California Sports Betting Faces Tough But Not Impossible Road

California is the fifth largest economy in the world — should you carved it from the US — but remains at the 20th Century regarding gambling law.
With a projected first-year tax revenue of $100 million, one would think that California would want sports gambling legalized as quickly as possible. But…it could be five years, if not longer, before sports betting is headquartered in the nation.
A lot of the challenge is the lack of understanding of the land, and how the stakeholders interact with each other and the state authorities. Hopefully this guide will clear some of the smoke from the room.
As it is the second industry this decade which has flipped from illegal to regulated, California already has any expertise in that regard. I’ll try to decipher here exactly what the issues are, in the hope that better understanding of those issues will help get to a win/win for all parties involved as economically as possible.
The lay of this property for California sports gambling Current stakeholders in CA gaming comprise these three things:
Horse racing tracks
The cardrooms
Cardrooms are legal since 1936 (draw pokerhold’em and other poker games have been held to be legal in 1987, player-banked table games were legal in 1988). In all three cases, the cardrooms had to go to court, challenge the nation’s gambling statutewin.
They’re subject to state regulation, which has been criticized (and justly so, in my estimation ) by tribal gaming interests. They’re a politically powerful enough group, but light by comparison to the governmental power that the tribes have in California.
Tribal gaming
Tribes originally offered bingo, then after winning the landmark Cabazon instance in 1987, which resulted in the Indian Gaming Regulatory Act, proceeded 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 could be offered in a casino, which would include sports betting.
While horse racing is usually regarded as a mature industry, with two big tracks final in the last ten years because the land has been more precious put 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 all intersect
As you would expect, the three stakeholders don’t like each other.
The actual stakeholders, naturally, would be the people of California, who would probably see tax earnings approaching $100 million from the initial year of operation, and up of that as the market evolves.
On the other hand, the CA state budget is about $180 billion a year, so everything is relative. An individual would think there’s enough money to go around this time, which was not true with online poker, which a minority of California tribes were able to conquer in the legislature on a nine-year (and counting) period.
A brief legislative history of sport gambling in California
Sports betting has been discussed in the legislature for nearly two decades now. Historical in 2016, Assemblyman Adam Gray (D-Merced), who’s also chair of the Assembly’s Governmental Organizational Committee (which oversees, among other items, gambling in the country ) introduced AB 1573, which could create a framework for supplying sports betting.
The invoice was fairly vanilla in terms of regulation: service providers licensing using a stakeholder to provide services. For a lot of reasons, including the national sports gambling ban was intract in the time, the bill never got past a reading, nor was there some sort of informational hearing on the situation.
Assemblyman Gray returned in 2017 using ACA 18, which will change the California Constitution to allow the legislature to regulate sports gambling. Additionally, this went nowhere, though it’s interesting to note that Gray may or may not have had his timeline backwards.
Generally, with respect to gambling expansion in California, you will 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 suggestion here that lawmakers believed it initially would not require voter approval to promulgate sports betting regulations.
Changing the constitution?
In the end, a group referred to as”Californians For Sports Betting” declared it would be trying to get an initiative to the 2020 ballot which would repeal the above 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 originally believed this ballot proposal was sponsored by a sportsbook, because no one with knowledge of how California politics functions would realize that the tribes would invest upwards of $100 million, rather than batting an eye on the checks, to conquer this step and protect their land interests.
What this accomplished was the following:
It bothered the tribes so much, they used their political power to have any hearings canceled on the topic, thus effectively killing any laws for 2018.
The step also annoyed the cardroom business, because it preempted whatever they had been attempting to achieve with sports betting, and because most tribes (wrongly) would think that the cardrooms were supporting the bill (they weren’t). There is not a lot of trust right now involving the cardrooms and the sportsbook operators.
There is a fear among both a few tribes and a few cardroom operators that the sportsbooks could only sweep in and dominate the gambling business, and need to learn more before deciding how to move. Whether this fear is logically based isn’t relevant.
