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What Is the Status of New York Sports Gambling?

By Bennett Liebman
Edited by Elissa D. Hecker

I. Current New York State Constitutional Provisions involving Sports Gambling

In a Constitutional provision that dates from 1894, the New York State Constitution (the Constitution) specifically makes gambling illegal. No form of gambling "shall hereafter be authorized or allowed within this state." (New York State Constitution, Article 1, §9.1. Very few states have specific provisions in their constitutions that make all gambling illegal, except for certain exceptions. These states would include Delaware, (Del. Const. art II, § 17) Idaho, (Idaho Const. Art. III, § 20) New Jersey (N.J. Const., Art. IV, Sec. VII, Para. 2), and Wisconsin (Wis. Const. Art. IV, § 24.))

In the years since 1894, the Constitution has permitted certain exceptions to the general prohibition on gambling. These include pari-mutuel betting on horse racing, bingo, a state-operated lottery and games of chance. The exceptions for bingo and games of chance are only for the benefit of certain "bona fide religious, charitable or non-profit organizations", and the exception is intended to "prevent commercialized gambling," (New York State Constitution, Article 1, §9.2.)

Over the years, efforts in New York have been made to authorize sports gambling; basically, the use of parlay cards. In 1984, after Governor Mario Cuomo advocated for the lottery's use of parlay cards in the state budget, Attorney General Robert Abrams issued an advisory opinion finding that sports parlay card betting was not authorized as a lottery. (1984 N.Y. Op. Att'y Gen. 1.) The Attorney General stated: "We find that the Constitution, both through its specific bans on bookmaking and pool-selling and through its general ban on all forms of gambling not expressly authorized, forbids the kind of gambling involved in the proposed sports betting game."

In 1991, a proposed sports lottery came very close to being passed by the state legislature. The plan was thwarted when Senator Majority leader Ralph Marino, who had earlier agreed to the sports lottery, withdrew his support.

In 2013, the Constitution was amended to include an exception for "casino gambling at no more than seven facilities as authorized and prescribed by the legislature." The question has become whether casino gambling is sufficiently broad to encompass sports gambling. Certainly, in the state of Nevada, casino gambling facilities have long been able to offer sports wagering. The New York State legislature in the 2013 legislation, designed to implement the casino gambling amendment, contained a provision specifically providing an opportunity for the casinos to have sports wagering. (Chs. 174 and 175, L. 2013.)

II. Current New York Statutory Provision on Sports Gambling

Outside of Nevada and the grandfathering of limited sports wagering in several other states, 1992's Professional and Amateur Sports Protection Act (PASPA) banned sports gambling throughout the U.S. When the Supreme Court on May 14th decided in Murphy v. National Collegiate Athletic Association ruled that PASPA was unconstitutional (Murphy v. National Collegiate Athletic Association 138 S.Ct. 146 (2018).), §1367 of the Racing, Pari-Mutuel Wagering and Breeding Law (Racing Law) went into effect.

Section 1367 was the provision in the Upstate New York Gaming Economic Development Act of 2013 (UNYGEDA) that dealt specifically with the issue of sports gambling in New York State. The UNYGEDA was designed to be the implementing statute that would provide the regulatory framework for New York's constitutional approval of casino gambling.

Section 1367 was based on New Jersey's law signed by Governor Chris Christie in January of 2012 that authorized sports wagering in that state. (N.J.P.L.2011, c.231.) Unlike New Jersey, which directly legalized sports gambling and challenged PASPA, New York's law was only intended to provide an indirect challenge to PASPA. The New York law was designed to go into effect only at "such time as there has been a change in federal law authorizing such or upon a ruling of a court of competent jurisdiction that such activity is lawful." The sports gambling provision was basically an attempt to prevent New Jersey from establishing a monopoly on Mideast sports gambling. If PASPA were ever found unconstitutional or amended, New York, as well as New Jersey, would have legalized sports gambling.

