March 14, 2022 Sports Betting

Golden State, Golden Prize

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With sports betting legalization to be put to voters in the Golden State next November, Michael Bartlett reports on the divergent opinions.

Ever since the May 2018 US Supreme Court decision that struck down the Professional and Amateur Sports Protection Act (PASPA), a 1992 law that prohibited wagering on sports in any state outside Nevada, the eyes of sports betting operators have been focused on one prize: California.

Sure, legalizing sports betting in New Jersey – the state that led the legal fight that resulted in the landmark Supreme Court ruling – was nice. Pennsylvania was a big prize, and since New York came online January 8 of this year, numerous wagering records have been set. However, California’s population of 39.6 million dwarfs second place Texas (29.7 million) and is twice that of New York (19.2 million).

At a panel discussion on sports betting at the National Indian Gaming Association conference in July 2021, participants referred to the California market as the largest in the country… by “an order of magnitude.” They noted the Golden State has the fifth-largest economy in the world, is more populous than the entire nation of Canada, and has almost two-times the potential of Texas.

“This is why there is so much effort, so much money going into California. It is the holy grail,” panelists said.

This will be the first of a series of stories as Gaming America covers the effort to legalize sports betting in California. While many of the 30 states (plus the District of Columbia) that have done so over the past three-plus years did so via their respective state legislatures, California has opted to stick with its direct democracy tradition of ballot initiatives. When the state’s voters go to the polls on or before November 8, they will be presented with at least one, probably two and potentially up to four competing propositions.

The parties behind the ballot props are California’s federally recognized tribes, the state’s legal cardrooms, and a late entrant – a consortium of seven online sportsbook operators led by DraftKings and FanDuel. With eight months still to go, each of these groups already has raised tens of millions of dollars – with predictions of hundreds of millions set to be spent on getting voters to pick their prop.

The bulk of this story will be about the one measure that is already qualified for the ballot. It would allow only in-person betting on tribal lands and four selected racetracks. It is backed by most of the tribes in the state and is opposed by the legal cardrooms, who say a provision to allow private lawsuits in lieu of the attorney general makes a danger to cities that depend on cardroom revenue. We also will take a look at a proposal to legalize online sports betting anywhere in the state. It is sponsored by seven sportsbook operators and is opposed by backers of the in-person tribal initiative.

This being politics, the opposing sides make every attempt to tear down the other. Gaming America takes no position on any of these propositions, and made every effort to allow the parties involved to express their opinions.

Of course, even if one or more propositions are approved by voters, expect lawsuits to be filed as soon as the ink is dry!

The early qualifier

If not for the pandemic, California might already have legalized sports betting. A ballot measure that seeks to allow in-person wagering at all tribal facilities and four racetracks was circulated with the intent of getting on the 2020 ballot. When Covid-19 hit in March of that year, organizers were forced to delay the gathering of signatures, which led to the measure being pushed back to the 2022 General Election.

Mobile sports betting was deliberately left out of the proposition, which was proposed by four tribes: the Barona Band of Mission Indians, the Agua Caliente Band of Cahuilla Indians, the Yocha Dehe Wintun Nation and the Pechanga Band of Luiseño Indians.

Kathy Fairbanks, Partner in the Sacramento, California-based firm Bicker, Castillo & Fairbanks Public Affairs, is a spokesperson for the Coalition for Safe, Responsible Gaming. This group is leading the Yes campaign for what currently is being referred to by proponents as the in-person tribal sports wagering measure, and the No campaign against the online wagering measure.

Fairbanks told Gaming America the committee has raised more than $16m so far this year, and more than $27m since 2019.

“Tribes have a long history of waging successful and well-funded campaigns to educate voters,” Fairbanks noted. “We look forward to engaging voters about why they should support the already qualified, in-person tribal sports wagering measure and oppose the corporate online gambling proposition. Based on internal polling, we are confident we will prevail.”

According to Fairbanks, a coalition of California Indian tribes, social justice advocates, community groups and small businesses strongly support sports wagering at existing tribal casinos.

“We think it is the most responsible approach to authorizing sports betting in California,” she said. “All bets must be placed in-person by adults 21 and over at a tribal casino, with safeguards in place to prevent underage and illegal gambling.”

Cardrooms/cities oppose the tribal measure

Taxpayers Against Special Interest Monopolies, a group funded by California’s licensed cardrooms, is leading the opposition to the in-person tribal proposition. According to the California Secretary of State, the No campaign received $20.8m in contributions during the fourth quarter of 2021, and currently has $23.5m in cash after expenditures.

A spokesperson who handles media inquiries for the No campaign, who asked not to be named because they are not authorized to speak on record, said the biggest objection is a provision that would authorize a new civil enforcement tool, which would allow any state resident to sue cardroom casinos.

“The worry is this hidden provision could allow tribes to sue cities and/or cardroom casinos. These frivolous lawsuits could harm cities. The other initiatives do not have this provision, so we are neutral on those,”
the spokesperson said.

Juan Garza is a spokesperson for a public agency called California Cities for Self-Reliance Joint Powers Authority, which represents five cities that have cardrooms in their communities. He told Gaming America, “this initiative would harm cardroom revenue,” because of the provision to allow lawsuits.

“We definitely see value in sports betting, but allowing anyone to sue cardrooms for what tribal interests consider to be questionable processes could amount to death by a thousand papercuts, if cardrooms have to defend themselves from thousands and thousands of lawsuits,” said Garza, who is a former city council member and mayor of Bellflower, in Los Angeles County. “The tribal nations are trying to circumvent the attorney general and allow members of the public to initiate lawsuits. If that element was not in the initiative, I am not sure if cardrooms would support it, but they would not oppose it.”

