How Did Sports Betting Become Legal in the US?

In 2018, the Supreme Court repealed a 26-year federal ban on sports betting. This ruling unleashed the biggest gambling boom in America’s 249-year history. How did that happen?

Since 2018, the amount wagered on sports bets has grown from $5 billion to $150 billion annually. 58% of college students have bet on sports. 50% of all men below 50 have an online sports betting account. Nearly every part of a sports game is bet on: the first player to commit a foul in a basketball game, the outcome of an NFL coin toss, the duration of the 7th inning stretch song in baseball, the color of Gatorade dumped on the winning coach at the Super Bowl. And, the cherry on top: 97% of users lose money on sports betting.

How did sports betting become legal? It’s a fascinating story involving four characters.

Bill Bradley: who America aspires to be. Bradley was an NBA player and New Jersey senator who introduced PASPA, the law that banned sports betting in the US in 1992. Bradley is charming, disciplined, and principled. An all-American hero.

Chris Christie: who America is. Christie was the governor of New Jersey who fought to legalize sports betting by repealing PASPA. He’s a realist who understood his residents’ demand for sports betting. He himself was a big sports fan, indulgent, and a lover of spectacle.

Jeremy Kudon: who America pays. Kudon is a lawyer and lobbyist that helped legalize fantasy sports and, later, sports betting across US states. He is tactically brilliant at working state legislatures to enact or repeal laws on behalf of his clients.

Ted Olson: who America listens to. Olson is a prominent constitutional lawyer who argued the case to repeal PASPA in the District Courts and Supreme Court. He was central to cases involving legalizing gay marriage, upholding the second amendment, and the landmark campaign financing ruling in Citizens United.

Creation of Fantasy Sports: When the American Sports Fan Changed Forever

In 1979, the American sports fan started to change; in retrospect, forever. A writer Dan Okrent taught his friends a new game: players picked a fantasy baseball team from the pool of real-life baseball players.¹ You win by being the best at predicting what your handpicked baseball players will do in the actual game. This game was called fantasy baseball.

Fantasy play spread to other sports like basketball and football. People bet small amounts of money to participate in fantasy sports contests with their friends. Those who chose the best performing fantasy teams got to keep the pot.

It was primarily a fun social activity you’d do with your friends.

PASPA: Banning Sports Gambling in 1992

In 1992, New Jersey Senator and former basketball player Bill Bradley sponsored a Federal law called PASPA, the Professional and Amateur Sports Protection Act. This law banned most states from legalizing sports books: businesses that set odds, accepted wagers, and paid out winnings on sports games.

Bradley, a former NBA player and principled senator, believed that gambling corrupted the integrity of sports. It could lead to match fixing, point shaving, and unfair influence.

PASPA passed with broad, bipartisan support: 88-5 in the Senate and by a voice vote in the House. A voice vote is when lawmakers shout “aye” or “no”, reserved for uncontroversial proposals. The experts thought sports gambling was a problem, and the public didn’t care about it much.

The law was unusual in its wording: it didn't explicitly make sports betting a federal crime for individuals, but it stopped states from legalizing it. PASPA was crafted to avoid opposition from states where sports betting already existed, like Nevada, Delaware, Oregon, and Montana. It blocked other states from passing new laws that would legalize and regulate sports gambling. Twenty five years later, this wording is what led to the undoing of PASPA when New Jersey wanted to legalize sports betting.

In the meantime, fantasy sports continued to gain popularity through the 90s and 2000s. Fantasy sports expanded from small circles of die-hard sports fans to a national pastime, played in high schools and colleges, debated in office break rooms, and argued over at Thanksgiving dinners.

Commercialization of Fantasy Sports: FanDuel and DraftKings

In 2009, a company in Scotland was created called FanDuel that introduced daily fantasy sports. Before FanDuel, players would draft a fantasy team just once before the season started and have points accumulate through the season. Daily fantasy sports introduced daily contests: players could draft a new team every day for the game that is being played that day. Instead of just competing with your friends, the prize pool was now a large global jackpot aggregated among millions of FanDuel users who you did not know. In 2012, DraftKings was founded to compete with FanDuel.

Fantasy sports extended from primarily a social activity to a money-making activity.

FanDuel and DraftKings began spending heavily on TV ads. In the 2015 NFL season, they spent $27 million on 8,000 television spots, outspending the entire beer industry. These were crude ads, most of them being testimonials about people who won big; the kind that bragged “I turned five bucks into fifty thousand”.

The ads caught the eyes of regulators. Isn’t this sports gambling? How was this on TV screens when sports gambling was illegal?

In 2015, the attorneys general of New York and Illinois ordered that FanDuel and DraftKings had to cease and desist fantasy sports contests since they were considered to be sports gambling.

