AllSportsMarket in the United States? The U.S. Supreme Court May Decide.

February 10, 2013 in public

This case involves a novel market on sports performance that serves a commercial purpose and preserves integrity. The market was misunderstood by a state court, owing to sports performance being the underlying, and was mischaracterized as gambling. It is true that sports betting is a pure entertainment vehicle that does not serve any commercial purpose and undermines the integrity of the games through game fixing and point shaving. However, this does not imply that all contracts on sports performance suffer from these fatal flaws. When they don’t, they belong to federally regulated capital markets as opposed to gambling markets which are generally regulated by the States. Congress preempted, through the Commodity Exchange Act, state gaming and bucket shop laws to prevent state overreach into capital markets. If left un-reviewed, the ruling below will reverse a century-old trend of increasing federal regulation of capital markets and provide the States with much more power than intended by the Congress.

The sports industry is one of the top ten largest industries in the U.S. and is entitled, just like every other industry, to risk management and price discovery tools, to be able to make commercial decisions. In addition, the sports leagues, the core of  the industry, have a responsibility to preserve the integrity of their games. Faced with the potential implementation of sports betting in the state of New Jersey, which would increase both legal and illegal betting, the sports leagues are currently fighting sports betting in the courts to preserve integrity. Recognizing the national importance, the U.S. decided to join the case.

Unlike sports betting, Petitioner’s market helps the industry on both fronts. First, it allows the sports industry to manage performance and popularity related risks, both of which are major risks for the industry, and discovers prices on which commercial decisions can be made. Second, it preserves the integrity of the games by removing the incentives to fix games. Thus, the innovation is socially useful and belongs to capital markets.

More broadly, the ruling below is a blow to financial innovation, which is sorely needed. More risk management, not less, is necessary to decrease the systemic risks in the industry and prevent another financial crisis. However, there is a significant barrier: ancient common-law jurisprudence that defines gambling broadly and allows the States to creep into the territory of federally regulated capital markets. This overreach created substantial confusion in the courts in the past and continues to be the biggest threat as our nation enters a new phase of financial innovation.

Sports betting is pervasive and created the perception that any market based on sports performance would be socially harmful. This is fiction, but the power of this case as an ideal vehicle to clarify the boundaries between federally regulated capital markets and state-regulated gambling is precisely vested in this very fiction. No resolution regarding any other financial innovation carries as high a potential of wide-ranging impact. The significance of sports extends well beyond the numbers; it is part of the social fabric that enriches our lives. The combination of sports performance and money used to be lethal only because nobody tried hard enough to turn these ingredients into socially responsible innovation. The clarification that contracts on sports performance, once structured appropriately, can be welfare-enhancing would change the dangerous “Occupy” mindset that resulted in a deep mistrust of our capital markets. Innovation paralysis and litigation jam is an intolerable future when our Nation is just trying to get back on its feet following a severe economic crisis. Immediate intervention by this Court is urgently needed and carries the potential to shape the course of financial innovation across the country in addition to re-securing our Nation’s economic supremacy.

This case also provides a unique opportunity to clarify relevant federal statutes all at once. The Professional and Amateur Sports Protection Act does not define bet or wager and was passed to protect the integrity of sports. The Wire Act does not define bet or wager and was passed to curb organized crime. The Unlawful Internet Gambling Enforcement Act is an enforcement statute that does not change existing federal laws. Finally, relevant portions of the Dodd-Frank Act do not outlaw contracts on sports performance although Congress could have easily done so, had it wished. Unable to define bet or wager, these statutes play statutory ping pong by deferring to each other, but a contract on sports performance that serves public interest and preserves integrity does not violate any of these statutes. Some of these federal statutes also defer to the state statutes, which themselves are preempted by the Commodity Exchange Act. With the leagues fighting the implementation of sports betting in the state of New Jersey and all other states looking in with the hope of creating additional revenue streams to reduce their budget deficits, these statutes become more relevant every day and this Court’s timely intervention is urgently needed to not only fill the gaps in these statutes but also prevent an acceleration of related disputes that will clog the judicial system over the coming years.

Download the U.S. Supreme Court documents filed February 9, 2013 here:

Download the Amicus Curiae request distribution list:

Download the Q+A audio here:

Supreme Court docketed on February 14, 2013:

Amicus Curiae requests sent to 77 major industries:

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