The issue is important, Garza continued, as revenue from cardrooms supports many city services – including police and fire departments, public works projects such as paving and streetlights, and more. He noted cardrooms in Los Angeles County employ 10,000 people directly, plus more jobs at the industries that support the cardrooms, such as food services. Statewide, there are up to 30,000 employees at 80 cardrooms.

“Many of these cities are minority majority, and for some up to 75% of their revenue comes from cardrooms,” Garza said. “The cardrooms are extremely vital, so if they disappear the cities would not have alternate sources of revenue. The cities are vulnerable, as they do not have Fortune 500 companies knocking on their doors to come in. Any threat to the cardrooms is a threat to our cities.”

According to Garza, the problem between the tribes and the cardrooms stems from a rule California has in place regarding banking of card games. Unlike in Nevada, California cardrooms are not permitted to be the house. Typically, therefore, the responsibility of covering bets rotates through the players. Because many players cannot cover the bets on their table, a law was passed to allow a third-party banker.“To continue to operate, the cardrooms were allowed to have the third party cover the bets, and the tribal nations have a problem with that,” Garza said. “It has been a long-running dispute.”Garza expects there will continue to be fundraising to support the No campaign, adding he would not be surprised if it reached $75m to $100m.

“As campaigns get near the election, there will be messaging on TV, radio, social media. We will be letting people know we support sports betting in general, but this provision is a problem,” Garza said.

Little chance of compromise

Fairbanks of the Coalition for Safe, Responsible Gaming responded to Garza’s arguments by stating, “to be clear, cardroom casinos and their gambling bankers are behind a deceptive campaign attacking California Indian tribes.”

The cardroom casinos, Fairbanks asserted, have a “well-documented history of flouting the law” and have been fined millions of dollars for “violating anti-money laundering laws, misleading regulators and operating illegal gambling.” Now, she said, the cardroom casinos are “doubling down” on their efforts to attack the tribal-backed, in-person sports wagering ballot measure.

Asked if there is any way for the tribes and the card clubs to come to some sort
of compromise, Fairbanks retorted: “They can start by following the law.”

“California law prohibits cardroom casinos from offering Nevada-style games like blackjack. Yet many cardroom casinos regularly ignore the law, and unlawfully offer and promote this type of gambling at their casinos across California,” Fairbanks  declared. “Our measure simply strengthens enforcement of existing laws to prevent unlawful gambling in cardroom casinos or any other illegal establishment. The only businesses at risk of legal enforcement are gambling establishments that repeatedly violate California gaming laws.”

Online betting prop will raise funds to help homeless

The “California Solutions To Homelessness & Mental Health Act” is the official name of the proposition backed by DraftKings, FanDuel, BetMGM, WynnBET, Bally’s Interactive, Fanatics Betting & Gaming and Penn National Gaming. It would allow online sports betting anywhere in California – including outside of Indian lands – and says it will raise hundreds of millions of dollars each year for homelessness and mental health services.

Nathan Click, a spokesperson for the initiative, noted it is supported not only by the sportsbook operators, but also the mayors of four of California’s largest cities: Fresno Mayor Jerry Dyer, Long Beach Mayor Robert Garcia, Oakland Mayor Libby Schaaf and Sacramento Mayor Darrell Steinberg.

In addition, three homelessness service providers back the measure: All Home, a statewide homelessness service provider, the Regional Task Force on Homelessness for the San Diego area and The United Way of Greater Los Angeles.

“Homelessness has reached a crisis level in California, but the state does not have a dedicated funding source to solve homelessness; it changes year to year depending on the stock market,” Click began. “Our initiative helps solve that by creating a fund using the tax revenue from online sports betting.”

Revenue generated by wagers would be deposited into what will be known as the California Online Sports Betting Trust Fund (COSBTF). After deducting state regulatory costs, the measure requires 85% of revenue be allocated by the legislature through the annual state budget process, for the purpose of delivering permanent and interim housing. 

Proceeds from the fund would be distributed to a variety of providers, Click said, including shelters, permanent housing projects and other ways to get people off the streets.

Click emphasized the online sportsbooks would be operating in partnership with tribes. Further, even tribes that do not participate in the marketplace would benefit from a percentage of the revenue, he said.

“We need one million total signatures, and we reached 250,000 months ago and notified the state,” Click said. “We are well on our way to qualify and will qualify for this ballot.”

The Coalition for Safe, Responsible Gaming is “strongly opposed” to the online sports gambling proposition, which Fairbanks asserted would authorize a “massive expansion” of online and mobile gambling across the state; this, she said, would result in “essentially turning every cell phone, laptop and tablet into a gambling device.”

“Under this measure, anyone in California could gamble anytime – leading to a massive increase in problem and underage gambling,” Fairbanks declared.

In response, Click said the measure includes “strict” age verification rules “that are working in 21 other states to ensure minors do not place bets.” Enforcement would be under the authority of the California Dept. of Justice.

“Online sports betting has been shown to be safe and responsible,” Click argued. “Our initiative includes strong protections in line with the states that have already legalized. Californians spend billions of dollars betting on offshore sites that offer no age verification requirements, no consumer protections. Why wouldn’t we want to set up a regulated marketplace?”

Not surprisingly considering the potential size of the California online sports betting marketplace, organizers of the measure have a starting bankroll of $100m to spend on getting it passed.

“Our goal is to ensure California voters understand our initiative,” Click said. “When they are presented side by side, the voters will see the benefit from ours. We are the only initiative that has been assessed by the state’s fiscal analyst to raise hundreds of millions for homelessness and mental health services.”As Bette Davis famously said in All About Eve, “fasten your seatbelts, it’s going to be a bumpy night” between now and November. 

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