Section 1367 allows sports gambling only in person at the state's four private upstate casinos. Bettors need to be age 21 or older. Betting is not allowed on collegiate sports played in New York State, and similarly not ever permitted on games - regardless of the location - in which New York colleges are playing.

The State Gaming Commission is given significant power not only to license sports wagering operators, but also to establish the rules under which sports wagering is to be operated. According to recent newspaper accounts, the State Gaming Commission is currently in the process of drafting these regulations. Ron Ochrym, its interim director, has stated that draft rules will be available for "review in the near term." (Jon Campbell. "Rules Being Crafted for Sports Betting in New York," Westchester Journal News, May 22, 2018.)

III. Legislative Developments after Murphy

The existing New York sports wagering provision in §1367 is obviously not beneficial to much of the gambling industry in New York State. It only benefits the current four private upstate casinos, which are located in Monticello, Schenectady, Tioga and Waterloo. None of these locations are particularly close to metropolitan New York. Thus, the in-person sports wagering business at these locations does not figure to be overwhelming.

As only these four casinos can offer sports gambling, the other parts of the gambling industry in New York are shut out; including the nine video lottery (VLT) facilities, the state's horse racing industry, including the racetracks, horsemen and breeders, the off-track betting (OTB) corporations, and the fantasy sports corporations. While not technically excluded, the major corporations outside New York that offer sports gambling in Nevada and in Europe obviously do not see a huge market for in-person wagering at four upstate casinos.

In New York, there is also a long tradition of trying to craft gambling legislation that tries to benefit all participants in the gambling industry. Everyone gets a carrot in the omnibus goulash that constitutes the world of New York State gambling legislation.

In order to increase the betting market and to make the other elements of the New York gambling industry full participants in sports gambling, Senator John Bonacic, who chairs the Senate Racing, Gaming and Wagering Committee, introduced legislation to expand the existing scope of sports wagering. His initial bill (Senate Bill No. 7900) was introduced in March of 2018 before the decision in Murphy. Minor amendments were made to the bill after Murphy. (Senate Bill No.7900 A.) The purpose of the bill, per Senator Bonacic, is "to update the existing provisions of law which allow the four upstate casino gaming resorts to conduct sports betting in the event of a change in the federal law which currently prohibits it." (New York State Senate Introducer's Memorandum in Support S7900A.) This bill is an attempt to bring all players into the big tent of sports wagering.

IV. Questions on the Bonacic Bill

The best way to analyze the bill is to respond to certain questions on its effect.

A. With whom can a sports wager be placed?
The four casinos control this process. Individuals can wager at the casinos, through affiliates with whom they contract through self-service wagering kiosks. Affiliates are the VLT operators, OTB branch offices and the New York Racing Association. In addition, each casino can offer mobile sports wagering platforms through no more than three independent entities. Mobile sports wagering means that a bet can be placed through a computer or a similar device anywhere in New York State.

This is certain to raise significant constitutional questions. What is the purpose of having a limited number of casino facilities (a maximum of seven is authorized in the Constitution.) if people can bet away from the facilities of the casino? Do the mobile betting platforms make the constitutional facility limitation meaningless? Surely, the casinos can take a roulette bet or a baccarat wager from a mobile platform just as easily as they can take sports wagers. Would anyone think that a roulette wager placed via a phone in Suffolk County into Tioga Downs would constitute a wager lawfully placed at Tioga Downs? Simply trying to claim in legislation that the situs of a bet is considered to be placed at the casino misses the reality that the bet is actually being made away from the casino. Would any court agree to this fiction?

B. Where can one fund or establish an account?
One can fund or establish an account at the casinos, the offices of the affiliates and on the Internet through mobile sports wagering platforms.

C. On what can be bet?
Bets can be placed on almost every sporting event, except for high school events. Unlike current law, one can bet on New York college sports teams and college events played inside New York. Bets can include straight bets, propositions, over-under bets, parlays, exchange wagers and in-game wagers. Bets cannot include horse racing wagers, which are only authorized via traditional pari-mutuel wagering. (This might prove harmful in the long run to horse racing, since it prevents fixed odds wagering and exchange wagering. It would likely prevent most future books on major races, proposition wagers, and in-race wagers. It is short-sighted for a sport that has been suffering from a long slide in popularity to shut itself off from future types of wagers.)

