The state of New Jersey has reignited a long-running national argument over legal betting on pro and college sports in the hope of overturning a 21-year-old federal law and collecting a jackpot in tax revenue.

With the U.S. Justice Department and just about every major sports organization in the country allied against it, New Jersey lost the first round late last month when a federal judge blocked a state law that legalized sports gambling at racetracks and Atlantic City casinos.

So Nevada and Delaware remain the only places in the United States to legally gamble on college and pro sports, which attract an estimated hundreds of billions of dollars in illegal wagers each year. And political leaders in other states will have to consider alternatives to address budget crunches, boost ailing economies and attract tourism dollars.

Backers of the New Jersey measure vow to continue pressing the state’s case in court and on Capitol Hill, with a projected $100 million in government revenue at stake in the first year alone.

But some gambling and legal experts say that, for the foreseeable future, success remains a long shot. The problem for New Jersey is a 1992 federal law that bans sports betting in all but four states.

“The odds are the final outcome will be the same as the outcome in the district court,” said Gabriel Feldman, director of the sports law program at Tulane University. “It was clear from the beginning this was an uphill battle for New Jersey and the courts would give great deference to federal law.”

Supporters expect the state’s appeal to the Philadelphia-based U.S. Court of Appeals for the 3rd Circuit to be filed this month. William J. Pascrell III, the lead lobbyist for sports betting interests in New Jersey, called the appeals court “the best arena to play this out” and said: “We’re not surprised by the [district court] decision. We’re frustrated. We’re disappointed. We think it’s wrong.”

A financial boon

Backers of the New Jersey law predict it would generate an estimated $1 billion in bets in its first year. That would produce an estimated $100 million in revenues for the state that year, primarily through New Jersey’s 8 percent tax on casinos’ gross revenues. Sports betting would take place at the dozen casinos in Atlantic City and at horse racing tracks statewide.

According to the American Gaming Association, legal sports betting represents less than 1 percent of all the wagering on sports nationwide. Last year in Nevada, a total of nearly $3.5 billion was bet on sports. In Delaware, where sports gambling is limited to NFL parlay bets involving three games or more, about $30.2 million was wagered last year.

That is a small fraction of the $380 billion that, according to a 1999 estimate by the National Gambling Impact Study Commission, is bet illegally on sports each year nationwide, a figure that probably has grown in the past 14 years.

“Who knows what that number is today,” said Frank J. Fahrenkopf Jr., president and chief executive officer of the American Gaming Association, a lobbying and advocacy group for the commercial casino industry.

Sports gambling also is believed to help attract millions of visitors to Nevada each year and create thousands of jobs in the state, according to the American Gaming Association.

That’s the market New Jersey is trying to tap. Supporters of the state’s sports betting measure say its enactment would create as many as 2,000 new jobs and produce not only revenues for casinos, racetracks and the state, but also increased visitor spending at restaurants and other businesses.

New Jersey’s Republican governor, Chris Christie, signed the state law in January 2012. But the NCAA, the NFL, the NBA, the NHL and Major League Baseball filed suit last August to halt the sports betting, calling it illegal under the Professional and Amateur Sports Protection Act.

The Justice Department later joined the leagues’ lawsuit. On. Feb. 28, U.S. District Court Judge Michael A. Shipp granted the leagues’ request for a permanent injunction.

The 1992 federal ban on sports gambling, which former New Jersey senator Bill Bradley is credited with championing, does not prohibit parimutuel betting on horse racing, dog racing or jai alai. The law exempted four states — Nevada, Delaware, Oregon and Montana — that had existing sports gambling laws at the time. It also gave New Jersey a one-year opportunity to legalize sports betting, but the state failed to act in time.

Only in Nevada are bets on individual games legal. When Delaware attempted to expand its parlay betting to single-game betting, it lost in court in 2009.

New Jersey argued in the current case that the federal law is unconstitutional because it treats states differently from one another. The state also contended that the law does not fall under Congress’s power to regulate interstate commerce and violates the 10th Amendment, which gives powers to the states unless the Constitution specifically awards them to the federal government.

“It’s inherently unconstitutional to give one state a right that you don’t give another,” Pascrell said.

The judge rejected those arguments, writing that the federal sports betting ban “is a reasonable expression of Congress’ powers and is therefore constitutional.”

Feldman said: “All the court had to find was that Congress had a rational basis for [exemptions for some states], and that’s what the court found. If New Jersey and other states are going to keep fighting this because of the revenue possibilities that are out there, for now it seems they’re going to have to find a way other than the courtroom. Their best bet, pardon the pun, may be with Congress itself.”

Help from Congress?

Such an effort is underway in the U.S. House of Representatives. Rep. Frank LoBiondo (R-N.J.) and Rep. Frank Pallone Jr. (D-N.J.) introduced legislation last month that would make sports betting legal in New Jersey.

Pallone said in a written statement then that New Jersey “must be allowed to move forward with sports gaming and bring much needed revenue to the state.” LoBiondo added in a written statement that legalizing sports gambling “would strengthen Atlantic City in the face of stiff competition, giving it an additional edge to attract visitors and critical tourism dollars.”

But some backers of the New Jersey measure acknowledge there is little hope of immediate success in Congress with a senator from Nevada, Democrat Harry Reid, serving as the Senate’s majority leader.

There have been rumblings in other states about seeking a repeal of the federal sports betting ban. Pascrell said he’s confident other states “would hop on” if New Jersey is successful in implementing sports betting.

That’s what sports leagues want to avoid. They have argued in court that more sports gambling could lead to more corruption in sports. NFL Commissioner Roger Goodell wrote to the New Jersey court that the spread of sports betting “threatens to damage irreparably the integrity of, and public confidence in, NFL football.”

Goodell argued that if betting “is freely permitted on sporting events, normal incidents of the game such as bad snaps, dropped passes, turnovers, penalties, and play calling inevitably will fuel speculation, distrust and accusations of point-shaving or game-fixing.”

But Fahrenkopf said: “I’m not sure that argument sells.” He pointed out that “the NFL is involved in fantasy football itself” and said: “The betting is going on. The question is whether it would be better to have it controlled, with law enforcement oversight.”

Fahrenkopf said that his organization does “a lot of polling, and we find that 80 to 85 percent of American people have no problem with gambling. But there’s 15 percent or so that are rock-hard opposed to it, for religious reasons or moral reasons or whatever. Why pick a fight with that segment of our society if you don’t have to?”

Feldman said sports leagues have been consistent in their insistence that sports gambling damages the integrity of their games since the Black Sox scandal, when Chicago White Sox players infamously were tried, but acquitted, after being accused of accepting money from gamblers to fix World Series games in 1919. They were banned from baseball for life.

“So they will take the steps they need to take to continue to try to limit legalized sports gambling,” Feldman said. “Absolutely, the states argue there is hypocrisy there [because sports leagues’ popularity is enhanced by gambling]. If the battle was starting from scratch, that argument might have more impact. But we’re not starting from scratch. We’re starting from a federal statute that says it’s illegal.”

Delaware’s bid for expanded sports betting was thwarted four years ago in the same federal appeals court where the New Jersey case is headed. Some observers wonder whether the New Jersey case ultimately could end up in the U.S. Supreme Court.

“In my view, the only way this goes anywhere is if the Supreme Court finds PASPA to be unconstitutional or if Congress reverses itself and passes a new law,” Fahrenkopf said. “At this point, I don’t see any of that happening.”

Julie Tate contributed to this report.