The plan was opposed by the professional sports leagues and the NCAA, which claimed it violated the federal Professional and Amateur Sports Protection Act, would harm their reputations and expose young people to gambling.
"Obviously I'm disappointed, but the bottom line is that Delaware is still the only state east of the Mississippi that can offer this sports betting product on NFL games," Markell said.
Four states are exempt from the federal ban on sports betting. Delaware is exempt because it once ran an NFL sports lottery in 1976 that required parlay, or multiple bets, on at least three games.
The leagues argued, however, that the exemption does not allow Delaware to offer bets on single games, or on sports other than professional football. Speaking for a three-judge panel, Judge Theodore McKee said the betting plan as currently envisioned violates the federal ban. A written opinion explaining the judges' reasoning will be issued at a later date.
"I would have preferred the single-game bets with point spreads on more sports, but we didn't get that," added Markell, admitting that sports betting won't be as big as it might have been. He had pushed for sports betting as a way to help resolve an unprecedented shortfall in state tax revenues and balance the budget.
Lawrence Hamermesh, a professor of corporate and business law at Widener University, said pursuing an appeal would be difficult. There was no split on the three-judge panel, and there is no broad impact from the ruling, he said.
"This is a one-off situation," said Hamermesh, who described the state's position as "pretty weak."
The 1992 law restricts sports betting to the four states that met a deadline to sign up for it: Nevada, where Las Vegas sports books determine the odds for sporting events across the country; Delaware, Montana, and Oregon.
Administration officials said they will later decide whether to appeal the ruling to the full court, or to the U.S. Supreme Court.
The court heard nearly two hours of argument from attorneys regarding the denial of an injunction that would have prevented the betting from beginning with the start of football season in September.
But instead of ruling on the injunction, the appeals court turned directly to the league's claim that sports betting would violate the federal ban.
"We were hoping the court would rule on the merits," said Kenneth Nachbar, an attorney representing the NFL, NBA, NHL, NCAA and Major League Baseball. Nachbar and NCAA spokesman Erik Christianson both said they were pleased with the ruling.