Again To The Future? Governor Cuomo’s Proposal For Cell Sports activities Betting Might Spark New York Constitutional Battle

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NEW YORK, UNITED STATES – 2020/09/29: New York State Governor Andrew Cuomo holds daily media … [+] announcement and briefing at 633 3rd Avenue, Manhattan. Governor discussed Stabilization and Recovery Program for the state as well as uptick of positive infections in some areas of the state. Governor Andrew Cuomo announced that he will meet with Orthodox Jewish leaders to address COVID-19 clusters in communities downstate. He emphasized importance of wearing masks, social distances and enforcement of compliance. (Photo by Lev Radin/Pacific Press/LightRocket via Getty Images)

Pacific Press/LightRocket via Getty Images

New York’s existing sports betting infrastructure – consisting of in-person betting at a handful of upstate casinos – was made possible by a 2013 voter referendum that amended Article I, Section 9, of the New York Constitution to allow “casino gambling at no more than seven facilities as authorized and prescribed by the legislature,” and by enabling legislation enacted the same year to permit sports betting as a form of casino gambling. However, the 2013 enabling law did not include any provision for mobile wagering, limiting sports bets to those persons who were “physically present” at one of the four upstate commercial casinos.

If you accept the premise that sports betting at New York’s upstate casinos is permissible under the New York Constitution, then adding a mobile component tied to servers located at those casinos should likewise pass constitutional muster. But what if you challenged the underlying assumption and questioned whether sports betting fits within the constitutional exception for “casino gambling at no more than seven facilities”? That is the dilemma – and risk – posed by Governor Cuomo’s recent proposal to use a “winner-take-all’ competitive bidding process to decide which companies get to operate mobile sports wagering in New York.

Lottery-run model is a non-starter constitutionally

In his State of the State address on January 19th, Governor Cuomo opened up a legal Pandora’s Box when he suggested that mobile sports wagering should be operated “the way we run the state lottery, which is it’s state run and the state gets all the revenue.” There was one fundamental problem with that approach (as I quickly pointed out on Twitter): it would violate the New York Constitution. Back in the early 1980’s, then-New York Governor Mario Cuomo (the father of Andrew Cuomo) had the same idea: to have the state lottery operate sports betting. That proposal was quickly shot down by then-New York Attorney General Robert Abrams, who issued an advisory opinion in 1984 declaring that a sports betting program operated by the state lottery would violate Article I, Section 9’s specific prohibition against bookmaking and pool-selling, and general ban on all forms of gambling, and could not be shoehorned into the constitutional exception for the state-run lottery. Instead, as AG Abrams concluded, lottery-operated sports betting would require an amendment to the state constitution in order to be implemented.

So, right out of the gate, Governor Andrew Cuomo’s proposal for a lottery-run model was a non-starter. He then quickly pivoted to a seemingly less constitutionally-risky approach: using a competitive bidding process under which the New York State Gaming Commission would issue a request for proposals inviting bids from any interested mobile operator that had a market access deal with one of the licensed commercial casinos, and then selecting and licensing “one or more” of those providers to offer mobile sports wagering in New York.

Such an arrangement would avoid the direct constitutional conflict outlined in the 1984 AG opinion, while providing the state with the same revenue potential as the jettisoned lottery-run model. But it could lead the state down the same risky constitutional path as the lottery model, albeit for a different reason: the selection of a single mobile operator – or even several – would likely come at the expense of several prominent stakeholders who were included as mobile sports wagering participants in prior legislative proposals, but would now be excluded under Governor Cuomo’s approach.

Disenfranchised stakeholders as potential constitutional plaintiffs?

Although sports betting must be run through the licensed commercial casinos in order to comply with Article I, Section 9 of the New York Constitution (i.e., “casino gambling at no more than seven facilities”), two prominent New York lawmakers had crafted a plan that would allow for participation by the state’s other major gaming stakeholders.

Under proposed legislation introduced by New York Senator Joseph Addabbo, Jr. and Assemblyman J. Gary Pretlow (who chair their respective chambers’ racing and gaming committees), the state’s eleven licensed horse racetracks, five off-track betting corporations, the operator of video lottery gaming at Aqueduct Racetrack, and major professional sports venues would be classified as “affiliates” of the upstate commercial casinos for purposes of mobile sports wagering. Senate Bill 1183 and Assembly Bill 1257 would permit these entities to enter into “affiliate agreements” with any of the four licensed casinos to place mobile betting kiosks – which are owned, operated and maintained by the casino and connected via the internet to the casino – at their affiliate facilities. This would enable venues such as Madison Square Garden, Yankee Stadium, Citi Field, Belmont Park, Saratoga Race Course and Yonkers Raceway to develop on-premises sports betting lounges that are linked to the upstate casinos.

