Tuesday, October 22, 2019
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California Sports Betting Faces Tough But Not Impossible Road

California is the fifth largest economy on earth — if you carved it from the US — but remains in the 20th Century regarding gaming regulation.
With a projected first-year tax revenue of $100 million, an individual would feel that California would wish to have sports betting legalized as swiftly as possible. But…it might be at least five decades, or even longer, before sports gambling is legalized in the state.
Much of the problem is the lack of comprehension of this territory, and the way the stakeholders interact with each other and the state authorities. Hopefully this article will clear some of the smoke out of the area.
Because it is the next sector this decade which has flipped from prohibited to regulated, California already has some expertise in that respect. I will attempt to decode here what the problems are, in the hope that better understanding of those issues will help get to some win/win for all parties involved as economically as you can.
The lay of the property for California sports betting Present-day stakeholders in CA gaming include these three entities:
Cardrooms
Tribes
Horse racing tracks
The cardrooms
Cardrooms are legal since 1936 (draw pokerhold’em along with other poker games were held to be legal in 1987, player-banked table games were legal in 1988). In all three cases, the cardrooms needed to go to court, challenge the state’s gambling statutewin.
They are subject to state regulation, which was criticized (and justly so, in my opinion) by tribal gaming interests. They’re a politically powerful enough group, but light compared to the political 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 on to slot machines, player-banked table games involving cards (house-banked card games in 1993), and eventually went into the electorate to have 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 lawyers and lobbyists) have interpreted this to mean that they have a monopoly on anything that might be given in a casino, which might include sports betting.
Racetracks
While horse racing is generally considered to be a mature industry, with two major paths closing in the last ten years because the land was more valuable set to housing and other uses, it is still a favorite pastime for many in California, along with the horsemen have political clout too.
How they all intersect
As you would expect, the three stakeholders don’t like each other.
The actual stakeholders, of course, are the people of California, who’d likely see tax revenues exceeding $100 million in the initial year of operation, and up of this as the market matures.
However, the CA state budget is roughly $180 billion a year, so everything is relative. One would think there’s enough cash 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 over 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. Early in 2016, Assemblyman Adam Gray (D-Merced), who’s also chair of the Assembly’s Governmental Organizational Committee (which oversees, among other items, gaming in the country ) introduced AB 1573, which would produce a frame for supplying sports betting.
The bill was rather vanilla concerning regulation: service providers licensing with a stakeholder to supply services. For a lot of reasons, for instance, federal sports betting ban was intract in the moment, the bill never got past a hearing, nor was there any type of informational hearing on the matter.
Assemblyman Gray returned 2017 using ACA 18, which will change the California Constitution to allow the legislature to govern sports gambling. Additionally, this went nowhere, although it’s interesting to remember that Gray may or may not have had his timeline backwards.
Normally, with respect to gambling growth in California, you need the electorate to approve a ballot proposal first, then the legislature would compose and approve regulations for it. There may or might not be a proposal here that lawmakers believed it initially would not need voter approval to promulgate sports betting regulations.
Changing the constitution?
Finally, a group referred to as”Californians For Sports Betting” announced it would be attempting to get an initiative on the 2020 ballot that would repeal the above 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 initially thought this ballot proposal was sponsored by a sportsbook, because no one with understanding of how California politics functions would realize that the tribes would spend upwards of $100 million, rather than batting an eye writing the checks, to conquer this step and protect their land interests.
This accomplished was the following:
It bothered the tribes so much, they used their political ability to have any hearings canceled on the matter, so effectively killing any legislation for 2018.
The step also annoyed the cardroom business, because it preempted whatever they had been trying to achieve with sports gambling, and because most tribes (wrongly) would think the cardrooms were supporting the invoice (they were not ). There’s not a lot of trust right now between the cardrooms and the sportsbook operators.
There’s a fear among both some tribes and a few cardroom operators the sportsbooks could just sweep in and dominate the gambling industry, and need to know more before deciding how to move. Whether this fear is logically based is not relevant.
A rewrite of the ballot measure
The promoters did rewrite the initiative a few months later, which abandoned Art IV, Sec 19 (e) unchanged, but limiting the governor from negotiating compacts with tribes that wish to conduct off-reservation gambling (which most tribes probably would support), and directly authorizing the legislature to govern sports betting, in the manner proposed by Gray’s 2016 AB 1573.
So, the present version of the ballot initiative looks more like it was written by a celebration with some elegance regarding how gaming functions in California, or at least gained some help on the issue.
Finally, I would expect some variant of the prior ACA 18 or AB 1573, or perhaps both, to surfaced soon after the legislature reconvenes following the holidays.
Who will get to divide the cash, and when?
The stumbling block in all of this is an unnecessary battle as to who gets to own the game.
The tribes originally tried to play the monopoly card, but realizing the monitors are just too strong to be excluded, enlisted them in an alliance against the cardrooms.
Moreover, it is not a good look to state you’re against sports betting, as some tribes and tribal assistants have said, when you’re not only remodeling your unprofitable off-track-betting centre, you are marketing the reopening of it also. In equity, tribal interests are not necessarily aligned with this issue, based upon the tribe. As you’re going to see, there’s going to be something here for everyone who’s invested in this to hate.
The biggest problem, as I see California, is that you have two big entities who operate gaming companies with considerable political power, but actually do not understand either gaming nor the casino business.
Cardrooms and tribes stand to benefit Cardrooms can not have some interest in the results of any deal in their cardroom. Moreover, although some operators think of being able to bank their own matches (and hence eliminate the (Third-Party Providers of Proposition Player Services or TPPPS), the truth is that particular learning curve will be steep and probably very expensive. Game protection is a totally different animal when it is your bankroll whatsoever.
