California Sports Betting Faces Tough But Not Impossible Road
California is the fifth biggest economy on earth — if you carved it out of the US — but remains at the 20th Century regarding gambling regulation.
With a projected first-year tax earnings of $100 million, one would feel that California would want to have sports betting legalized as quickly as possible. But…it could be at least five decades, or even longer, before sports gambling is legalized in the nation.
Much of the problem is the lack of understanding of the territory, and the way the stakeholders interact with one another and the state government. Hopefully this guide will clear some of the smoke from the room.
Because it is the second sector this decade that has flipped from illegal to controlled, California already has some experience in that regard. I’ll try to decipher here what the problems are, in the hope that better comprehension of those issues will help reach a win/win for all parties involved as economically as you can.
The lay of the land for California sports gambling Present-day stakeholders in CA gaming comprise these 3 entities:
Horse racing tracks
Cardrooms have been legal since 1936 (draw poker; hold’em and other poker games were held to be legal in 1987, player-banked table games were lawful in 1988). In all three instances, the cardrooms needed to go to court, challenge the state’s gambling statutewin.
They’re subject to state regulation, that was criticized (and justly so, in my opinion) by tribal gambling interests. They are a politically powerful enough group, but light by comparison to the governmental power the tribes have in California.
Tribes initially offered bingo, then after winning the landmark Cabazon case in 1987, which resulted in the Indian Gaming Regulatory Act, moved on to slot machines, player-banked table games between cards (house-banked card games in 1993), and finally went to the electorate to have their casinos completely legal in 2000. The ballot initiative, Prop 1A, amended the California Constitution as follows:
The Legislature has no power to authorize, and shall prohibit, casinos of the type currently operating in Nevada and New Jersey. (Art. IV, Sec. 19 (e))
The tribes (or rather, their lawyers and lobbyists) have translated this to mean that they have a monopoly on anything which could be given in a casino, which might include things like sports betting.
While horse racing is generally regarded as a mature business, with two big paths final in the previous ten years since the land was more precious put to housing and other applications, it’s still a favorite pastime for a lot in California, along with the horsemen have political clout too.
How they all intersect
As you might expect, the three stakeholders do not enjoy each other.
The actual stakeholders, of course, are those of California, who’d likely see tax earnings exceeding $100 million in the first year of operation, and upwards of that as the market evolves.
However, the CA state budget is roughly $180 billion annually, so everything is relative. One would think there is enough cash to move around this time, which wasn’t true with internet poker, which a minority of California tribes managed to defeat in the legislature over a nine-year (and counting) period.
A short legislative history of sport betting in California
Sports betting has been discussed at the legislature for nearly two years now. Historical in 2016, Assemblyman Adam Gray (D-Merced), who’s also chair of the Meeting’s Governmental Organizational Committee (which manages, among other things, gaming in the state) introduced AB 1573, that could produce a frame for offering sports gambling.
The bill has been fairly vanilla in terms of regulation: service providers licensing using a stakeholder to supply services. For a lot of reasons, including the national sports betting ban was intract at the moment, the bill never got past a hearing, nor was there any type of informational hearing on the matter.
Assemblyman Gray returned 2017 using ACA 18, which will change the California Constitution to enable the legislature to regulate sports gambling. Additionally, this went nowhere, although it’s interesting to remember that Gray may or may not have had his own timeline backwards.
Generally, with regards to gaming growth in California, you need the electorate to approve a ballot proposal first, then the legislature would write and approve regulations for it. There may or might not be a proposal here that lawmakers believed it originally wouldn’t need voter approval to promulgate sports gambling regulations.
Transforming the constitution?
Finally, a group called”Californians For Sports Betting” declared it would be trying to get an initiative on the 2020 ballot which would repeal the above clause approved by the electorate in 2000.
The very first ballot proposal sought to strike down Article IV, Sec 19 (e) of the California Constitution. I initially thought this ballot proposal was sponsored by a sportsbook, since no one with knowledge of how California politics works would realize that the tribes would spend upwards of $100 million, and not batting an eye on the checks, to defeat this measure and protect their land interests.
This accomplished was the following:
It bothered the tribes , they used their political power to get any hearings canceled on the topic, so effectively killing any legislation for 2018.
The step also annoyed the cardroom industry, since it preempted whatever they had been attempting to accomplish with sports betting, and because most tribes (wrongly) would believe the cardrooms were supporting the invoice (they were not ). There is not a lot of trust right now between the cardrooms and the sportsbook operators.
