California Sports Betting Faces Tough But Not Impossible Road

California is the fifth largest economy on earth — should you carved it out of the US — but is still at the 20th Century regarding gaming regulation.
With a projected first-year tax revenue of $100 million, an individual would feel that California would want sports betting legalized as quickly as possible. But…it could be at least five decades, if not longer, before sports gambling is headquartered in the nation.
A lot of the problem is the lack of understanding of this land, and the way the stakeholders interact with one another and the state authorities. Hopefully this article will clear some of the smoke out of the room.
Because this is the next sector this decade which has flipped from prohibited to controlled, California already has any experience in that regard. I will try to decode here what the problems are, in the hope that better comprehension of those issues will help get to some win/win for all parties involved as efficiently as you can.
The lay of the land for California sports gambling Current stakeholders in CA gaming comprise these three entities:
Horse racing tracks
The cardrooms
Cardrooms have been legal since 1936 (draw pokerhold’em along with other poker games were held to be lawful in 1987, player-banked table games were lawful at 1988). In all three cases, the cardrooms needed to go to court, challenge the state’s gambling statute, and win.
They are subject to state law, that was criticized (and justly so, in my opinion) by tribal gambling interests. They’re a politically powerful enough group, but pale by comparison to the political power the tribes have in California.
Tribal gaming
Tribes originally offered bingo, then after winning the landmark Cabazon case in 1987, which resulted in the Indian Gaming Regulatory Act, proceeded to slot machines, player-banked table games involving cards (house-banked card matches in 1993), and eventually went into 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 interpreted this to mean that they have a monopoly on anything which could be offered in a casino, which might include things like sports gambling.
While horse racing is generally considered to be a mature business, with two big paths final in the last ten years because the land has been more valuable set to housing and other uses, it’s still a popular pastime for many in California, and the horsemen have political clout as well.
How they intersect
As you would expect, the three stakeholders do not like each other.
The actual stakeholders, naturally, would be the people of California, who would likely see tax revenues approaching $100 million from the first year of operation, and up of this as the market matures.
On the other hand, the CA state budget is roughly $180 billion a year, so everything is relative. An individual would think there’s enough money to move around this time, which wasn’t true with online 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 sports gambling in California
Sports betting has been discussed at the legislature for nearly two years now. Historical in 2016, Assemblyman Adam Gray (D-Merced), who is also chair of the Meeting’s Governmental Organizational Committee (which oversees, among other things, gambling in the country ) introduced AB 1573, that could produce a frame for offering sports betting.
The invoice has been fairly vanilla concerning regulation: service providers licensing with a stakeholder to provide services. For many reasons, for instance, national 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 using ACA 18, which will change the California Constitution to enable the legislature to govern sports gambling. Additionally, this went nowhere, though it’s interesting to note that Gray may or may not have had his own deadline backwards.
Normally, with regards to gambling growth in California, you need the electorate to approve a ballot proposal first, then the legislature would compose and approve regulations for this. There may or might not be a suggestion here that lawmakers believed it initially would not need voter approval to promulgate sports gambling regulations.
Changing the constitution?
Finally, a group referred to as”Californians For Sports Betting” declared it would be attempting to get an initiative to the 2020 ballot that would repeal the aforementioned clause approved by the electorate in 2000.
The 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 understanding of how California politics works would realize that the tribes would spend upwards of $100 million, rather than batting an eye on the checks, to defeat this measure 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 matter, thus effectively killing any legislation for 2018.
The measure also annoyed the cardroom business, since it preempted whatever they had been trying to accomplish with sports betting, and because many tribes (wrongly) would believe the cardrooms were behind the bill (they weren’t). There is not a lot of trust right now between the cardrooms and the sportsbook operators.
There’s a fear among both a few tribes and a few cardroom operators that the sportsbooks could only sweep and dominate the gaming industry, and want to learn more before deciding how to move. Whether that fear is rationally based is not relevant.
