PASPA Law Of 1992 Explained
The Act, also known as PASPA, effectively criminalized sports betting activities throughout the US. Nearly every state was affected by PASPA with the exception of the few states that the Act was specifically written to exclude.
This exemption allowed specific states that met certain criteria the ability to apply for exclusion from the law. In 2018, the Supreme Court ruled PASPA as unconstitutional. This page is dedicated to providing a comprehensive explanation of this historic law because understanding relevant gambling laws can assist in navigating the US gambling market successfully.
The legal landscape of PASPA in the U.S. has changed dramatically due to the Supreme Court’s repeal of the law. Multiple states have launched domestically-regulated sports betting initiatives post-PASPA while still more states are in the process of passing legislation and creating the necessary framework for creating this new betting market within their existing economy.
Still, it is important to understand how PASPA affected US gambling markets and what previous restrictions it entailed to better understand the possible changes facing US-based sports gambling.
What is PASPA?
PASPA was perhaps one of the most important and previously significant pieces of federal gambling legislation to pass through Congress to date. The former use of PASPA has created a lot of friction, lost opportunities, and legal debate. This federal gambling law is one every US sports bettor should be aware of, but no longer be concerned about.
PASPA became a tool in a longstanding political and legal campaign to curb wide-spread sports betting in the US. This campaign dates back to its involvement in the 1960’s Federal Wire Act to create legislation to end the use of communication networks to facilitate illegal betting activities being run by organized crime syndicates.
However, PASPA was not directly written to stop illegal criminal involvement rather it was designed to limit access to domestic brick and mortar sports betting markets and operators and ensure that sportsbook gambling did not expand throughout the US. PASPA dictated that states could not offer sports betting entertainment to their residents unless they were one of the four states grandfathered in by 1993.
PASPA’s language was written in a way that prevented non-excluded states from legalizing sports betting after the Act passed. The primary supporters of this law were anti-gambling lawmakers and major professional and collegiate sports leagues and associations. The reasoning behind this act was also to preserve the integrity of sports from any tarnishing that gambling connotations could bring.
History of PASPA
PASPA was a bill first introduced in the US Senate by Democrat Dennis DeConcini of Arizona on February 22nd, 1991. This bill also is known as SB 474 and was a response to the number of states wanting to expand the market to offer sports betting. Three years earlier, states such as Iowa, North Dakota, Colorado, Missouri, Louisiana, Mississippi, and Illinois began introducing several pieces of gambling legislation which prompted the US Congressional response and Senate introduction of SB 474.
The idea fueled the fire for anti-gaming legislators to gather behind, which caused a large movement of support for the prohibitive nationwide bill. Their goal was to craft the bill to effectively stop the spread of legal sports betting in the US while discouraging other states from implementing any new gambling regulations.
As a result of the 1991 public hearings on sports gambling held by the Senate Judiciary Subcommittee on Patents, Copyrights, and Trademarks, sports wagering was considered a national problem as highlighted by the commissioners and representatives of major sports leagues.
On the date of June 26th, 1991 these leagues expressed their concern over the rapid growth of sports betting and its harmful effects that could expand beyond a state itself. The Senate Judiciary Subcommittee’s final report on the matter summed up these concerns and lead to the formation of PASPA and its introduction before Congress.
On June 2nd, 1992 SB 474 passed the US Senate on an 88-5 roll call vote. It was then passed along to the Us House of Representatives for their vote on the bill. On October 6th of 1992, the bill passed the House of Representatives with an amendment attached. The US Senate agreed to the amendment the following day on October 7th. After which, SB 474 was signed into law by the US President George H. W. Bush on October 28th, 1992 and was thereafter referred to as PASPA.
What Did PASPA Regulate?
PASPA regulated domestic brick and mortar sports wagering activities within states not excluded from the law. The law effectively banned all bookmakers from operating in 46 US states. PASPA did not have regulatory jurisdiction over the following sports betting activities: Jai alai, pari-mutuel betting on horse races, and pari-mutuel betting on dog races. These sports have a significant effect on certain states legal gaming revenue thus this exclusion explains why these activities had been allowed while PASPA was active.
What States Were Exempted from PASPA?