Additionally, as outlined in SB 1183 and AB 1257, the three Indian tribes that currently offer in-person sports betting at their tribal casinos would be provided an immediate pathway to mobile sports wagering through an agreement with the New York State Gaming Commission and by requiring the commercial casinos to host a mobile sports wagering server and related equipment at their properties at no cost to the tribes. This unique arrangement would address any concerns over whether the federal law governing gaming on tribal lands – the Indian Gaming Regulatory Act (commonly known by its acronym “IGRA”) – would permit tribes to accept mobile wagers. By contracting directly with the state gaming commission, the tribes would obviate the need to have amended compacts for mobile sports wagering approved by the federal government (a requirement of IGRA) – an unlikely prospect light of federal case-law and federal agency opinions concluding that mobile wagering falls outside the scope of IGRA, and is, therefore, not permitted. While the tribes would be subject to state regulation and taxation under this arrangement, it expedites mobile sports wagering for the tribes and eliminates the risks and delays attendant to seeking federal approval.

This structure – which was first introduced by Senator Addabbo and Assemblyman Pretlow in May 2019 (and passed by the Senate in June 2019) –provides the best (and perhaps only opportunity) for New York’s horse race racing industry and Native American tribal casinos to participate in mobile sports betting given the limitations imposed by the state constitution and IGRA. Importantly, it has the backing of all the key stakeholders: the casinos, the racetracks, the horsemen, tribal gaming operators, and New York’s professional sports teams.

Governor Cuomo’s proposal would likely unravel this negotiated solution. Here’s why: the budget bill incorporating Governor Cuomo’s proposal makes no provision for affiliate or tribal participation in mobile sports betting. Instead, it states simply that mobile sports betting would be permitted “through a platform provider or providers” pursuant to a competitive bidding process overseen by the state gaming commission. This succinct language would appear to leave room only for the select few mobile providers (i.e., DraftKings, FanDuel, Bet365, and Rush Street Interactive) that have market access deals with the upstate casinos.

In other words, the racetracks, OTB outlets, video lottery facilities, tribal casinos, and professional sports venues would be left out of the process completely.

The downside risk of disenfranchising so many key stakeholders – especially after they were included in the Addabbo/Pretlow proposal – is that it could incentivize one or more of those entities to challenge the legitimacy of the entire “casino-based” sports betting regime (enacted by statute in 2013) on the basis that it violates the New York Constitution’s ban against bookmaking, pool-selling and other forms of gambling.

The main focus of such a lawsuit would be on whether sports betting fits within the exception for “casino gambling at no more than seven facilities”  set forth in Article I, Section 9, of the New York Constitution. And, ironically, the 1984 AG Opinion – which came to light after Governor Cuomo expressed a preference for a lottery-run model – could serve as the playbook for such a legal challenge. It lays out nearly all of the arguments that a potential challenger might raise.

Constitutional exceptions are narrowly construed

The most problematic part of the Abrams opinion is the section entitled “Constitutional Construction” – which sets forth the rules of interpretation that are to be used in determining the scope and meaning of a constitutional provision.

Importantly, that section begins with a recognition that the allowance for “lotteries operated by the state” – which then-New York Governor Mario Cuomo sought to use as the vehicle for sports betting – is expressed as an “exception” to Article I, Section 9’s “specific prohibitions against bookmaking, pool-selling and lotteries, [and] general prohibition [against] other forms of gambling.” The inclusion of the words “bookmaking” and “pool-selling” within the constitutional prohibition was viewed as significant by AG Abrams, since they address crimes relating to betting on sporting events. Since bookmaking and pool-selling are synonymous with sports gambling, AG Abrams viewed the inclusion of those two words as enshrining into the state constitution a specific ban on sports betting.

And once you view sports betting as specifically prohibited by the constitution, it is easy to understand why AG Abrams concluded that the exception for the state-run lottery – approved as a constitutional amendment by New York voters in 1966 – was not broad enough to encompass sports betting. In reaching that conclusion, AG Abrams invoked the following rule of constitutional interpretation: “[i]t is axiomatic that an exception to a general policy spelled out in a constitution or statute must be given a narrow interpretation in order to avoid the danger of the exception becoming so broad as to swallow the rule.” In accordance with this rule, AG Abrams determined that the word “lottery,” as used in the constitutional exception, “must be given a narrow [rather than a broad] interpretation.”

Interpreting the “lottery” language narrowly, AG Abrams reasoned that the exception cannot be read to have silently “repealed the ban against other enumerated forms of gambling,” including the prohibitions against bookmaking and pool-selling. “To do so,” AG Abrams added, “does violence to the words of the prohibition.” He observed that systematic operation of a scheme involving betting on the outcome of sporting events is “pool-selling or bookmaking,” and that “[b]oth are specifically prohibited” under Article I, Section 9. “To contend that they are not,” Abrams concluded, “would render these specific constitutional words meaningless.”

