New Jersey Enacts Law Regulating “Fantasy Sports” Amid Federal Legal Challenges

2008 DraftThe regulation of any new economic activity should be of interest to New Jersey business owners, even if it does not directly affect their business. “Fantasy sports” has been both a popular pastime and a controversial topic lately. Many people participate in fantasy sports leagues organized among their friends, but businesses have also begun offering online fantasy sports competitions. This has led to concerns among lawmakers about whether they violate laws that regulate or prohibit sports betting. The Third Circuit Court of Appeals struck down a New Jersey law allowing sports betting, holding that it violates a 25-year-old federal statute. The U.S. Supreme Court has agreed to hear the state’s appeal in that case. At around the same time that the Supreme Court made that decision, the Governor of New Jersey signed a law authorizing and regulating fantasy sports, while maintaining that fantasy sports do not constitute “gambling” under state law.

In 1992, Congress enacted the Professional and Amateur Sports Protection Act (PASPA), codified at 28 U.S.C. § 3701 et seq. That law effectively prohibited sports betting throughout the country, except in several states, including Nevada and Delaware, which had already created sports lotteries. It prohibits gambling and related activities based on athletic competitions or on the performance of individual athletes. In addition to gambling by private individuals and entities, the statute prohibits governmental entities from “authoriz[ing] by law” any such gambling activities. Id. at § 3702(1).

New Jersey enacted a law in 2014 that repealed some of the state’s prohibitions on sports betting. See N.J. Rev. Stat. § 5:12A-7. In response, a group of sports organizations, consisting of the NCAA, NBA, NFL, NHL, and Major League Baseball, filed suit against the governor, other state officials, and several horse racing organizations. The plaintiffs alleged that the New Jersey law violated PASPA and was therefore invalid under the Supremacy Clause of the U.S. Constitution. A panel of the Third Circuit struck down the New Jersey law, and the full court affirmed this ruling after an en banc rehearing. NCAA, et al. v. N.J. Governor, et al., 799 F.3d 259 (3d Cir 2015); 832 F.3d 389 (3d Cir. 2016).

The New Jersey Legislature passed the bill known as A3532 and S1927 in 2017, and the governor signed it into law in August. The law states that “fantasy sports activities” are not gambling. State law defines gambling in a way that requires “elements of chance…to play a predominant role.” P.L. 2017, c. 231 § 1(2). In fantasy sports, the law states that “the relative skill of the participants predominates” over chance in determining the outcome. Id. at § 1(3). It further notes that several other states, including New York and Massachusetts, have reached similar conclusions, as evidenced by their own laws regulating fantasy sports. Businesses that operate fantasy sports competitions will be required to pay 10.5 percent of their revenues to the state.

Samuel C. Berger is a business attorney who practices in New York and Northern New Jersey. Our firm offers fixed-fee legal-service packages that offer a variety of legal options for entrepreneurs, businesses, and business owners. Contact us online, at (201) 587-1500, or at (212) 380-8117 today to schedule a confidential consultation to see how we can help you and your business.

More Blog Posts:

New Jersey Legislators Consider Bills that Would Regulate Online Fantasy Sports, New York & New Jersey Business Lawyer Blog, June 16, 2016

New Jersey Administrative Rule Will Ban Direct Sales of Tesla Automobiles to Consumers, New York & New Jersey Business Lawyer Blog, March 13, 2014

New Jersey Sees an Increase in Tourism Business, New York & New Jersey Business Lawyer Blog, March 18, 2012

Photo credit: Jim F (Photo) [Public domain], via Wikimedia Commons.