D. Who can wager?
Bettors must be age 21 or older. They must be physically in New York. The proposal has an extremely detailed list of individuals who are barred from wagering. The list of banned individuals includes people with access to non-public confidential information and amateur athletes where the wager is based on an event overseen by that athlete's governing body. (That would mean that a collegiate water polo athlete could not wager on a collegiate lacrosse game since both sports are governed by the NCAA. Similarly, how during a collegiate sport's off-season would one make a determination that the potential bettor is still classified as an athlete? Can a college field hockey player, when school is out of session in the summer, place a bet on the Bowl Championship Series in football?) It may be that this is a subject handled far better by regulation than by legislation.

E. Who will regulate sports wagering?
Sports wagering will be regulated by the State Gaming Commission, but the Gaming Commission is to designate the State Police to have primary responsibility for conducting investigations into abnormal wagering activity and the possibility of corruption in the sport.

F. What role will the sports leagues have in sports wagering?
There is considerable involvement with the sports leagues. The sports governing body is to receive an integrity fee of "up to one-quarter of one percent of the amount wagered on sports events, however, in no case shall the integrity fee be greater than two percent of the casino's sports wagering gross revenue." The proposal defines a sports governing body to be "the organization that prescribes final rules and enforces codes of conduct with respect to a sporting event and participants therein." This is a potentially problematic definition. For Mixed Martial Arts fights in New York, who is the governing body: the promoter, or the State Athletic Commission that establishes the rules? The same holds true for boxing? Individual sports, such as tennis and golf, have major tournaments that are run by different organizations. The PGA Tour runs the PGA Championship, Augusta National runs the Masters, and the United State Golf Association runs the US Open. How is it determined what is the sports governing body when a casino takes a wager on individuals trying to win the grand slam in golf? What is the governing body in the Davis Cup? When there are European soccer matches between teams in the Premier League and the Bundesliga, what is the governing body? What is the sports governing body when a casino takes a parlay wager on two different sports?

In-play wagering is only permissible if the casinos operate and their agents use "official league data" and the league "possesses a feed of official league data." The leagues are supposed to provide the data at a commercially reasonable rate.

Sports governing bodies are able to petition the Gaming Commission to force the casinos to use official league data for "tier three wagers", which are neither in-play events nor wagers determined by the final score or outcome. A sports governing body may also apply to the Gaming Commission "to restrict, limit, or exclude wagering on its sporting events." No standards are set for how the Commission is to make this decision.

G. Where does the money go from sports gambling?
Typically, the Nevada gambling establishments have gross gaming revenues of between 4-5% of handle, which is the actual amount wagered. (In Nevada in 2017, this hold percentage was 5.11%.) From this amount, they pay a federal tax based on .25% of handle. Assuming a 5% gambling hold, this represents a tax of 5% on gambling revenue. The Bonacic bill adds an 8.5% State tax on this gambling revenue. On top of that, the casinos are to pay an integrity fee of a maximum of 2% of gaming revenue. Thus, assuming a 5% gambling hold rate, the casinos would be subject to an effective tax rate (including the integrity fee) of 15.5%. That does not include any amounts that the casinos would pay the sports leagues for "official league data." Assuredly, the casinos would also need to pay their affiliates and mobile agents for taking the wagers. At what point does the tax imposed on the casinos become too high?

The money from the taxes paid to the state is to be distributed as follows: 85% to the commercial gaming fund - much of which goes to education, 5% to problem gambling education and treatment, 5% to the Gaming Commission for its costs, and 5% to the racing industry. Given the estimates that Senator Bonacic has made for revenue from sports gambling - $10 million to $30 million, it is unlikely that a 5% allocation to all of the racing industry will provide much assistance. That would mean that a maximum amount of $1.5 million would be shared by all racetracks, their horsemen, and the OTB's.