There were four states within the United States that were exempt from PASPA’s regulatory jurisdiction. These states were eligible for exclusion due to having offered commercial gambling within their state for 10 years prior to the law’s passage.
At the time, Oregon, Delaware, Montana, Nevada, and New Jersey were the only states that qualified. All five states offered 10 years of commercial gaming but only four had legal sports betting laws on their state lawbooks.
Each state was permitted one year after the effective date of the law, January 1st, 1993, to pass new legal sports gambling legislation and this was a queue for New Jersey to develop their sports betting legislation. Lawmakers in the state failed to present any progress before the deadline. Oregon, Delaware, Nevada, and Montana did not pass any new sports betting legislation and moved forward with only their prior sports betting laws.
Oregon
Oregon maintained a sports lottery governed by the Oregon Lottery called Sports Action. Sports Action was a parlay card system dating back to 1989 and offered NFL and NBA cards. The NBA was not happy with this and Oregon officially stopped offering professional basketball cards after 1990.
The NFL and NCAA put sanctions on Oregon in order to stop them from offering Sports Action and in 2005 Oregon introduced a law that would ban Sports Action. It passed and in 2007 Sports Action ceased its operations.
Delaware
Delaware also has its own sports lottery run by the Delaware Lottery, offered 3 team or more NFL parlay cards. The games discontinued due to lack of popularity and sales. However, Delaware tried to launch full-blown sports betting similar to Nevada in 2009 to offset the decreasing gaming revenue and economic effects of the recession.
It was due to this launch that Delaware faced some legal issues when in 2009 the Third Circuit Court of Appeals states that they could only offer sports betting services which were written or on the books by one year after the effective date of PASPA. Therefore, Delaware was stuck with only the ability to offer NFL parlay cards involving three or more outcomes.
Montana
Montana is the only other state with a sports lottery that is regulated by the Montana State Lottery. The state was exempt from PASPA through prior sports pool laws on the books. Montana’s sports betting laws are not active but do permit taverns the ability to create betting square contests whose boards must consist of 100 squares with payouts including the full outcome of the event. Entry fees are required but returned to players and the house may not rake any profit from the prize pool.
In 2007, pari-mutuel fantasy sports wagering was legalized in Montana and began operating in 2008 under the Lottery Commission. They only offer NASCAR and NFL fantasy games and cannot offer it online in order to not cannibalize their lottery operations. The Fantasy Lottery has been threatened with sanctions by the NCAA and faces controversy due to the 2009 ruling on Delaware for attempting to expand past existing sports betting legislation.
Nevada
Nevada was the only state to have legalized sports betting in all its forms and license sports pools since 1949. The state’s sports betting options include professional and amateur sports and are often known as the only state to deliver full-service sports wagering entertainment. Nevada was the only state to permit single-game sports betting and offer parlay and teaser cards on all sports, however, with the strike down of PASPA many states can now begin to legalize and offer the same services.
Effectiveness of PASPA
Unfortunately, PASPA did not have the effect that the US Senate and anti-gaming legislators intended. When the bill passed it was only intended to limit the availability of US-based sports betting to gamblers but because PASPA was created before the Internet 2.0 revolution it did not foresee the instant accessibility to interactive online markets that we have today through the connection of wireless networks on mobile phones, handheld devices, laptops, etc.
Today, the Internet enables individuals to access the global markets and due to the growing supply of legal offshore betting sites, US bettors have instant contact with a variety of gaming options. This remains a lawful avenue for US gamblers so long as those online sites are legally licensed by a legitimate regulatory agency and based outside of the United States.
For this reason, PASPA became obsolete in its function and enforcement due to the ease of circumvention by US bettors. PASPA in its previous form also prohibited states and local governments from retaining state residential dollars within their state economy due to the inability to legalize and tax sports wagering in their state. State residents continued to send money to legally sanctioned offshore online sportsbooks or illegal local bookies.
With sports wagering renowned as a multibillion-dollar industry, the simple fact that PASPA did not allow states to legalize sports betting activities within their borders means a significant loss of tax revenue, domestic job opportunities, and economic growth activity.