A rewrite of the ballot measure
The promoters did rewrite the initiative a few months afterwards, which left Art IV, Sec 19 (e) unchanged, but restricting the governor from negotiating compacts with tribes who wish to run off-reservation gambling (which most tribes likely would support), and directly authorizing the legislature to govern sports betting, in the manner proposed by Gray’s 2016 AB 1573.
So, the current version of the ballot initiative appears more like it had been written by a celebration with some sophistication as to how gaming works in California, or at least got some help on the situation.
Finally, I’d anticipate some version of the previous ACA 18 or AB 1573, or maybe both, to surfaced soon after the legislature reconvenes following the holidays.
Who’ll get to split the cash, and if?
The stumbling block in all of this is an unnecessary battle as to who gets to own the game.
The tribes initially attempted to play with the card, but realizing the monitors are just too powerful to be excluded, enlisted them in an alliance against the cardrooms.
Moreover, it is not a fantastic look to state 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 facility, you’re advertising the joys of it as well. In equity, tribal interests aren’t necessarily aligned on this problem, depending upon 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 difficulty, as I see California, is you have two major entities who operate gaming businesses with substantial political power, but actually do not know either gambling nor the casino business.
Cardrooms and tribes stand to gain Cardrooms can’t have some interest in the results of any deal in their cardroom. Moreover, although some operators fantasize about having the ability to bank their own matches (and therefore eliminate the (Third-Party Providers of Proposition Player Services or TPPPS), the reality is that specific learning curve will be steep and probably very expensive. Game protection is a totally different animal when it’s your bankroll at stake.
Tribal members receive a test, and if they are lucky, a wholesome check, each month from gambling revenues, but don’t really understand how that test is generated. Thus, you have two associated, regulated industries that are fundamentally mom and pop companies, no matter the size of them, that generally rely upon other people to inform them how to run their businesses.
The tribes are happy with the status quo and also 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 industry. What confusion that comes from this is certainly understandable. Sadly, this brings in several of celebrities which don’t necessarily have their customers or investors best interests at heart.
No shortage of unsympathetic parties
The tribes, for the most part, rely upon their corporate attorneys and lobbyists, that, for the large part, oblige them by treating them like ATM machines, selling unneeded, unnecessary, and most importantly, unwinnable battle.
The latest development is a lawsuit filed last month by two Southern California tribes from a number of cardrooms, asserting that they are running banked table games in breach of their so-called monopoly on table games.
The first issue is that if this is true, they are suing the wrong people; their beef is with the state. The next problem is that if you’re going to sue the State over violation of compact (the proper filing and cause of activity here), that lawsuit necessarily is observed in federal court. Since there’s a failure to join a necessary party to the lawsuit (the State of California) which likely won’t consent to be sued in state court, the likely outcome is most likely the matter will be dismissed on procedural grounds.
Effective regulation?
On the other hand, you have a range of”old school” cardroom investors who keep score by how much they could create, but by how far they could get over. You have a couple of operators who frankly should not, in my view, hold gaming licenses, and the tribes’ complaints to the state in their inability to regulate (read”field”) these operators is a legitimate one.
It also fairly begs the question whether the state is suitably equipped to actually enforce bad behaviour (instead of letting the miscreants write a test to”settle” the accusations). If they can’t reverse a licensee for egregious anti-money laundering violations, it makes one wonder if they could fairly govern a company which manages substantially more cash.
The tribes have fought the cardrooms for a number of years on the so-called player-banked game issue. Cardrooms, due to California legislation, can provide table games, as long as the players bank the matches and not the house. Services called TPPPS will charge the games when nobody wants to. The existence of these companies is at root the heart and soul of the beef the tribes have with the nation.
They claim that they have a”monopoly” on table games and slot machines, in which the reality is that they have neither. They know this, too. For years, they’ve threatened all types of litigation.
The issue is, any lawsuit against the State of California would necessarily take place in federal court, rather than say. Why is this important? Having a US District Court judge, which will be an appointed for life standing, the judgment will be on the law, and only the law, instead of the political triangulation elected state court judges often offer as a guise to interpreting the law.
