California is the fifth biggest economy in the world — if you carved it out of the US — but is still in the 20th Century regarding gaming law.
Having a projected first-year tax earnings of $100 million, an individual would think that California would want sports betting legalized as swiftly as possible. But…it could be at least five years, or even longer, before sports gambling is legalized in the nation.
A lot of the challenge is the lack of comprehension of this territory, and how the stakeholders interact with one another and the state authorities. Hopefully this article will clear some of the smoke out of the area.
Because this is the second industry this decade which 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 expectation 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 three things:
Horse racing tracks
Cardrooms are legal since 1936 (draw pokerhold’em along with other poker matches have been held to be legal in 1987, player-banked table games were legal at 1988). In all three instances, the cardrooms needed to go to court, challenge the state’s gambling statutewin.
They are subject to state regulation, that was criticized (and justly so, in my opinion) by tribal gaming interests. They’re a politically powerful enough group, but pale by comparison to the political power that the tribes have in California.
Tribes originally offered bingo, then after winning the landmark Cabazon instance in 1987, which led to the Indian Gaming Regulatory Act, moved on to slot machines, player-banked table games involving 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 attorneys and lobbyists) have translated this to mean they have a monopoly on anything that might be given in a casino, which would include things like sports gambling.
While horse racing is generally considered to be a mature industry, with two major tracks closing in the last ten years since the land was more precious set to housing and other uses, it’s still a favorite pastime for many in California, along with the horsemen have political clout as well.
How they intersect
As you might expect, the three stakeholders do not enjoy each other.
The real stakeholders, naturally, are the people of California, who would likely see tax revenues exceeding $100 million in the first year of performance, and up of that as the market matures.
However, the CA state budget is roughly $180 billion a year, so what’s 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 on a nine-year (and counting) period.
A brief legislative history of sport gambling in California
Sports betting has been discussed at the legislature for almost two decades now. Historical in 2016, Assemblyman Adam Gray (D-Merced), who is also chair of the Assembly’s Governmental Organizational Committee (which oversees, among other items, gambling in the state) introduced AB 1573, that could produce a frame for supplying sports gambling.
The bill was rather vanilla concerning regulation: service providers licensing using a stakeholder to provide services. For many reasons, for instance, federal sports betting ban was intract at the time, the bill never got past a hearing, nor was there any type of informational hearing on the situation.
Assemblyman Gray returned 2017 with ACA 18, which would change the California Constitution to enable the legislature to regulate sports betting. Additionally, this went nowhere, although it’s interesting to remember that Gray may or may not have had his deadline backwards.
Normally, with respect to gambling expansion in California, you will need the electorate to approve a ballot proposal , then the legislature would write and approve regulations for this. There may or might not be a proposal here that lawmakers believed it originally would not require voter approval to promulgate sports gambling regulations.
Transforming the constitution?
In the end, a group referred to as”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 first ballot proposal sought to strike 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 understand that the tribes would spend upwards of $100 million, rather than batting an eye on the tests, to conquer this step and protect their land interests.
What this accomplished was the following:
It bothered the tribes , they used their political power to have any hearings canceled on the topic, thus effectively killing any laws for 2018.
The measure also annoyed the cardroom business, because it preempted whatever they had been attempting to achieve with sports gambling, and because most tribes (wrongly) would think that the cardrooms were supporting the invoice (they weren’t). There is not a great deal of trust at this time between the cardrooms and the sportsbook operators.
There’s a fear among both some tribes and a few cardroom operators that the sportsbooks could just sweep and dominate the gaming industry, and want to know more before deciding how to move. Whether that fear is rationally based is not relevant.
A rewrite of the ballot measure
The promoters did rewrite the initiative a couple of months later, which abandoned Art IV, Sec 19 (e) unchanged, but restricting the governor from negotiating compacts with tribes that want to run off-reservation gambling (which most tribes probably would support), and immediately authorizing the legislature to govern sports gambling, in the manner proposed by Gray’s 2016 AB 1573.
