Sports Markets Are Heating Up
Part V: Why the Maryland decision may not hold up
We’ve picked up a few new followers lately, so if you’re just joining us, here’s a short recap of what we’ve covered in this series:
Part I: Not a game: The legal fault line beneath daily fantasy sports
We argued that daily fantasy sports (DFS) isn’t a game. (Our most unpopular opinion at the moment.) Once the legal system catches up, DFS will be part of the broader conversation around sports contracts. Our prediction: DFS and sports event contracts will go to the Supreme Court together.
Part II: Tribal gaming vs. prediction markets: The false advertising claim that might actually stick
We made the case that the IGRA likely won’t carry the tribes very far, but the Lanham Act might.
Part III: Kalshi stumbles in Maryland—Will SCOTUS be the final referee?
We mapped out the parties’ positions, and predicted that the issue of sports event contracts is Supreme-Court bound.
Part IV: Maryland struck the match. The fuse is burning.
We argued that the Maryland decision may mark the beginning of the end for sports betting as we know it.
Now, in Part V, we’ll explain–on a high level–why the Maryland decision is likely an overreach.
The Overreach: Judge Abelson’s Federalism Problem
Judge Abelson’s ruling gives states more power than they’re entitled to. Let’s break down why that’s problematic.
1 - The States’ Historical Role
From the opinion:
There is a strong presumption against preemption. “In all pre-emption cases, and particularly in those in which Congress has ‘legislated . . . in a field which the States have traditionally occupied,’…
Judge Abelson believes states have traditionally occupied the field of sports gambling. That view has also surfaced in commentary from Matt Levine, who just wrote about the state-versus-federal tension in sports markets. We disagree.
When PASPA was enacted in 1992, only a handful of states had any form of sports gambling and only one (Nevada) offered traditional sports betting. That’s not evidence of a “traditionally occupied” field–it’s evidence of a narrow exception, mostly confined to Nevada.
2- Police Powers
The opinion states:
[courts] ‘start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.’”
Let’s unpack that:
i) Police Powers Meet Federal Preemption
States never had deep police powers over futures contracts. Over time, their role diminished even more as federal jurisdiction expanded. The Commodity Futures Trading Commission Act of 1974 made clear that Congress intended to achieve centralized federal oversight. Then, a quarter century later, the introduction of the excluded commodity provision under the CFMA brought every imaginable commodity under the CFTC’s umbrella, including sports (Brian Quintenz arguing that a football game is a commodity.)
ii) What Are Police Powers Really For?
The Wikipedia entry for police power reads:
In United States constitutional law, the police power is the authority of the U.S. states to pass laws regulating behavior and enforcing order within their territory for the betterment of the health, safety, morals, and general welfare of their inhabitants. (emphasis added).
Territoriality matters. Physical presence matters. In our amicus brief (PDF) in Murphy v. NCAA, we cited Dooner v. DiDonato, where a physical altercation on a trading floor triggered state tort claims. That’s a textbook use of police powers:
Today, it is evidently clear that police powers are still needed to some extent. The Pennsylvania Supreme Court found that the 1934 Act did not preempt Pennsylvania state-law tort claims arising from a stock trader’s assault of another trader on the floor of a national securities exchange. Dooner v. DiDonato, 971 A.2d 1187 (Pa. 2009).
Gambling that happens in a casino is primarily a local phenomenon:
The demarcation between the federal and State police powers and the critical role that physical space plays in drawing those boundaries is quite sensible. If a game is played in a game parlor, any dispute would likely involve the people playing the game, the owners of that game parlor, or the residents nearby, and the state police power could regulate and protect the public health, safety, morals of the inhabitants of the State. The federal government would be relatively helpless in that situation and absolutely must rely on the police powers of an individual State.
We then contrasted gambling games with sports gambling:
Sports gambling is different. Today, a resident of Illinois can bet on the outcome of a sports game, and not only does he not need to be in a Nevada casino (if betting through a mobile app), amazingly he does not even need to be in Nevada at all (if betting through a Nevada sports betting investment fund). On the other side of the bet could be a resident from New Jersey, sitting in a Nevada casino, sitting on the bench in a Nevada park, or sitting in his couch at home. The game on which the gambler bet could be a game between a football team based in California and another one in Texas, organized subject to the rules of the National Football League, an organization headquartered in New York. The game would take place, in almost all cases outside Nevada, and in fact it may very well take place in a different country, such as the UK. Deciding that there is money to be made in sports betting, a fixer residing in Florida could decide to impact the outcome of a game by approaching a player or a referee in or around the sports arena.
Where does that leave us? The counterparties to the sports gambling contract, the teams, the players, the organizing entity of the games, and the potential fixer are all outside the State boundaries. The possibility of remote wagering can be attributed to advances in technology, but the primary issue is the fact the wagers cannot conclude without a connection to real life, i.e., sports games taking place outside a close space. Because no spatial separation exists, it is extremely difficult if not impossible, to see why this matter should be reserved to the police powers of the State at all.
3- Gambling Games vs. Gambling in Futures Markets
Judge Abelson used this citation:
“It is well recognized that regulating gambling is at the core of the state’s residual powers as a sovereign in our constitutional scheme.”
We agree–but only when it involves gambling games. Judge Abelson continued:
…the CEA “would preempt the field insofar as futures regulation is concerned”). But that does not necessarily establish that the “field” that Congress intended to “occupy” included gambling.
If states can freely opine on which futures contracts constitute gambling, what does preemption even mean?
The Bottom Line:
Judge Abelson takes federalism too far.
To be clear: States aren’t powerless. They retain two key attributes:
They have jurisdiction over gambling games under their police powers.
They enforce fraud-related laws that complement federal oversight.
But they do not have the power to decide which futures contracts constitute gambling. That authority falls squarely under the CFTC’s purview. And for that reason, we don’t see how Judge Abelson’s reasoning can survive.
Next, we will dive a bit deeper into the Maryland opinion.