A rewrite of this ballot measure
The promoters did rewrite the initiative a few months afterwards, which abandoned Art IV, Sec 19 (e) unchanged, but restricting the governor from negotiating compacts with tribes who want to conduct off-reservation gambling (which most tribes likely would encourage ), and immediately authorizing the legislature to regulate sports gambling, in the manner suggested 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 sophistication as to how gaming functions in California, or at least got some help on the issue.
Finally, I’d expect some version of the previous ACA 18 or AB 1573, or perhaps both, to reappear shortly after the legislature reconvenes following the holidays.
Who will get to split the money, and when?
The stumbling block in all this is an unnecessary struggle regarding who gets to have the game.
The tribes initially attempted to play with the cardbut realizing that the tracks are simply too strong to be excluded, loved them in an alliance against the cardrooms.
What’s more, it is not a fantastic appearance to say you’re against sports betting, as some tribes and tribal assistants have stated, when you’re not just remodeling your unprofitable off-track-betting centre, you’re marketing the reopening of it also. In fairness, tribal interests aren’t necessarily aligned on this issue, depending on the tribe. As you are likely to see, there is going to be something here for everybody who’s spent in this to hate.
The biggest difficulty, as I see California, is that you have two major entities that operate gaming companies with considerable political power, but really do not know either gambling nor the casino business.
Cardrooms and tribes stand to benefit Cardrooms can’t have any interest in the results of any arrangement in their cardroom. Moreover, although some operators fantasize about being able to bank their own matches (and therefore eliminate 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 expensive. Game protection is a totally different animal when it is your bankroll whatsoever.
Tribal members get a check, and if they’re lucky, a healthy check, every month from gaming revenues, but do not really know how that test is generated. So, you’ve got two associated, regulated industries that are essentially mom and pop companies, no matter the size of them, that generally rely upon others to advise them how to run their businesses.
The tribes generally are happy with the status quo and leary of anything but, and that’s certainly understandable.
There are no visionary Jack Binion or even Terry Lanni clones in tribal gambling or the cardroom market. What confusion which comes from this is definitely understandable. Unfortunately, this brings in several of celebrities that don’t necessarily have their customers or investors best interests in mind.
No shortage of unsympathetic parties
The tribes, for the most part, rely on their corporate lawyers and lobbyists, who, for the large part, oblige them by treating them such as ATM machines, promoting unneeded, unnecessary, and above all, unwinnable battle.
The latest development is a suit filed last month by two Southern California tribes from a number of cardrooms, asserting that they are conducting banked table games from breach of their so-called monopoly on table games.
The first issue is that if this is accurate, they are suing the wrong people; their beef is with the condition. The second problem is that if you’re going to sue the State over breach of compact (the proper filing and also cause of activity here), this litigation necessarily is observed in federal court. Since there’s a failure to join a essential party to the lawsuit (the State of California) which likely will not agree to be sued in state court, the most likely outcome is probably the matter will be dismissed on procedural grounds.
Effective regulation?
On the other hand, you have a range of”old school” cardroom investors that keep score by how much they could make, but by how much they can get over. You’ve got a few operators that honestly should not, in my opinion, maintain gaming licenses, along with the tribes’ complaints into the country about their inability to govern (read”field”) these operators is a legitimate one.
Additionally, it fairly begs the question whether or not the state is properly equipped to really enforce bad behaviour (as opposed to allowing the miscreants write a test to”settle” the accusations). If they can not revoke a licensee for egregious anti-money laundering offenses, it makes one wonder if they can fairly regulate a company which manages substantially more money.
The tribes have fought the cardrooms for a number of years on the so-called player-banked game issue. Cardrooms, because of California legislation, can provide table games, as long as the players charge the matches rather than the home. Services called TPPPS will bank the matches when nobody would like to. The occurrence of these companies is at root the center and spirit of the meat that the tribes have with the state.