Legalizing Fantasy Sports Across States

In response to the crackdown, FanDuel and DraftKings hired Jeremy Kudon, a partner at Orrick, a New York law firm that lobbies legislatures on behalf of clients. Kudon had a challenging job. PASPA, which was passed in 1992, effectively banned sports betting.

Kudon viewed that the best path to influence national policy was working through state legislatures. By winning over several states, you can eventually shift national policy.

His strategy was to initially focus on smaller and male-dominated legislatures like Kansas because it would be easier to explain the issue:²

A lot of women would say, ‘I have no idea what you’re talking about. That just sounds like gambling.’ The men would say, ‘I do fantasy sports. You’re telling me this is gambling? There’s no way this is gambling. I do this with my friends.’

His argument to state legislatures was that fantasy sports is a game of skill like a golf tournament, not a game of luck like a slot machine. To prove this, he worked with an economist to show that the best fantasy football players are better at building teams than any real NFL general manager.

Kansas was the first state to explicitly legalize daily fantasy sports. After Kansas, Kudon persuaded 22 more states to allow fantasy sports.

New Jersey: Sports Betting in its DNA

Sports betting was still illegal under PASPA, but it was prevalent in New Jersey. About half of today’s sports bettors in New Jersey used to bet on sports when it was illegal. Minor bookies would pass out cards with spreads for sports fans to bet on. Illegal bookies operated quietly, taking bets in diners, corner stores, and high schools.

In 2007, Rudy Garcia, a New Jersey politician, went to do something that was common in Jersey: place a sports bet with a local bookie. However, this bookie was part of an FBI sting operation, so Garcia was indicted for criminal activity and forced out of politics.

Ray Lesniak, a New Jersey senator, who was a close friend and ally of Garcia, was shocked at how unfair the case was. After all, sports betting was a harmless pastime in Jersey. He decided to take on the cause of legalizing sports betting in New Jersey.

Changing New Jersey’s Sports Betting Laws

To change New Jersey state law, Lesniak needed the help of the then governor Chris Christie. But the two didn’t get along, and Christie backed the sports betting ban at the time.

Blocked at the statehouse, Lesniak turned to the public. He proposed a referendum asking voters if sports betting should be legalized. When nearly a million residents cast their ballots, two-thirds voted for. The vote had no legislative effect and was largely a publicity stunt, but it worked. Christie, a big sports fan who occasionally bet on games in high school, was pragmatic and decided to change course.

When asked why he changed his position on sports betting, Christie said:²

“When you look at the black market of sports betting, there are billions of dollars bet every year. Legitimizing that already ongoing activity would create economic activity for the state.”

Christie thought that Senator Bill Bradley, who sponsored PASPA, was “extraordinarily naive” with his rationale for maintaining the ban on sports betting.

Two weeks after the referendum, Lesniak introduced the Sports Wagering Act (2012) which allowed sports betting in New Jersey, and Christie signed it into law.

The Leagues’ Lawsuits vs. New Jersey’s Ace: Ted Olson

Immediately after the 2012 Sports Wagering Act was signed, the NFL, NBA, NHL, MLB, and NCAA sued New Jersey, arguing that this act violated federal law PASPA. To defend New Jersey’s case, Christie approached Ted Olson, a legendary constitutional lawyer.

By the time Olson was challenging PASPA, it was in force for 20 years without being challenged. At the time, he thought:²

“The desire to pass this statute was perceived as doing good: to stop people from betting on sports, to stop the potential corruption of athletes and the temptation put before them. Why will the Supreme Court get involved now?”

But the Supreme Court had been drifting in a new direction for a while and Ted Olson helped it drift. In the 1980s, Olson was a prominent member of the Federalist Society, which believed that the constitution should be understood as it was originally written, rather than as a “living document” that evolves with modern values. Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett were all part of the Federalist Society at different periods, and groomed to be Supreme Court justices. Olson was an influential leader in the same club as the Supreme Court judges who would decide if PASPA should be repealed. Christie hired Olson because his presence showed that New Jersey’s case should be taken seriously.

Ted Olson’s Argument and New Jersey’s Losses

Olson’s argument was that Congress had overstepped. PASPA told states that they cannot authorize sports gambling, but they would have to enforce the ban themselves. Under the anti-commandeering doctrine of the constitution, Congress cannot compel states to do something. Congress can legislate on people, not states.

Under PASPA, Congress didn’t ban individuals from betting on sports, which it could have done under the Interstate Commerce Clause. It also didn’t provide the federal regulatory muscle to enforce the sports betting ban. In contrast, for example, when Congress passed the Federal Aviation Act of 1958, it created a federal regulatory regime (the FAA) to enforce airline rules directly, rather than compel states to do it.

