California is the fifth biggest economy on earth — 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 to have sports gambling legalized as swiftly as possible. But…it might be at least five decades, or even longer, before sports betting is headquartered in the nation.
Much of the challenge is the lack of understanding of this 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 this is the second sector this decade that has flipped from prohibited to regulated, California already has any experience in that regard. I will try to decipher here what the problems are, in the expectation that better understanding of those issues will help reach some win/win for all parties involved as economically as you can.
The lay of the property for California sports gambling Present-day stakeholders in CA gaming comprise these 3 things:
Cardrooms
Tribes
Horse racing tracks
The cardrooms
Cardrooms have been legal since 1936 (draw poker; hold’em along with other poker games have been held to be lawful in 1987, player-banked table games were legal in 1988). In all three instances, the cardrooms had to go to court, challenge the state’s gambling statutewin.
They’re subject to state law, which was criticized (and justly so, in my opinion) by tribal gaming interests. They are a politically powerful enough group, but pale by comparison to the governmental power that the tribes have in California.
Tribal gaming
Tribes originally offered bingo, then after winning the landmark Cabazon case in 1987, which led to the Indian Gaming Regulatory Act, moved to slot machines, player-banked table games between cards (house-banked card games in 1993), and eventually went to the electorate to get their casinos fully 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 interpreted this to mean that they have a monopoly on anything that could be offered in a casino, which might include things like sports betting.
Racetracks
While horse racing is generally regarded as a mature business, with two major tracks closing in the last ten years since the land was more precious set to housing and other applications, it is still a favorite pastime for many in California, along with the horsemen have political clout too.
How they intersect
As you might expect, the three stakeholders don’t enjoy each other.
The real stakeholders, of course, are the people of California, who’d likely see tax revenues exceeding $100 million from the first year of performance, 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. One would think there is enough cash to move around this time, which wasn’t true with online poker, which a minority of California tribes were able to conquer in the legislature over a nine-year (and counting) period.
A short legislative history of sport betting in California
Sports gambling has been discussed in the legislature for almost 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 items, gaming in the state) introduced AB 1573, that would create a frame for supplying sports gambling.
The bill was fairly vanilla in terms of regulation: service providers licensing with a stakeholder to provide solutions. For a lot of reasons, including the national sports betting ban was intract in the moment, the bill never got past a reading, nor was there any 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 govern sports betting. This also went nowhere, though it’s interesting to remember that Gray may or may not have had his own deadline backwards.
Normally, with respect to gaming expansion in California, you need the electorate to approve a ballot proposal first, then the legislature would write and approve regulations for this. There may or may not be a proposal here that lawmakers thought it originally would not require voter approval to promulgate sports gambling regulations.
Changing the constitution?
Finally, a group referred to as»Californians For Sports Betting» announced it would be trying to get an initiative on the 2020 ballot which would repeal the aforementioned 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 originally believed this ballot proposal was sponsored by a sportsbook, since no one with understanding of how California politics works would realize that the tribes could invest upwards of $100 million, rather than batting an eye writing the tests, to defeat this step and protect their land interests.
This accomplished was the following:
It irritated the tribes , they used their political ability to have any hearings canceled on the topic, thus effectively killing any legislation for 2018.
The step also annoyed the cardroom business, since it preempted anything they were attempting to achieve with sports gambling, and because most tribes (wrongly) would think the cardrooms were behind the invoice (they weren’t). There is not a lot of trust right now involving the cardrooms and the sportsbook operators.
There’s a panic among both a few tribes and a few cardroom operators that the sportsbooks could only sweep and dominate the gambling business, and need to know more before deciding how to move. Whether this 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 left Art IV, Sec 19 (e) unchanged, but restricting the governor from negotiating compacts with tribes who want to conduct off-reservation gaming (which most tribes likely would support), and immediately authorizing the legislature to govern sports betting, in the way proposed by Gray’s 2016 AB 1573.
So, the current version of the ballot initiative appears more like it had been written by a party with some elegance regarding how gaming functions in California, or at least gained some help on the issue.
Finally, I would anticipate some version of the previous ACA 18 or AB 1573, or maybe both, to surfaced soon after the legislature reconvenes after the holidays.
Who’ll get to divide the money, and when?
The stumbling block in all of this is an unnecessary battle regarding who gets to have the game.
The tribes initially attempted to play with the monopoly cardbut realizing that the tracks are just too strong to be excluded, enlisted them in an alliance against the cardrooms.
What’s more, it is not a good appearance to state you are against sports gambling, as a few tribes and tribal advocates have stated, when you’re not only remodeling your unprofitable off-track-betting centre, you’re advertising the joys of it as well. In fairness, tribal interests are not necessarily aligned on this issue, depending upon the tribe. As you’re likely to see, there is going to be something here for everybody who’s invested in this to despise.
The biggest problem, as I see California, is you have two big entities who 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 not have any interest in the results of any deal in their own cardroom. Moreover, although some operators fantasize about being able to bank their own games (and therefore remove the (Third-Party Providers of Proposition Player Services or TPPPS), the reality is that specific learning curve is going to be steep and likely very costly. Game protection is an entirely different animal when it is your bankroll whatsoever.
Tribal members receive a check, and if they are lucky, a wholesome check, each month from gambling revenues, but do not really know how that check is generated. Thus, you have two associated, controlled businesses which are essentially mom and pop businesses, no matter the size of them, that normally rely upon others to advise them how to run their businesses.
The tribes are happy with the status quo and also leary of anything but, and that is certainly understandable.