There is a panic among both a few tribes and some cardroom operators that the sportsbooks could only sweep and dominate the gambling industry, and want to know more before deciding how to proceed. Whether this fear is rationally based is not relevant.
A rewrite of the ballot measure
The promoters did rewrite the initiative a few months later, which left Art IV, Sec 19 (e) unchanged, but restricting the governor from negotiating compacts with tribes that wish to run off-reservation gaming (which many tribes probably would encourage ), and immediately authorizing the legislature to regulate sports betting, in the manner suggested by Gray’s 2016 AB 1573.
So, the present version of the ballot initiative looks more like it had been composed by a party with some elegance regarding how gaming works in California, or at least gained some help on the issue.
Finally, I would expect some variant of the previous ACA 18 or AB 1573, or maybe both, to reappear shortly after the legislature reconvenes following the holidays.
Who will get to split the money, and if?
The stumbling block in all of this is an unnecessary battle as to who gets to have the game.
The tribes initially tried to play with the card, but realizing that the tracks are just too powerful to be excluded, enlisted them in an alliance against the cardrooms.
Moreover, it’s not a good appearance to say you are against sports betting, as a few tribes and tribal assistants have stated, once you’re not just remodeling your unprofitable off-track-betting centre, you are marketing the joys of it also. In equity, tribal interests are not necessarily aligned with this problem, depending upon the tribe. As you’re likely to see, there’s going to be something here for everybody who’s spent in this to despise.
The biggest difficulty, as I see California, is that you have two major entities that operate gaming companies with substantial political power, but actually do not know either gaming nor the casino enterprise.
Cardrooms and tribes stand to benefit Cardrooms can’t have any interest in the results of any arrangement in their own cardroom. Moreover, though some operators fantasize about having the ability to bank their own games (and therefore eliminate the (Third-Party Providers of Proposition Player Services or TPPPS), the reality is that specific learning curve will be steep and likely very costly. Game protection is an entirely different animal when it is your bankroll at stake.
Tribal members receive a test, and if they’re lucky, a healthy check, each month from gambling revenues, but do not really know how that test is generated. So, you have two associated, regulated industries which are fundamentally mom and pop companies, no matter the size of these, that normally rely upon other people to advise them how to conduct their businesses.
The tribes are happy with the status quo and leary of anything but, and that’s certainly understandable.
There are not any visionary Jack Binion or even Terry Lanni clones in tribal gambling or the cardroom market. What confusion that comes from this is definitely understandable. Unfortunately, this brings in a number of celebrities that don’t always have their customers or investors best interests at heart.
No shortage of unsympathetic parties
The tribes, for the most part, rely upon their corporate lawyers and lobbyists, that, for the large part, oblige them by treating them like ATM machines, selling unnecessary, unnecessary, and most importantly, unwinnable battle.
The most recent growth is a lawsuit filed last month by two Southern California tribes from numerous cardrooms, asserting they are conducting banked table games from breach of the so-called monopoly on table games.
The first issue is that if that is true, they’re suing the wrong people; their beef is with the condition. The next problem is that if you are going to sue the State over breach of compact (the proper filing and cause of activity here), this lawsuit always is heard in federal court. As there’s a failure to join a essential party to the litigation (the State of California) which probably will not agree to be sued in state court, the likely result is most likely that the matter will be dismissed on procedural grounds.
On the other hand, you have a number of”old school” cardroom shareholders who keep score by not how much they could make, but by how far they could get over. You’ve got a couple of operators who honestly shouldn’t, in my view, hold gaming licenses, along with the tribes’ complaints into the state in their inability to regulate (read”discipline”) these operators is a valid one.
Additionally, it fairly begs the question whether the state is suitably equipped to really enforce bad behaviour (as opposed to allowing the miscreants write a check to”settle” the accusations). If they can’t revoke a licensee for egregious anti-money laundering offenses, it makes you wonder if they can fairly govern a company which manages substantially more cash.
The tribes have fought the cardrooms for any number of years on the so-called player-banked sport issue. Cardrooms, due to California legislation, can offer table games, so long as the players charge the matches rather than the home. Services called TPPPS will charge the games when no one would like to. The occurrence of these companies is at root the heart and spirit of the meat that the tribes have with the nation.
They assert that they have a”monopoly” on table games and slot machines, where the fact is that they have neither. They understand this, too. For many years, they’ve threatened all types of litigation.