The rule that constitutional exceptions are to be narrowly construed has long been recognized by the New York appellate courts. In White v. Cuomo – which addresses the constitutionality of a 2016 statute authorizing daily fantasy sports contests – the Third Department stated that “[b]ecause ‘[p]ublic policy continues to disfavor gambling,’ exceptions to the constitutional prohibition on gambling must be strictly construed to ensure that they do not consume the rule itself.”

The risk here is that a potential challenger to New York’s existing sports betting regime could invoke this interpretive principle to argue that the constitutional exception for “casino gambling at no more than seven facilities” – approved by voters in 2013 – is likewise not a proper vehicle for legislatively authorizing sports betting. Drawing heavily on the Abrams analysis, a prospective plaintiff would assert that the phrase “casino gambling at no more than seven facilities” must be interpreted narrowly rather than broadly. Employing a narrow interpretation of those words, a prospective challenger might argue that – just like with the exception for the state-run lottery – the “casino gambling” exception cannot be read to have repealed the constitutional ban against bookmaking and pool-selling, otherwise those specific words would be rendered meaningless.

Look at it from this vantagepoint: suppose you were to remove the words “bookmaking” and “pool-selling” from Article I, Section 9, of the New York Constitution, and replace them with their functional equivalent: “sports betting.” Now, to try to read the casino gambling exception side-by-side with the main constitutional prohibition. It would read something like this: “[N]o . . . sports betting or any other kind of gambling, except . . . .casino gambling at no more than seven facilities . . . shall hereafter be authorized or allowed within this state.” One does not even need to imagine this hypothetical: it is precisely what AG Abrams may have been referring to when he wrote in the conclusion to his 1984 advisory opinion that “sports betting is not permissible under Article I, Section 9, of the New York Constitution.”

Viewed through that lens, one can more easily appreciate the obvious risk of having a New York court assess whether sports betting – which is prohibited under the state constitution through the specific bans on bookmaking and pool-selling – can seek safe passage through the portal of casino gambling when those words (or their functional equivalent) are not used in the exception and courts must construe constitutional exceptions narrowly rather than broadly. Would the exception as applied to sports betting be viewed by a court as being so broad as to “consume the rule itself” – the very concern expressed by AG Abrams?

It is no sure bet that a court would invalidate New York’s sports betting law under this interpretive principle, especially since the state constitution does not define the words “casino gambling” and expressly delegates to the legislature the authority and responsibility to determine the means and methods by which casino gambling will be implemented. That’s why the constitutional exceptions allowing the state-run lottery, pari-mutuel betting on horse races and casino gambling include the key phrase – “as may be authorized and prescribed by the legislature,” meaning that it’s up to state lawmakers to “authorize and prescribe” how wagering on those constitutionally-permitted forms of gambling will work.

Legislative history and timing likely tip the scales in favor of legality

But what may ultimately save the New York sports betting law from a possible constitutional invalidation is the timing of the legislation. Casino-based sports betting was approved as part of the “Upstate New York Gaming Development Act of 2013,” which provided the statutory framework for casino gambling in New York” in contemplation of the voters approving a constitutional amendment to allow casino gambling “at no more than seven facilities.” Crucially, this enabling statute was approved by the legislature and signed into law by Governor Cuomo in June 2013, more than four months before the voter referendum took place.

This impeccable timing bodes well for the legality of the sports betting measure. When enabling legislation is enacted “almost contemporaneously” with a constitutional revision to which it relates, the New York courts will usually defer to the legislature’s construction of the constitutional provision. As New York’s highest court put it in Matter of Kolb v. Holling, “[g]reat deference is certainly due to a legislative exposition of a constitutional provision, and especially when it is made almost contemporaneously with such provision.” The Court explained that “[t]hese [contemporaneous] expositions are entitled to great weight, as they evince the sense in which the language was used at the time.” This deference is especially warranted when the legislature that enacted the statutory provision is the same legislative body that drafted the proposed constitutional amendment.

By contrast, the enabling statute which accompanied the constitutional amendment for the state-run lottery – approved by voters in 1966 – did not include any reference to sports wagering. It wasn’t until 1984 – nearly two decades later – that sports betting was first raised as a possibility for the state lottery. This significant time gap was one of the factors that led AG Abrams to conclude that a lottery-operated sports betting system was barred by the state constitution. He opined that 18 years was “far too long an interval to be considered at all probative of the intent guiding the framers of the amendment.”

While the merits seem to favor the constitutional legitimacy of the 2013 sports betting law – given its near-contemporaneous enactment and the constitutional language giving the legislature the power to “authorize and prescribe” the parameters of casino gambling – the outcome is far from a slam dunk. The 1984 AG Opinion – which few even knew about until Governor Cuomo floated his lottery proposal in early January – provides disenfranchised stakeholders (and others) with a roadmap for challenging the 2013 law. At the very least, the opinion raises some interesting questions about the scope of the constitutional exception for casino gambling and whether that properly includes sports betting.