So, the current version of the ballot initiative looks more like it was composed by a party with some elegance as to how gaming works in California, or at least got some help on the situation.
Finally, I’d anticipate some variant of the prior ACA 18 or AB 1573, or perhaps both, to surfaced soon after the legislature reconvenes after the holidays.
Who will get to divide the money, and if?
The stumbling block in all this is an unnecessary struggle as to who gets to have the game.
The tribes initially tried to play with the monopoly cardbut realizing that the monitors are just too strong to be excluded, loved them in an alliance against the cardrooms.
Moreover, it is not a fantastic look to state you are against sports gambling, as a few tribes and tribal advocates have said, when you’re not only remodeling your unprofitable off-track-betting facility, you’re advertising the joys of it as well. In equity, tribal interests are not necessarily aligned on this problem, depending on the tribe. As you are going to see, there’s going to be something here for everybody who’s invested in this to hate.
The biggest problem, as I see California, is you have two major entities who operate gaming businesses with considerable political power, but actually don’t understand either gaming nor the casino enterprise.
Cardrooms and tribes stand to benefit Cardrooms can not have any interest in the outcome of any arrangement in their own cardroom. Moreover, though some operators fantasize about having the ability to bank their own games (and therefore remove the (Third-Party Providers of Proposition Player Services or TPPPS), the truth is that specific learning curve is going to be steep and probably very costly. Game protection is an entirely different animal when it is your bankroll at stake.
Tribal members get a test, and if they are lucky, a wholesome check, every month from gambling revenues, but do not really understand how that check is created. So, you have two related, controlled industries which are fundamentally mom and pop companies, no matter the size of these, that normally rely on others to inform them how to conduct their businesses.
The tribes generally are satisfied with the status quo and also leary of anything but, and that’s certainly understandable.
There are no visionary Jack Binion or Terry Lanni clones in tribal gambling or the cardroom industry. What confusion which comes from that is definitely understandable. Sadly, this brings in several of actors that don’t always have their customers or investors best interests in mind.
No shortage of unsympathetic parties
The tribes, for the most part, rely on their corporate attorneys and lobbyists, that, for the large part, oblige them by treating them such as ATM machines, promoting unnecessary, unnecessary, and above all, unwinnable battle.
The most recent growth is a lawsuit filed last month by two Southern California tribes against numerous cardrooms, asserting they are conducting banked table games from violation of their so-called monopoly on table games.
The first problem is that if this is accurate, they’re suing the wrong people; their beef is with the condition. The second problem is that if you are going to sue the State over breach of compact (the appropriate filing and cause of activity here), this lawsuit necessarily is observed in federal court. Since there’s a failure to join a necessary party to the litigation (the State of California) which probably won’t consent to be sued in state court, the likely outcome is probably the matter will be dismissed on procedural grounds.
On the other hand, you have a number of”old school” cardroom shareholders that keep score by not how much they could create, but by how far they could get over. You’ve got a couple of operators that frankly should not, in my opinion, maintain gaming licenses, and the tribes’ complaints into the state about their inability to govern (read”discipline”) these operators is a valid one.
It also fairly begs the question whether or not the state is suitably equipped to really enforce bad behaviour (instead of allowing the miscreants write a check to”settle” the accusations). If they can’t revoke a licensee for egregious anti-money laundering violations, it makes you wonder if they could fairly govern a company which manages substantially more money.
The tribes have fought the cardrooms for a 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 bank the matches and not the house. Services called TPPPS will charge the games when nobody would like to. The existence of these companies is at root the heart and spirit of the meat that the tribes have with the nation.
They claim that they have a”monopoly” on table games and slot machines, where the reality is they have neither. They know this, also. For years, they have threatened all types of litigation.
The problem is, any litigation against the State of California would necessarily take place in federal court, and not state. Why is this significant? With a US District Court judge, which will be an appointed for life standing, the ruling is going to be about the legislation, and only the law, rather than the political triangulation elected state court judges frequently offer as a guise to interpreting law.