46 states in the United States were unable to reap the massive benefits of legalized sports betting. Oregon, Montana, and Delaware were stuck with outdated sports betting laws and constant sanctions and legal suits by professional and amateur leagues while Nevada was the only state left able to optimize their legal sports wagering opportunities.
This issue caused an outcry from states desperate for new revenue sources and effectively created legislative pushback challenging PASPA.
Legal Court Cases
A number of states have challenged PASPA with little success and none have been as high profile as the New Jersey vs NCAA Supreme Court case. This case originated when the New Jersey Senate crafted a law in 2012 that would allow state racetracks and Atlantic City casinos to offer Nevada-style sports wagering.
At the beginning of 2013, the New Jersey Governor Chris Christie signed the bill into law. Before New Jersey’s sports betting industry could take off the NFL, NHL, NBA, MLB, and NCAA immediately filed a suit against New Jersey. The Major Sports Leagues were successful in smaller district courts and even the Third Circuit Court of appeals affirmed the lower courts stance.
This meant New Jersey could not offer sports wagering in their state. New Jersey appealed to the Supreme Court and they refused to hear the case. The ruling at the time was based on the courts finding PASPA to be constitutional even though the act allowed four states more rights than others. In efforts to try again, NJ lawmakers created another bill mirroring the first but excluded the regulatory aspects and was once again signed into law in 2014.
Once again, the leagues sued and the district courts ruled in favor of the leagues and appealed for an en banc decision from the Third Circuit Court who only affirmed the lower courts in a 2 to 1 decision. However, once New Jersey appealed again the US Supreme Court moved to hear the case in contradiction of many suggestions to refuse the case. The Supreme Court heard New Jersey’s case in December of 2017. The Court announced its decision in mid-may of 2018 ruling PASPA unconstitutional.
FAQ’s
Is Online Sports Betting Included In Paspa?
The Federal Wire Act was in place prior to the enactment of Professional and Amateur Sports Protection Act which at the time was interpreted as a prohibition on US-based online sportsbook gambling, therefore there was no reason for PASPA to address online betting. This being the case, PASPA never regulated or prohibited online sports betting entertainment. Now that the law is repealed, it does not regulate or prohibit any type of sports betting.
Does Paspa Make Online Sports Betting Illegal In The US?
When it was in force, PASPA specifically focused its legal directive to US-based brick and mortar bookmakers and not bettors. PASPA did not state anywhere that the act of betting on sports is illegal for bettors to participate in either online or offline. The law targets the providers of sportsbook gambling and not the participants who actually place the bets. PASPA never addressed online betting because of an older law, the Federal Wire Act, which already does so.
If I Bet on Sports Online Will I Be Violating PASPA?
No. As a bettor, you could not violate PASPA as long as you participate in licensed and regulated offshore internet-based sportsbooks. This is because there was no legal recourses or written consequences in this law for US sports bettors who placed bets with legally sanctioned sportsbooks located outside of the United States.
What Is An Example of Legal Sports Betting vs Illegal Sports Betting?
Legal example: a US bettor is placing a bet on a football game through a licensed and regulated offshore sportsbook. The US bettor is of legal age to participate on the sportsbook and is not located in a state with offshore online gaming restrictions such as Washington State. Illegal example: A US bettor is placing a bet on a sports activity for ex. a baseball team at a local, domestic, US-based bookmaker. This remains illegal due to the prohibition of domestic bookmakers serving domestic bettors. Special exclusions only apply to domestic bookmakers within Las Vegas, who may serve US bettors at will.
Does PASPA include Daily Fantasy Sports?
A number of Fantasy Sports operators such as FanDuel, DraftKings, and other domestic competitors were exempted from PASPA and the UIGEA. Daily fantasy sports is not considered to be gambling, at least not officially, and therefore was not subject to PASPA, the Federal Wire Act or the UIGEA. Since DFS does not violate any federal gambling laws, states are within their authority to allow or prohibit this type of entertainment.
There is a significant number of people that feel that DFS is indeed sports betting and that its exemption from being categorized as gambling is false and was done to benefit the major sports leagues who openly sponsor and support the major daily fantasy sports service providers. Proponents of DFS claim that fantasy sports are a game of skill. Quite a few states have already legalized DFS with more states working on legislation to do so in the near future.