There are no visionary Jack Binion or even Terry Lanni clones in tribal gaming or the cardroom market. What confusion that comes from that is certainly understandable. Sadly, this brings in a number of celebrities which don’t necessarily have their clients or investors best interests at heart.
No shortage of unsympathetic parties
The tribes, for the most part, rely upon 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 growth is a lawsuit filed last month by two Southern California tribes against a number of cardrooms, asserting that they are running banked table games in violation of their so-called monopoly on table games.
The first problem is that if this is true, they’re suing the wrong people; their beef is with the condition. The second issue is that if you’re going to sue the State over breach of compact (the proper filing and cause of activity here), that 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 probably will not consent to be sued in state court, the likely result is probably that the issue will be dismissed on procedural grounds.
Effective regulation?
On the other hand, you have a number of»old school» cardroom shareholders who keep score by how much they can make, but by how much they could get over. You have a couple of operators that frankly should not, in my opinion, maintain gaming licenses, and the tribes’ complaints into the state in their inability to govern (read»field») those operators is a valid one.
Additionally, it fairly begs the question whether the state is properly equipped to really enforce bad behaviour (as opposed to letting the miscreants write a test to»settle» the accusations). If they can’t revoke a licensee for egregious anti-money laundering violations, it makes you wonder if they can fairly govern a business which handles 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 law, can provide table games, so long as the players charge the games rather than the home. Services called TPPPS will bank the games when no one would like to. The occurrence of the companies is at root the heart 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, where the reality is that they have neither. They understand this, also. For years, they have threatened all kinds of litigation.
The issue is, any lawsuit against the State of California would necessarily occur in federal court, and not state. Why is this important? Having a US District Court judge, which will be an appointed for life position, the judgment will be about the law, and just the law, instead of the political triangulation elected state court judges often offer as a guise to interpreting law.
To get past motion in federal court, you are going to have to prove you’ve been injured; in other words, you’re going to need to prove you actually have a monopoly. Hanging your hat on a vaguely written part of the state constitution is a surefire way to sabotage what monopoly may exist within your own mind.
While courts have employed the word»monopoly» in 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) has never been challenged, in my view the clause is cloudy, particularly in light that the tribes might have choosen more direct speech in composing the ballot proposal.
In addition, from the litigation that has previously happened, it has been by individual members of tribes suing as humans, using some creative methods for getting their grievances aired in (state) court. Thus, looking at things from a purely historical fashion, the tribes probably know precisely where they are at with this.
The reality for CA sports betting There are four issues that are static and real.
The convenience Element To begin with, cardroom clients are almost always customers of advantage. Think about the person who would rather shop at 7-Eleven (poor selection, high prices) compared to the Safeway, since the 7-Eleven is across the road and he has to drive ten minutes to the Safeway.
Most gamblers only want to be in action as soon as possible. That’s the reason why a gambler who lives in Alhambra, east of downtown Los Angeles, which is maybe 45 minutes out of San Manuel, one of the best locals casinos everywhere, would rather drive the 15 minutes to Commerce Casino, even though the comforts are inferior and the price of gaming is much greater.
As such, even if a number of those table games went away tomorrow, the cardroom customer would probably just go back to enjoying the traditional player-banked matches (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom earnings would decrease marginally but the tribes would get hardly any . Definitely no matter the millions they have invested with the attorneys and lobbyists with this particular issue up to now, for sure.
Geography
Second, the actual criticism the tribes have the cardrooms online sports betting, is about the real estate. The cardrooms, which the bigger ones are almost exclusively in metropolitan areas, the real estate favors the cardrooms.
With any introduction of sports gambling, it’s possible that the path will duplicate what some other authorities have done before: roll out the merchandise as land-based only to get started. This is concerning to the tribes, but perhaps they have no reason to be concerned. Let’s take the man or woman 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 time to San Manuel, Pechanga or Chumash to make a bet?
This is not really firm the tribes are receiving anyway, and you’re almost certainly losing business due to it. Quite similar to this dining table games difficulty, in my view.
What’s the plan?
Third, it is fairly clear the sportsbooks don’t have a strategy for California, at least yet. Exhibit A would be the first ill-advised ballot proposal, which effectively killed any possibility of finding the issue to the Republicans in 2018, and surely didn’t help matters for 2020 and possibly beyond.
Many European operators are online just; the thought of performing retail (walkup, conventional ) mortifies a number of them. But they are also natural partners for its cardrooms, as in almost any legislation that goes through, the cardrooms likely would not be able to take stakes themselves, and would be consigned to charging to their operator-tenant.
Thus, some of the delay in the procedure is technology-driven, or the inability of some contemporary online operators to run a»traditional» sportsbook. But some operators have walkup novels in Nevada, the united kingdom, along with other jurisdictions and can surely use their expertise to a competitive edge when and if California opens for business.
Ultimately, and most importantly in my view, unlike the battle to get online poker legalized, there’s more than enough money to go around. Pretax revenue to get a mature California marketplace, retail publications only, has been projected to approach $1 billion, or about 40 times that which online poker has been estimated to bring in.
In a ten percent tax rate, which is a sensible one for all parties involved, taxation earnings could approach $100 million.
Suggestion box
Though the legislature has traditionally deferred to the stakeholders to hammer out their own deal and contact them, maybe its time for the legislature to legislate more harshly rather than defer, due to the quantity of potential tax revenue involved.
As mentioned 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 get this issue to ballot as efficiently as possible. Especially as there’ll be layers in this, because of the inherent previous disputes, the legislature would be well advised to be much proactive this time around.
Read more: bostonsportspulse.com