Olson, however, lost his first two cases in the lower courts and the Supreme Court refused to hear the case. The courts said that New Jersey’s 2012 Sports Wagering Act was exactly what PASPA prohibited: a state “authorizing” sports betting, and federal law supersedes state law under the Supremacy Clause of the constitution. The NCAA lawyers effectively argued this:²

“We aren’t saying you have to enforce the prohibition. We aren’t saying you need to do anything to prevent sports gambling. You just can’t legalize it.”

While PASPA blocked states from legalizing sports betting, it didn’t force them to regulate it. A minor difference, but not commandeering.

Christie’s Clever Maneuver: Repealing New Jersey’s Prior Sports Betting Regulation

Christie took this as an opportunity to do something clever. In 2014, New Jersey passed a new law that repealed the state’s own previous regulation on sports betting. They didn’t create licenses or regulate it; they just removed the prior ban. The state took the hands-off position: they weren’t going to formally legalize or regulate sports betting, but they weren’t going to prevent it. Now, if the leagues sued New Jersey, the state could argue that it hadn’t authorized sports betting at all; it had merely stepped aside.

As expected, the leagues sued. They argued that even this partial repeal authorized sports gambling. The commissioner of the NFL Roger Goodell told Chris Christie:²

“You’ve got to drop the case because we’re going to embarrass you.”

The early rounds went badly. Olson lost four more cases in the lower courts and Christie spent $6 million in public funds. But Olson knew that if they petition for the Supreme Court to hear their case, they had a good shot at getting accepted.

Supreme Court Hearing on PASPA

Olson was right. In June 2017, the Supreme Court agreed to hear New Jersey’s case.

On December 4th, 2017, Olson argued New Jersey’s case in the Supreme Court. Supreme Court cases aren’t like courtroom dramas you see on TV, but more like a press conference with nine hostile reporters who are constantly interrupting and questioning you. The full audio argument of Murphy vs. NCAA (formerly Christie vs. NCAA) is worth listening to; it is gripping from start to finish:³

Olson starts with arguing against PASPA based on the anti-commandeering principle: Congress can regulate people, not states.

Almost immediately, Justice Ginsberg interrupts Olson:³ wasn’t PASPA just another example of federal preemption, where federal law supersedes state law?

Olson says that when federal law supersedes state law, the federal government should regulate individuals via the Interstate Commerce Clause. PASPA doesn’t regulate individuals, nor does it provide regulatory muscle for enforcing the ban on sports betting. It simply commandeers states to ban sports betting and do the work of enforcing the ban.

Justice Sotomayor challenges this. She says that states don’t have to enforce the ban:³

“Mr. Olson, if every governor enforced every law on the book, the state would be more than bankrupt. It would have no way of surviving. There are countless laws, and even laws that are in force, that are not enforced totally. States make choices all the time. There is nothing [in PASPA] telling this state that it has to enforce this law.”

But Olson had a stronger counterargument this time thanks to Christie’s clever 2014 maneuver. New Jersey’s sports wagering act of 2014 did not legalize sports betting, it simply removed their prior ban. If PASPA blocked that, it meant that Congress was dictating what state legislatures can and cannot do.

Olson’s logic resonated with Justice Alito, a New Jersey native who had been part of the Federalist Society. Alito said there is no difference between Congress ordering a state to pass a law and forbidding it from repealing one: both are unconstitutional intrusions.

With that framing, the issue became clear. This was no longer about sports betting in New Jersey; it was about the balance of power between Washington and the states. The court, now more open to states’ rights than in prior years, delivered a landmark judgment. In May 2018, the Supreme Court ruled with a 6-3 vote that PASPA was unconstitutional, therefore removing the 26-year federal ban on sports betting and unleashing the modern sports betting industry.

Lobbyists like Jeremy Kudon saw this ruling as an opening to persuade state legislatures across the country to legalize sports betting. Kudon started with states that already legalized fantasy sports, a landscape he knew better than anyone else. Today, 38 states have legalized sports betting.

Conclusion

The widespread embrace of sports betting among everyday Americans wasn’t inevitable. Bill Bradley’s views on the harms of sports betting were the norm in America through the 90s and 2000s. It took a motivated state Governor in Chris Christie, an exceptional constitutional lawyer in Ted Olson, and a tactical lobbyist in Jeremy Kudon, to bring sports betting to nearly every American state and household.

1. Billion Dollar Fantasy by Albert Chen

2. Against the Rules by Michael Lewis. Specifically, the following episodes: Values of the Game, Welcome to the Garden State, and Allison LaCroix on How History Rhymes at the Supreme Court.

3. Supreme Court oral argument of Murphy vs. NCAA. (Formerly known as Christie vs. NCAA.)

---

If you liked this post, check out my post on Financial Speculation in Ancient Rome:

Financial Speculation in Ancient Rome