On Monday, the US Supreme Court issued an opinion striking down a Federal law (the Professional and Amateur Sports Protection Act or “PASPA”) which prohibited state legislatures from taking any action to legalize betting on sports. PASPA also contained a restriction on advertising sports betting. The state of New Jersey challenged that law, arguing that it improperly limited the authority of state legislatures to act. The Supreme Court agreed, and invalidated the entire Act, including the restriction on advertising sports betting. Some trade press articles have suggested that this signals a boom for broadcasters and other ad-supported media companies as companies rush to start advertising legal sports betting now that the prohibition is gone. While in the long run that may be true, and there may be immediate benefits to stations in certain states, there are numerous caveats for broadcasters to consider before they recognize an advertising boom from sports betting companies.
The entire decision was not based on any analysis of whether or not betting on sports is a good thing, but instead it was a decision based exclusively on a question of state’s rights. The Supreme Court determined that Congress cannot tell state legislatures what they can and cannot do. While Congress may have the authority to ban or otherwise regulate sports betting, if they wanted to regulate it, they should have done so directly. Instead, as the law prohibited state legislatures from taking action to legalize sports betting and other actions predicated on that limitation on states rights, the Supreme Court determined that this was an exercise of authority that Congress does not have – Congress can’t tell state legislatures what to do. Based on the Court’s analysis that all parts of the act were premised on this ban on state legislative actions, the entire law was struck down. That means that there is no blanket federal ban on sports betting, and it leaves each state to regulate as it may wish. For companies ready to take bets on sporting events, and media companies who want to take advertising from sports betting companies, in most cases they need to wait for the states to make decisions on how to proceed.
As the Court noted, at the time of the passage of the legislation, three states (including Nevada) already had laws allowing betting on sports. Apparently, in addition to New Jersey, several other states have already passed laws allowing sports betting if the Supreme Court permitted it. And bills are pending to legalize sports betting in many other states. But there are many states in which there is no clear law permitting sports betting. As DraftKings and FanDuel found out in recent years as they attempted to establish their fantasy sports business, in many states local authorities were ready to challenge their authority to do so under state laws banning sports betting. While some of these laws were amended to allow for fantasy games, many still prohibit straight-on sports betting. Thus, as long as there are prohibitions in state law against sports betting, media companies in those states need to be restrained in their advertising for this activity.
Even in states where the concept of sports betting has been adopted, the state may still need to adopt regulations to implement the law, and licenses may need to be issued to companies who want to take advantage of the change in the law. And, in the days since the Supreme Court’s ruling, there have even been suggestions that Congress could step in and adopt some sort of legislation limiting sports betting, or that it could legislate some royalty to the sports leagues in connection with permissible betting. In short, broadcasters need to consult local counsel to carefully analyze the laws in their states in making decisions on whether or not they can take ads for sports betting.
Once permitted, there will also be questions of whether stations can take ads for legalized betting in other states. There was a Supreme Court case, Edge Broadcasting, upholding a federal law that restricts stations in a state that has no state lottery from advertising the state lottery in an adjacent state. See our post here about an FCC decision fining a station for violating this law by running an ad for an adjacent state’s lottery. But there is also a Supreme Court ruling in the Greater New Orleans case that has been considered to permit truthful advertising for legal casino gambling. How sports betting will be treated remains to be seen. Note, too, that there may well be further litigation to decide these issues.
Also, broadcasters should consider restrictions that may exist in various program contracts that can restrict specific types of advertising. As we wrote here, many sports leagues have restrictions in their contracts as to the type of ads that can be run when their games are being shown. Sports betting is likely to be included among the categories of impermissible advertising in many such contracts. Broadcasters should also consider the age of the audience for programs in which any advertising is being run to make sure that that audience is appropriate for receiving messages about legalized betting on sports.
All in all, the decision this week was a good one for media companies. But whether it will mean, in the short term, a big new source of advertising revenue for stations across the country remains to be seen.