Not the End in Delaware

Today the U.S. Court of Appeals ruled on a motion for a preliminary injunction brought by the NFL and other sports leagues against the state of Delaware over its plan to offer a sports lottery. The injunction is a preliminary injunction, not a permanent one. It prevents Delaware from offering the sports betting games, for now, until a full trial adjudication can consider the legality of Delaware's plan at a more reasonable pace. So, as a legal matter, Delaware is no worse off today than it was before today; it had no sports bet lottery, and for the near future, it will continue with none. It may take a year to resolve the issue more dispositively, and if Delaware wins, it will be able to offer the games in time for the 2010 NFL season, if not sooner.

Even as a temporary measure, the court's ruling today seems problematic. Like many judges when given a chance to intervene in a legal dispute, the court of appeals failed to give adequate attention to the elements of the process that are designed to limit emergency judicial action to the most severe of cases. For a federal court to intervene so strongly at this stage, and most notably against the wishes of a sovereign state, threatens the presumption of latitude that underlies the delicate federal-state balance. And it's also a bad way to make law.

1. No harm has happened yet. Delaware has not offered a sports bet. At this stage, a court may intervene only if the plaintiff, in this case the professional sports leagues, will suffer a harm from the delay in adjudication that is "irreparable." In other words, the leagues must prove (1) that they will suffer a harm from Delaware's lottery, (2) that that harm will happen between now and (let's say) one year from now (at which time final adjudication would likely be completed), and (3) that that particular harm will be "irreparable," either by the granting of a permanent injunction or by an award of money damages. On all counts the leagues should have lost.

2. First, are the leagues harmed at all by Delaware's plan? Gambling on sports, especially on NFL games, the Super Bowl, and the NCAA's March Madness, is a very common legal and illegal practice that produces an industry that totals billions of dollars in transactions. Sports gambling has been going on for years, apparently without blemish to the leagues' reputations (and at considerable enhancement of their fan interest). How would the leagues be harmed by one more state (joining Nevada) offering a bet? Delaware's plan was to offer the game by contracting with privately owned "racinos" who would create a casino-based sports book: to a bettor, the game would appear indistinguishable from that offered by a sports book in Las Vegas. The fact that the state owned the game means only that Delaware would be the residual claimant on any profits, instead of collecting monies through a tax. How would the leagues be harmed?

3. Look at the leagues' arguments. They claimed they would be harmed in two ways: through fans doubting the integrity of close penalty calls by game officials, and by children being led to gamble by the fact that their sports heroes were playing a game on which gambling was conducted. Again, how would the advent of a comparatively small Delaware game bring about these concerns? Would a fan yelling about a call be more likely to think the officials bribed than the fan thinks already? Remember, millions of dollars rides on game outcomes today, without Delaware's modest entry. As for the children, they know that professional athletes play sports for money. (Indeed, I suspect that's precisely why so many children aspire to be professional athletes.) How would knowing that others also enjoy sports in part along a financial dimension corrupt them, or to be precise, corrupt them more than they might be corrupted already?

4. Second, the leagues must prove they would be harmed not by the fact of sports betting, but by the judicial delay in reaching a more deliberate result. Would one season of NFL sports betting in Delaware harm the leagues? In other words, if Delaware offered its game, and then after the season a federal court rules that Delaware's game violates state or federal law and thus must be stopped, the leagues must prove that this temporary game caused the leagues some harm that they otherwise would have avoided. Most likely Delaware's nascent sports game would likely be small. Delaware and its contracted agents would be unlikely to make large investments in a game that could be subsequently ruled illegal; plus Delaware would have to spend some time ironing out the processes for the game, such as how it should obtain the best point spreads, how to market the game, how to share in profits, and the like. It seems doubtful that a temporary, small game could harm the giant leagues irreparably.

5. Third and finally, the leagues have to prove that the harm from this temporary game would be irreparable by a later injunction or money damages. Assuming Delaware offered the game for one NFL season, then the NFL upon winning permanent relief would be right back where it is now, with widespread betting on its games but with the tiny game in Delaware ruled illegal. Surely a permanent injunction, even coupled with some payment or disgorgement by Delaware of its profits from the game, would fully protect all the NFL's interests. The fact that the NFL is now partnering with (non-sports) lotteries in other states suggests that the NFL's interest is as much monetary as moral anyway.

6. The fact that the law limits judicial intervention to cases where the plaintiff can establish the threat of "irreparable harm" suggests that courts should prevent defendants from planned conduct only in the rare case. So too does another key element in a motion for a preliminary injunction, specifically that the court must determine that the preliminary injunction, if granted, would not cause "undue hardship" on the defendant. Delaware and its contracted parties, I would presume, have already spent some time and money in developing this game. More importantly, if it is later determined that Delaware may legally offer this game, but was prevented from doing so by a wrongfully granted injunction, then Delaware would have lost one year's worth of profits from its lottery game. Estimates of the value of this game vary. But Delaware could recover its lost profits from the NFL and the other plaintiff leagues. Do the leagues realize they could be on the hook for millions of dollars in damages should Delaware turn out to be acting lawfully? The trial judge, in implementing the injunction, should require the leagues to post a substantial bond payable to the state of Delaware should it turn out the leagues, in their haste for a quick judicial victory, have led the courts down the wrong path. Make the leagues put their money where their mouth is.

7. The Circuit Court's decision did not decide the case "on the merits." We don't know any more now than we did before about whether or not Delaware's planned lottery game is legal under federal and state law. In ruling on a motion for a preliminary injunction, the court is only to decide on whether or not the plaintiff is "likely to prevail." This is at best an offhand, brief look at the law. Unfortunately, given the contemporary willingness of courts to issue emergency relief, it is not uncommon that this brief prediction as to the likelihood of success becomes the de facto law of the land. Often once defendants lose at the preliminary stage, they give up trying to pursue their legal rights. If Delaware stops now and does not seek a ruling on the merits after a full trial, then today's appellate ruling on a preliminary injunction will become permanent federal law.

The emergency processes for temporary injunctions were not designed to produce statements of law. That they were used as such today by the NFL and the other leagues only exacerbates a trend of using the threat of legal action, rather than the rule of law itself, to influence others to behave in preferable ways. It is the rule of law, and the rule only, that should limit Delaware's options on raising revenue from its citizens.