activity deemed by Congress to be undesirable. PASPA does not promote the creation of new work(s). Rather, PASPA imposes a prohibition on new regulatory Subcomm. on Patents, Copyrights and Trademarks of the S. Comm. on the Judiciary, 102nd Cong. 2 (1991) (opening statement of Sen. Dennis DeConcini). 22. See Professional and Amateur Sports Protection Act: Hearing on H.R. 74 Before the Subcomm. on Economic and Commercial Law of the H. Comm. on the Judiciary, supra note 21, at Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the Subcomm. on Patents, Copyrights and Trademarks of the S. Comm. on the Judiciary, supra note 21, at See U.S. CONST. art. I, 8, cl. 8. Commonly referred to as the Intellectual Property Clause, it grants Congress the right To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. Id U.S.C See Eldred v. Ashcroft, 537 U.S. 186, 216 (2003) (citing Pennock v. Dialogue, 2 Pet. 1, 18 (1829)). 27. See Golan v. Holder, 132 S. Ct. 873, 888 (2012) (noting that that the federal government is under no affirmative obligation to promote an incentive system for inventors to create novel inventions).

5 2014] SPORTS GAMBLING REGULATION 5 schemes of sports gambling, impermissibly expanding the Supreme Court s interpretations of what to promote means. The limited Times, provision of the Intellectual Property Clause has been held by the Court to be evolutionary. 28 However, to date, there has been no interpretation that the limited Times provision allows for indefinite protection to a rights holder. 29 PASPA s grandfathering provision provides an indefinite monopoly to the favored states. The indefinite nature of PASPA s grandfathering provision is wholly inconsistent with the Court s current interpretation of the limited Times provision. This potential conflict regarding PASPA s exemptions was noted by Justice Stevens in Greater New Orleans when he found the exemptions to contain obscured congressional purposes, and that the exemptions make the scope of 3702 of PASPA somewhat unclear. 30 B. Unclear Legislative Intent The Supreme Court has addressed grandfathering by name on two occasions. First, in Dukes v. City of New Orleans, the per curiam decision determined that a New Orleans municipal ordinance banning pushcart vendors from the French Quarter, except those who had done so continuously for eight consecutive years, did not violate the Equal Protection Clause of the 14th Amendment. 31 In the statute at issue in Dukes, a grandfathered pushcart vendor s right to operate was limited to that vendor s lifespan. Unlike PASPA, it was not perpetual. The limited duration of the grandfathering provision in Dukes stands in stark contrast to the indefinite nature of PASPA s containment-based grandfathering provision. Second, in Minnesota v. Clover Leaf Creamery, the Court addressed whether a grandfathering provision contained in a Minnesota statute banning the sale of dairy products in plastic non-returnable non-refillable containers, but exempting other non-returnable non-refillable containers, including paperboard containers, violated the 14th Amendment. 32 The Court held that the Minnesota statute did not violate the 14th Amendment because the ban on plastic non- 28. See Eldred v. Ashcroft, 537 U.S. 186, 213 (2003) ( Congress, from the start, has routinely applied new definitions or adjustments to both future works and existing works not yet in the public domain. ). 29. See, e.g., Id. In Eldred, the Court found the Intellectual Property Clause to periodically evolve to incorporate the growing necessity to expand the length of protection provided for various forms of intellectual property. 30. See Greater New Orleans Broadcasting Assn., Inc. v. U.S., 527 U.S. 173, (1999). This case addressed the implications of the Greater New Orleans Broadcasting Association s advertising activities. The federal ban on gambling-related advertising in jurisdictions where such gambling was authorized by state law was declared unconstitutional on First Amendment grounds U.S. 297, 306 (1976) U.S. 456, 459 (1981).

6 6 STANFORD LAW & POLICY REVIEW ONLINE [Vol. 26:1 returnable containers bears a rational relationship to the state s objectives of reducing the environmental impact of the industry. 33 The issues presented by PASPA s grandfathering clause can be delineated from Clover Leaf Creamery, as the purpose of the Minnesota legislation was to eliminate the use of nonconforming plastic containers, not to eliminate all non-returnable, non-refillable containers. The Minnesota law did not purport to ban all containers, only plastic. 34 Paper-based containers were not exempted, their use was not the target of the legislative scheme. 35 In contrast, PASPA distinctly exempts Nevada and the other favored states from the regulations contained therein as applied to presently existing sports gambling schemes, while the other states are unable to enact sports wagering regulations of any form. 36 The decisions in both Dukes and Clover Leaf Creamery were highlighted by the Third Circuit in Christie. 37 The Christie majority stated that: [w]hile [Christie] contend[s] that Dukes and Clover Leaf Creamery support their position because they upheld temporary grandfathering clauses, there was no indication in either case that the clauses upheld were indeed temporary The Third Circuit erred in its interpretation of both cases. The Dukes grandfathering provision was foreseeably terminable upon the death of an exempted New Orleans pushcart vendor. PASPA, in contrast, is perpetual. Unlike the pushcart vendors in Dukes who will eventually pass away or be too old to push their carts, it is not foreseeable that the favored states will cease to exist. The ordinance in Clover Leaf Creamery can easily be distinguished from PASPA too. The Minnesota statute banning non-conforming plastic non-returnable, nonrefillable containers did not exempt paperboard products or provide a monopolistic benefit to paper-based producers in a similar manner to the way that Nevada and the other favored states have received exemptions under PASPA. The Third Circuit majority in Christie also addressed the grandfathering provision at issue in Delaware River Basin Commission. v. Bucks County Water and Sewer Authority as a basis for upholding PASPA s grandfather clause. 39 Drawing on Delaware River Basin for support, the Christie majority 33. Id. at Id. at Id U.S.C (2012). The favored states include Nevada, Delaware, Oregon, Montana, and possibly a small number of others. See Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the Subcomm. on Patents, Copyrights and Trademarks of the S. Comm. on the Judiciary, supra note 21, at 2. For example, Sen. Dennis DeConcini posited that he thought PASPA also exempted South Dakota. 37. NCAA v. Governor of N.J., 730 F.3d 208, 239 (3d Cir. 2013). 38. Id. (emphasis in original). 39. NCAA v. Governor of N.J., 730 F.3d 208, 240 n.18 (3d Cir. 2013). In Delaware River Basin, the case was remanded for further development of the record regarding the legislative intent behind the grandfathering provision. Id. On remand, the District Court found