Tribal members receive a test, and if they are lucky, a healthy check, each month from gambling revenues, but don’t really understand how that test is generated. Thus, you have two associated, regulated businesses which are essentially mom and pop companies, no matter the size of them, that normally rely upon others to inform them how to run their businesses.
The tribes generally are satisfied 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 industry. What confusion that comes from that is definitely understandable. Sadly, this brings in a number of actors that don’t necessarily have their clients or investors best interests in mind.
No shortage of unsympathetic parties
The tribes, for the most part, rely upon their corporate lawyers and lobbyists, who, for the most part, oblige them by treating them such as ATM machines, selling unneeded, unnecessary, and most importantly, unwinnable battle.
The most recent growth is a lawsuit filed last month by two Southern California tribes from a number of cardrooms, asserting they are running banked table games from violation of the 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 also cause of action here), this lawsuit always is observed in federal court. As there’s a failure to join a essential party to the litigation (the State of California) which probably won’t 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 flip side, you have a range of”old school” cardroom investors who keep score by how much they could make, but by how much they could get over. You’ve got a couple of operators who frankly shouldn’t, in my opinion, maintain gaming licenses, along with the tribes’ complaints into the country about their inability to govern (read”discipline”) these operators is a valid one.
It also fairly begs the question whether the state is suitably equipped to really enforce bad behavior (instead of allowing the miscreants write a check 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 handles substantially more cash.
The tribes have fought the cardrooms for any number of years on the so-called player-banked game issue. Cardrooms, due to California law, can offer table games, as long as the players bank the games rather than the home. Services called TPPPS will charge the matches when nobody wants to. The occurrence of the companies is at root the heart and spirit of the meat that the tribes have with the state.
They claim that they have a”monopoly” on table games and slot machines, where the reality is they have neither. They understand this, too. For years, they’ve threatened all types of litigation.
The issue is, any lawsuit against the State of California would always take place in federal court, and not say. Why is this significant? With a US District Court judge, which will be an appointed for life position, the judgment is going to be about the law, and just the law, rather than the political triangulation elected state court judges often offer as a guise to interpreting law.
To get past movement in federal court, you’re going to have to prove you have been hurt; in other words, you are going to have to prove you actually have a monopoly. Hanging your hat on a vaguely written part of the state constitution is a surefire way to jeopardize what monopoly may exist in your mind.
While courts have used the term”monopoly” within their remarks regarding tribal gaming 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 challenged, in my opinion the clause is cloudy, particularly in light that the tribes could have choosen more direct language in composing the ballot proposal.
Moreover, from the lawsuit which has previously happened, it has been by individual members of tribes suing as individuals, using some creative procedures for getting their grievances aired in (country ) court. So, looking at things from a purely historical manner, the tribes probably know precisely where they’re at with all of this.
The truth is CA sports betting There are four problems which are real and static.
The convenience Element To begin with, cardroom customers are almost invariably customers of advantage. Consider the man who’d rather shop at 7-Eleven (poor choice, high costs ) compared to 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’s why a gambler who lives in Alhambra, east of downtown Los Angeles, that is perhaps 45 minutes from San Manuel, among the greatest locals casinos everywhere, prefer to drive the 15 minutes to Commerce Casino, even though the comforts are inferior and the price of gambling is much higher.
Therefore, even though a number of the table games went away tomorrow, the cardroom consumer would probably just go back to playing the conventional player-banked matches (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom earnings would fall somewhat but the tribes could get very little of that. Certainly not any the millions they’ve invested with the attorneys and lobbyists with this specific issue up to now, for sure.
Geography
Second, the real criticism the tribes have with the cardrooms online sports betting, is all about the real estate. The cardrooms, which the larger ones are nearly exclusively in metropolitan areas, the real estate favors the cardrooms.
With any introduction of sport gambling, it is likely the path will replicate what other authorities have done previously: roll out the merchandise as land-based only to start. This is concerning to the tribes, but maybe they have no reason to worry about Let us 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 double that period to San Manuel, Pechanga or Chumash to make a bet?
This is not really firm the tribes are getting anyway, and you are almost surely losing business because of it. Quite much like the table games issue, in my view.
What is the plan?
Third, it is fairly clear the sportsbooks don’t have a plan for California, at least yet. Exhibit A are the first ill-advised ballot proposal, which effectively killed any possibility of getting the matter to the Republicans in 2018, and surely did not help matters for 2020 and possibly beyond.
Some European operators are online only; the thought of doing retail (walkup, conventional ) mortifies a number of these. But they are also natural partners for the cardrooms, as in any legislation that goes through, the cardrooms likely would not be able to take bets themselves, and could be consigned to charging to their operator-tenant.
Thus, some of the delay in the process is technology-driven, or rather the inability of some modern online operators to operate a”traditional” sportsbook. However, some operators have walkup books 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.
Ultimately, and most importantly in my opinion, unlike the struggle to receive online poker legalized, there’s more than enough money to go around. Pretax revenue to get a mature California market, retail publications only, has been 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 is a sensible one for all parties involved, taxation revenue could approach $100 million.
Suggestion box
Though 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 amount of potential tax revenue involved.
As mentioned initially, the real stakeholders in this are the people of the State of California, and as such they are owed a duty by the people who represent them in Sacramento to get this issue to ballot as efficiently as you can. Especially as there’ll be layers in this, due to the underlying preceding disputes, the legislature will be well advised to be much more proactive this time round.

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