The issue is, any litigation against the State of California would always take place in federal court, rather than say. Why is this significant? Having a US District Court judge, which will be an appointed for life standing, the ruling is going to be on the law, and only the law, instead of the governmental triangulation elected state court judges often offer as a guise to interpreting law.
To find past motion in federal court, you’re going to need to prove you have been hurt; in other words, you are likely to need to prove you actually have a monopoly. Hanging your hat on a vaguely written part of the state constitution is a surefire method to sabotage what monopoly can exist in your own mind.
While courts have used the word”monopoly” in their remarks regarding tribal gaming in California, there’s been no explicit grant of a biography from the electorate. The constitutionality of Art IV Sec 19 (e) has never been challenged, in my view the clause is murky, especially in light that the tribes could have choosen more direct speech in writing the ballot proposal.
Moreover, in the lawsuit which has previously taken place, it’s been by individual members of tribes suing as individuals, using some creative methods for getting their grievances aired in (state) court. Thus, looking at things from a purely historic manner, the tribes probably know precisely where they are at with all of this.
The truth is CA sports gambling There are four issues that are real and static.
The convenience factor First, cardroom customers are almost invariably customers of advantage. Think about the person who would rather shop at 7-Eleven (poor choice, high costs ) compared to the Safeway, because the 7-Eleven is across the street and he has to drive ten minutes to the Safeway.
Most gamblers just want to be in action whenever possible. That is why a gambler who lives in Alhambra, east of downtown Los Angeles, which is maybe 45 minutes out of San Manuel, one of the greatest locals casinos everywhere, prefer to drive the 15 minutes to Commerce Casino, though the amenities are poor and the cost of gambling is much greater.
Therefore, even if a number of those table games went away , the cardroom consumer would probably just return to enjoying the traditional player-banked matches (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom revenues would decrease somewhat but the tribes would get hardly any of that. Definitely not any the millions they have spent with the lawyers and lobbyists with this specific issue up to now, for certain.
Second, the actual criticism the tribes have with the cardrooms on sports gambling, is about the real estate. The cardrooms, which the larger ones are almost exclusively in metropolitan areas, the real estate favors the cardrooms.
With any introduction of sport gambling, it is possible that the path will duplicate what other jurisdictions have done before: roll out the product as land-based only to get started. This is concerning to the tribes, but maybe they don’t have any reason to be concerned. Let us take the person who resides in West LA, would he like to drive 20-30 minutes to Hollywood Park (or a little longer to Gardena or the Bicycle Casino in Bell Gardens) or double that time to San Manuel, Pechanga or Chumash to make a bet?
This isn’t really firm the tribes are getting anyway, and you’re almost surely losing business due to it. Quite similar to the table games issue, in my opinion.
What’s the plan?
Third, it’s pretty clear the sportsbooks don’t have a strategy for California, at least however. Exhibit A would be the first ill-advised ballot proposal, which killed any possibility of getting the matter to the Republicans in 2018, and certainly didn’t help things for 2020 and perhaps beyond.
Many European operators are online just; the idea of performing retail (walkup, conventional ) mortifies a number of these. But they are also natural partners for its cardrooms, as in any legislation that goes through, the cardrooms likely wouldn’t be able to take bets themselves, and would be consigned to charging to their operator-tenant.
So, some of the delay in the procedure is technology-driven, or the inability of several contemporary online operators to run a”traditional” sportsbook. However, some operators have walkup novels in Nevada, the UK, along with other jurisdictions and can surely use their experience to a competitive edge when and if California opens to business.
Ultimately, and most importantly in my opinion, unlike the struggle to receive online poker legalized, there is more than enough money to go around. Pretax earnings for a mature California marketplace, retail books simply, has been estimated to approach $1 billion, or about 40 times what online poker was estimated to earn.
In a ten percent tax rate, which will be a sensible one for all parties involved, taxation revenue could approach $100 million.
Though the legislature has traditionally deferred to the stakeholders to hammer out their own deal and get back to these, perhaps its time to get the legislature to legislate more aggressively rather than defer, because of the amount of potential tax revenue involved.
As stated in the beginning, the real stakeholders in this are the people of the State of California, and as such they are owed a duty by the individuals who represent them in Sacramento to find this matter to ballot as economically as you can. Especially as there will be layers within this, due to the inherent preceding disputes, the legislature will be well advised to be more proactive this time around.
Read more: kcsportsauthority.com