7 2014] SPORTS GAMBLING REGULATION 7 viewed the legislative intent behind grandfathering to be a determining factor in assessing the validity of PASPA s grandfathering clause. 40 According to the Third Circuit: PASPA s legislative history is clear as to the purpose behind its own exemptions, and thus survives Delaware River Basin. 41 The Supreme Court, in an opinion penned by Justice Stevens, disagreed with this assessment of the rationale underlying PASPA s exemptions. 42 In Greater New Orleans, a unanimous decision, Justice Stevens deemed PASPA to derive from obscured congressional purposes, causing 3702 of PASPA to be somewhat unclear. 43 Revealingly, the Third Circuit neither cited nor discussed Greater New Orleans, the only Supreme Court majority opinion to address PASPA substantively. C. Grandfathering Containment In addition to creating a monopolistic property right for Nevada and the other favored states, PASPA has created a perpetual grandfathering clause for a unique piece of containment-based legislation. Like the Intellectual Property Clause s limited Times constraint, other legislation with containment-based provisions has had foreseeable termination points. But not PASPA its protections never terminate. While grandfathering need not be for a definitive time horizon in the case of ameliorative exemptions, there is a legislative implication that containment-based exemptions like PASPA need to contain some foreseeable termination point. The containment basis of PASPA s grandfathering is an anomaly compared to other iterations of exemption clauses with no foreseeable event causing their termination. The Clean Air Act authorized states with standards existing prior to March 30, 1966 to continue utilizing the pre-existing state standards, despite the pre-emptive effect of the legislation. 44 This exemption granted California the authority to continue utilizing more stringent emissions standards than were mandated by the Clean Air Act. 45 The Clean Air Act was crafted to exempt the ameliorative California rules, recognizing that emissions reduction was an activity warranting a permanent injunction. In contrast, PASPA encourages the continuation of a purportedly undesirable activity in that the legislative intent behind the exemptions was rationally related to the objectives of the legislation. See Del. River Basin Comm'n v. Bucks Cnty. Water & Sewer Auth., 545 F.Supp. 138, 148 (E.D. Pa. 1982). 40. NCAA, 730 F.3d at 240 n Id. 42. See Greater New Orleans Broadcasting Assn., Inc. v. U.S., 527 U.S. 173 at (1999). 43. Id. 44. See 42 U.S.C Sec. 209(b)(1). 45. Id.

8 8 STANFORD LAW & POLICY REVIEW ONLINE [Vol. 26:1 certain jurisdictions forever. The Clean Air Act encourages the continuation of a desirable activity (less pollution), not the continuation of a purportedly undesirable activity (sports gambling). Like the Clean Air Act, Congress exempted the Hawaii Prepaid Health Care Act from certain Employee Retirement Income Security Act ( ERISA ) requirements. 46 The grandfathering of the Hawaiian program allowed for the continuation of greater benefits than those bestowed by the federal scheme under ERISA. 47 No foreseeable termination points are necessary for ameliorative programs like the Clean Air Act s and ERISA s exemptions, which encourage a desirable standard of behavior. In contrast, containment-based grandfathering restrictions for undesirable activities such as the ones in PASPA have traditionally had foreseeable termination points, even though some may be distantly foreseeable. The Americans with Disabilities Act requires certain older buildings to make only changes that are readily achievable without great expense. 48 The eventual demise of the buildings is inevitable. The same conclusion can be drawn from the Firearm Owners Protection Act, which allowed for the transfer and possession of some weapons to civilians before May 19, Inevitably, these firearms become inoperable. Unlike the other containment-based exemptions, it is not inevitable or foreseeable that Nevada or the other exempted states will cease to exist. CONCLUSION PASPA s grandfathering clause is an oddity. There are at least three scenarios that may render PASPA s perpetual grandfathering clause invalid. First, by granting the favored states a de facto intellectual property right to continue their sports gambling schemes indefinitely, PASPA runs afoul of the Intellectual Property Clause s limited Times provision. Second, PASPA is suspect because its grandfathering clause is derived from unclear legislative intent and purpose. In stark contrast to the Third Circuit s decision in Christie, Justice Stevens, in Greater New Orleans, noted PASPA s congressional purposes are obscured. 50 But the Third Circuit ignored Justice Stevens. Finally, the statutory exemptions for the favored states may be impermissible because there is no recognizable legislative precedent for perpetually allowing purportedly undesirable behavior in certain jurisdictions, but not others. 46. See 29 U.S.C. 1144(5)(b) (2012). 47. See generally 29 U.S.C (2012) (describing policy goals of ERISA); Haw. Rev. Stat (laying out provisions of Hawaii Prepaid Act). 48. See 42 U.S.C (2)(a)(iv) (2012). 49. See 18 U.S.C. 922 (o)(2)(b) (2012). 50. Greater New Orleans Broadcasting Assn., Inc. v. U.S., 527 U.S. 173 at (1999).