They assert that they have a”monopoly” on table games and slot machines, in which the reality is that they probably have neither. They know this, too. For many years, they have threatened all types of litigation.
The problem is, any lawsuit against the State of California would necessarily occur in federal court, rather than state. Why is this significant? With a US District Court judge, which will be an appointed for life standing, the judgment is going to be on the law, and just the law, instead of the governmental triangulation elected state court judges frequently offer as a guise to interpreting the law.
To get past movement in federal court, you’re going to need to prove you’ve been hurt; Quite simply, you are going to need to prove you actually have a monopoly. Hanging your hat on a richly composed section of the state constitution is a surefire way to jeopardize what monopoly may exist within your own mind.
While courts have employed the term”monopoly” within their opinions regarding tribal gaming in California, there’s been no explicit grant of a monopoly from the electorate. The constitutionality of Art IV Sec 19 (e) hasn’t been challenged, in my opinion the clause is murky, particularly in light that the tribes could have choosen more direct language in writing the ballot proposal.
Moreover, in the lawsuit which has previously happened, it’s been by individual members of tribes suing as individuals, utilizing some creative procedures for getting their grievances aired in (state) court. Thus, looking at things from a purely historic manner, the tribes likely know precisely where they’re at with this.
The truth is CA sports gambling There are four issues which are real and static.
The convenience factor First, cardroom clients are almost always customers of advantage. Think about the person who would rather store at 7-Eleven (bad selection, high prices) than the Safeway, since the 7-Eleven is across the street and he must 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, which is maybe 45 minutes from San Manuel, one of the best locals casinos everywhere, would rather drive the 15 minutes to Commerce Casino, though the comforts are poor and the cost of gaming is a lot greater.
Therefore, even though a number of those table games went away , the cardroom consumer would likely just go back to playing 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 . Certainly not any the millions they have spent with the attorneys and lobbyists with this particular issue up to now, for sure.
Second, the actual complaint that the tribes have with the cardrooms on sports gambling, is all about the actual estate. The cardrooms, which the bigger ones are almost exclusively in metropolitan areas, the real estate favors the cardrooms.
With any introduction of sports betting, it’s possible that the path will replicate what some other authorities have done previously: roll out the product as land-based only to start. This is about to the tribes, but perhaps they have no reason to worry about Let’s take the person who lives in West LA, would he like 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 business the tribes are getting anyway, and you are almost certainly losing business due to it. Very much like the dining table games difficulty, in my view.
What is the plan?
Third, it’s fairly clear the sportsbooks don’t have a plan for California, at least yet. Exhibit A would be the first ill-advised ballot proposition, which killed any chance of finding the issue to the Republicans in 2018, and surely didn’t help things for 2020 and perhaps beyond.
Many European operators are online only; the thought of performing retail (walkup, conventional ) mortifies some of these. However, they’re also natural partners for the cardrooms, as in any legislation that goes through, the cardrooms probably would not be able to accept stakes themselves, and would be consigned to charging rent to their operator-tenant.
So, some of this delay in the procedure is technology-driven, or rather the inability of several contemporary online operators to run a”traditional” sportsbook. However, some operators have walkup novels in Nevada, the united kingdom, and other authorities and can certainly use their experience to a competitive advantage when and if California opens for business.
Finally, and most importantly in my view, unlike the battle to get internet poker legalized, there is more than enough cash to go around. Pretax revenue to get a mature California market, retail publications simply, has been projected to approach $1 billion, or roughly 40 times that which online poker was estimated to bring in.
In a ten percent tax rate, which will be a sensible one for all parties involved, taxation revenue could approach $100 million.
Suggestion box
While the legislature has traditionally deferred to the stakeholders to hammer out their own deal and get back to these, maybe its time to get the legislature to legislate more harshly rather than defer, due to the quantity of potential tax revenue involved.
As stated initially, the actual 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 in this, due to the underlying previous disputes, the legislature will be well advised to be much proactive this time around.

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