V. Is There Sports Wagering Legislation in the Assembly?

Assemblyman Gary Pretlow, who chairs the Assembly Racing and Wagering Committee, had promised has own bill on sports wagering for several months. While no bill has yet been formally introduced yet, in the last week of May, Assemblyman Pretlow released a draft of his bill. It is a somewhat underwhelming copy of Senator Bonacic's amended bill with the nomenclature of the "integrity fee" changed to a "sports wagering royalty." (https://www.legalsportsreport.com/wp-content/uploads/2018/05/Pretlow-sports-betting-draft-1.pdf)

VI. The Effect on New York's Native American Tribes

New York has eight federally recognized tribes. Three of these, the Oneidas, Senecas, and St. Regis Mohawks, run gambling operations and have gambling compacts with the state. The Senecas appear to be monitoring the situation. There has been little word from the St. Regis Mohawks. The Oneida Nation has said that it will pursue sports wagering. The exact details of how this would occur are uncertain. Can the Oneida Nation's compact with the State be read to authorize sports gambling, or is there a need for a new compact? The Oneida Nation surely would not be bound by the state's requirement of any integrity fee payment.

Secondly, if mobile sports wagering is authorized throughout all locations within the state, will this break the exclusivity arrangements that New York State has with the three gambling tribes? Based on giving the tribes gambling exclusivity in the counties near their casinos, New York is paid exclusivity fees by the tribes. (New York and the Seneca Nation are currently in arbitration over the exclusivity payment, and the Nation has stopped making its payments.) For the 2017 fiscal year, the tribal exclusivity payments amounted to $206.8 million. That is far more revenue to New York than the $10 to $30 million that sports gaming could be expected to bring in. Can the state and the local governments that share in these payments risk losing them?

Finally, strong geo-fencing of the tribal reservations would be needed to make sure that bets on sports gambling were not accepted inside tribal reservation lands. Otherwise, New York State would likely be violating the terms authorizing class III gaming under the Indian Gaming Regulatory Act.

VII. What is the likelihood of passage?

There would appear to be an excellent chance that the sports wagering bill would pass the Senate. The Bonacic bill has generated little opposition thus far from inside the Senate. The unamended initial version was included and technically passed in the Senate as part of its one-house budget bill in March. There is an ongoing dispute in the Senate over which party controls the leadership of the chamber, but if this is resolved, the Bonacic bill is likely to pass.

The fate of sports gambling is uncertain in the Assembly, as Speaker Carl Heastie, who controls the Assembly, has expressed doubts and reservations over whether the bill's issues can be resolved. In his statements last week, the Speaker, however, indicated that he will let his colleagues decide the issue.

Governor Cuomo has also added that the issue is too complicated to decide in the current legislative term. Yet if the legislature passes a sports wagering bill, will the Governor veto a very popular bill in an election year?

VIII. Other Concerns

It has been surprising that nobody in the legislature has introduced a Constitutional amendment that would clearly authorize sports gambling. An amendment, if given first passage this year could be on the books by January 1, 2020. Passage of this amendment would give the legislature cover and assure that sports wagers placed by bettors outside the physical confines of the casinos could be considered valid sports wagering bets. Furthermore, if there is a constitutional challenge to expanded sports wagering, this amendment might be in place before the courts actually ruled on the legalities of sports wagering

There is only a limited leakage to other states if New York State fails to authorize further sports wagering. Federal law would prevent New Yorkers from betting electronically into other states. New Yorkers would need to physically cross the border and wager in a state like New Jersey. This places Tioga Downs owner Jeffrey Gural in an odd position. Gural is the owner of the Meadowlands in New Jersey, which would most likely be the spot where New Yorkers would place sports bets.

If sports wagers in New York can only be made within the confines of a casino, will this hasten the process to have casinos in downstate New York? Currently, casinos could not be operational downstate until 2023.

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