To find past movement in federal court, you’re going to need to prove you have been injured; Quite simply, you’re going to have to prove you really have a monopoly. Hanging your hat on a richly composed part of the state constitution is a surefire way to jeopardize what monopoly can exist in your mind.
While courts have employed the word”monopoly” within their remarks regarding tribal gambling in California, there has been no explicit grant of a monopoly from the electorate. The constitutionality of Art IV Sec 19 (e) has never been contested, in my view the clause is murky, especially in light that the tribes might have choosen more direct language in composing the ballot proposal.
Moreover, in the litigation that has previously happened, it’s been by individual members of tribes suing as humans, utilizing some creative methods for getting their grievances aired in (state) court. Thus, looking at things from a purely historic fashion, the tribes probably know exactly where they’re at with this.
The truth is CA sports betting There are four problems which are static and real.
The convenience Element First, cardroom customers are almost always customers of advantage. Think about the man who would rather shop at 7-Eleven (bad choice, high costs ) than the Safeway, because the 7-Eleven is across the road and he has to drive ten minutes to the Safeway.
Most gamblers only wish to be in action as soon as possible. That is why a gambler who lives in Alhambra, east of downtown Los Angeles, that is maybe 45 minutes from San Manuel, one of the best locals casinos everywhere, would rather drive the 15 minutes to Commerce Casino, even though the amenities are poor and the cost of gambling is much higher.
Therefore, even though some of the table games went away , the cardroom customer would likely just return to enjoying with the conventional player-banked games (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom earnings would decrease marginally but the tribes could get hardly any of that. Definitely no matter the millions they have invested with the attorneys and lobbyists with this particular issue up to now, for certain.
Second, the real complaint that the tribes have the cardrooms on sports betting, is all about the real estate. The cardrooms, which the larger ones are nearly exclusively in metropolitan regions, the real estate favors the cardrooms.
With any introduction of sport gambling, it’s possible that the path will duplicate what other authorities 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’s take the person who lives in West LA, would he prefer to drive 20-30 minutes to Hollywood Park (or a bit longer to Gardena or the Bicycle Casino in Bell Gardens) or at least double that period to San Manuel, Pechanga or Chumash to make a wager?
This is not really firm the tribes are getting anyway, and you’re almost certainly losing business because of it. Quite much like the dining table games issue, in my view.
What is the Strategy?
Third, it’s fairly clear the sportsbooks don’t have a plan for California, at least yet. Exhibit A are the first ill-advised ballot proposition, which killed any possibility of getting the matter to the voters in 2018, and certainly didn’t help things for 2020 and perhaps beyond.
Some European operators are online just; the thought of performing retail (walkup, conventional ) mortifies some of them. However, they are also natural partners for its cardrooms, as in any legislation that goes through, the cardrooms probably wouldn’t have the ability to accept bets themselves, and could be consigned to charging to their operator-tenant.
So, some of this delay in the process is technology-driven, or the inability of some modern online operators to run a”conventional” sportsbook. But some operators have walkup books in Nevada, the UK, and other jurisdictions and can surely use their expertise to a competitive edge if and when California opens for business.
Ultimately, and most importantly in my view, unlike the struggle to receive internet poker legalized, there is more than enough money to go around. Pretax earnings for a mature California marketplace, retail publications only, was projected to approach $1 billion, or about 40 times what online poker has been estimated to bring in.
In a ten percent tax rate, which will be a sensible one for all parties involved, tax revenue could approach $100 million.
While the legislature has traditionally deferred to the stakeholders to hammer out their own deal and contact them, maybe its time to get the legislature to legislate more aggressively instead of defer, due to the quantity of potential tax revenue involved.
As stated in the beginning, the actual stakeholders in this are the people of the State of California, and as such they’re owed a duty by the individuals who represent them in Sacramento to find this matter to ballot as economically as possible. Especially as there will be layers within this, due to the inherent previous disputes, the legislature would be well advised to be much proactive this time around.