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Future of sports betting once again at stake in New Jersey

Gov. Chris Christie and the state of New Jersey have an opportunity to shape the sports betting landscape. David A. Grogan/CNBC/NBCU Photo Bank via Getty Images

New Jersey has an "incredibly rare" opportunity Wednesday to defeat the nation's most powerful sports leagues and win the right to offer legal, Las Vegas-style sports betting.

An hourlong rehearing is scheduled for 11 a.m. ET Wednesday at the 3rd U.S. Circuit Court of Appeals in Philadelphia to determine whether New Jersey's Sports Wagering Law, signed by Governor Chris Christie in Oct. 2014, violates a 25-year-old federal law prohibiting state-sponsored sports betting. The NCAA, NFL, NBA, NHL and Major League Baseball have sued the governor to prevent it from happening.

The ruling, expected in late spring or early summer, will shape the future of sports betting in the United States. The losing side could appeal to the United States Supreme Court.

"I expect to win," said New Jersey Sen. Raymond Lesniak, who has spearheaded the state's sports betting efforts for more than five years.

Congressman Frank Pallone, Jr. added: "The Court's decision to rehear this case is a promising sign for New Jersey. We have fought for years to bring sports betting out of the shadows only to have the actions of our state legislature, the will of the voters and the Constitution ignored. I'm hopeful that the merits of our argument will prevail [on Wednesday] and that New Jersey will finally have access to this billion-dollar industry like other states do today."

Christie first signed a sports betting bill into law in Jan. 2012. The sports leagues sued eight months later, kick-starting a high-profile legal battle matching two former U.S. solicitor generals against each other in New Jersey's Ted Olson and the leagues' Paul Clement.

The leagues have won every step of the way, including in August, when a three-judge panel at the 3rd Circuit ruled against New Jersey in a 2-1 majority decision. But legal authorities say the 3rd Circuit's granting of a rehearing en banc (in front of all judges) is a sign that Wednesday may be New Jersey's best shot of the entire saga.

Since March 2010, the Third Circuit has granted a rehearing en banc just 19 times, with four others pending, according to thirdcircuitblog.com.

"In recent years, the 3rd Circuit has granted en banc rehearing in about one out of every thousand cases. So en banc rehearing is incredibly rare," said attorney Matthew Stiegler, author of thirdcircuitblog.com. "The court's decision to rehear a case doesn't guarantee that they will reverse the panel, but more often than not that's what happens. The fact that the court granted rehearing here is a strong signal that a majority of the judges had serious doubts that the panel got it right."

According to Stiegler, six of the eight en banc cases under current 3rd Circuit Chief Judge Theodore McKee have reversed the prior panel.

The NCAA is the lead plaintiff and, along with the NFL, remains opposed to the expansion of legal sports betting. Both see it as a threat to the integrity of the game.

The NBA, on the other hand, has changed its position on sports betting under commissioner Adam Silver and believes legal, regulated sports betting in a transparent market better protects the integrity of the game than the massive unregulated market currently serving the U.S. The NBA remains in the case against New Jersey, though, because it prefers a federal approach to legal sports betting rather than state-by-state regulations.

MLB and the NHL also have shown signs of a softening stance on legalization, but for now they're all fighting to stop New Jersey's efforts

New Jersey must convince seven of 12 judges that its law complies with the Professional and Amateur Sports Protection Act. PASPA prohibits states from authorizing, sponsoring, operating or licensing sports betting.

Olson, New Jersey's lead attorney, originally argued that PASPA was unconstitutional, because it commandeered the state to uphold the federal statute. The leagues and Department of Justice, which convened earlier in the case, argued that PASPA allowed New Jersey to repeal its sports betting laws "in whole or in part." The state jumped on that language, partially repealing its prohibitions, but limiting the activity to racetracks and casinos.

"It comes down to whether the court finds the partial repeal is the authorization of sports betting that violates PASPA as a matter of fact," said Kevin Braig, an attorney for Shumaker, Loop & Kendrick, who has followed the course closely and published multiple papers on PASPA. "Or, if the court takes one more step to find that New Jersey's sovereign right to strike laws from its books that it no longer finds desirable is beyond the federal government's reach, even if the result of the repeal looks a lot like the authorization of sports betting."

Legal experts say the decision is extremely close. The outcome will have widespread ramifications in other states. Last week, Pennsylvania passed a resolution asking Congress to repeal PASPA, and several states have considered sports betting bills that would put them in position to offer sports betting should the federal statute be repealed.

The ruling also could have an impact on the ongoing legal controversy surrounding daily fantasy sports. Several state attorneys general have stated that daily fantasy is a form of sports gambling. Some states are attempting to pass legislation that creates a licensing scheme for daily fantasy sports. The NBA, NHL and MLB all own equity in daily fantasy sports sites, and 28 NFL teams have advertising deals with daily fantasy companies.

"Once daily fantasy sports are deemed to be a type of gambling, then I don't know how you reconcile that with PASPA," said Dan Etna, a co-chair of New York firm Herrick's Sports Law Group, who has tracked the New Jersey case and daily fantasy sports.