To get past motion in federal court, you are going to need to prove you have been hurt; Quite simply, you’re likely to have to prove you really have a monopoly. Hanging your hat on a richly composed part of the state constitution is a surefire method to sabotage what monopoly may exist in your own mind.
While courts have used the word”monopoly” in their remarks regarding tribal gambling in California, there’s been no explicit grant of a monopoly from the electorate. The constitutionality of Art IV Sec 19 (e) has never been contested, in my opinion the clause is murky, particularly in light that the tribes could have choosen more direct language in composing the ballot proposal.
Moreover, in the litigation which has previously taken place, it’s been by individual members of tribes suing as individuals, utilizing some creative methods for getting their grievances aired in (country ) court. Thus, looking at things from a purely historic manner, the tribes likely know exactly where they are at with all of this.
The truth is CA sports gambling There are four issues which are static and real.
The convenience Element To begin with, cardroom customers are almost always customers of convenience. Consider the person who would rather store at 7-Eleven (bad selection, high costs ) compared to the Safeway, since the 7-Eleven is across the street and he must drive ten minutes into the Safeway.
Most gamblers just wish to be in action whenever possible. That is the reason why a gambler who lives in Alhambra, east of downtown Los Angeles, that is perhaps 45 minutes out of San Manuel, one of the greatest locals casinos everywhere, prefer to drive the 15 minutes to Commerce Casino, even though the amenities are poor and the price of gambling is much greater.
Therefore, even if a number of the table games went off tomorrow, the cardroom customer would likely just go back to playing with the conventional player-banked games (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom revenues would fall somewhat but the tribes would get hardly any . Definitely no matter the millions they’ve spent with the attorneys and lobbyists with this specific issue up to now, for certain.
Second, the real complaint that the tribes have with the cardrooms on sports gambling, is about the real estate. The cardrooms, which the bigger ones are nearly exclusively in metropolitan areas, the real estate favors the cardrooms.
With any debut of sport gambling, it is likely the path will replicate what some other jurisdictions have done before: roll out the merchandise as land-based only to start. This is concerning to the tribes, but maybe they don’t have any reason to worry about Let’s take the man or woman who resides 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 double that time to San Manuel, Pechanga or Chumash to make a wager?
This isn’t really business the tribes are getting anyway, and you are almost surely losing business because of it. Quite similar to this dining table games issue, in my view.
What is the plan?
Third, it is pretty clear the sportsbooks don’t have a plan for California, at least yet. Exhibit A would be the first ill-advised ballot proposal, which killed any chance of finding the matter to the Republicans in 2018, and surely did not help matters for 2020 and possibly beyond.
Many European operators are online only; the thought of doing retail (walkup, traditional) mortifies a number of these. But they are also natural partners for its cardrooms, as in almost any legislation that goes through, the cardrooms probably wouldn’t have the ability to take stakes themselves, and would be consigned to charging to their operator-tenant.
Thus, some of the delay in the process is technology-driven, or the inability of some modern online operators to operate a”traditional” sportsbook. But some operators have walkup books in Nevada, the UK, and other jurisdictions and can surely use their expertise to a competitive advantage if and when California opens to business.
Ultimately, and most importantly in my view, unlike the struggle to receive online poker legalized, there is more than enough cash to go around. Pretax earnings for a mature California market, retail books simply, has been projected to approach $1 billion, or about 40 times that which online poker was estimated to earn.
At a ten percent tax rate, which is a reasonable one for all parties involved, tax earnings could approach $100 million.
Suggestion box
Though the legislature has traditionally deferred to the stakeholders to hammer out their own deal and contact these, perhaps its time for the legislature to legislate more aggressively instead of defer, due to the amount of potential tax revenue involved.
As stated initially, the real stakeholders in this are the people of the State of California, and as such they’re owed a duty by the people who represent them in Sacramento to get this matter to ballot as economically as you can. Especially as there will be layers within this, because of the underlying preceding disputes, the legislature will be well advised to be much more proactive this time round.

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