California is the fifth largest economy in the world — should you carved it from the US — but remains at the 20th Century regarding gaming regulation.
Having a projected first-year tax earnings of $100 million, one would feel that California would wish to have sports gambling legalized as quickly as possible. But…it might be at least five decades, or even longer, before sports betting is legalized in the state.
A lot of the challenge 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 from the room.
As this is the second industry this decade which has flipped from prohibited to regulated, California already has some expertise in that respect. I’ll try to decipher here what the issues are, in the expectation that better comprehension of those issues will help get to a win/win for all parties involved as efficiently as you can.
The lay of the land for California sports betting Present-day stakeholders in CA gaming include these three entities:
Horse racing tracks
Cardrooms are legal since 1936 (draw poker; hold’em along with other poker games were held to be lawful in 1987, player-banked table games were lawful at 1988). In all three instances, the cardrooms needed to go to court, challenge the state’s gambling statutewin.
They are subject to state regulation, which has been criticized (and justly so, in my opinion) by tribal gambling interests. They are a politically powerful enough group, but light by comparison to the governmental power the tribes have in California.
Tribes initially offered bingo, then after winning the landmark Cabazon instance in 1987, which led to the Indian Gaming Regulatory Act, moved on to slot machines, player-banked table games between cards (house-banked card matches in 1993), and finally went into 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 lawyers and lobbyists) have translated this to mean that they have a monopoly on anything that might be offered in a casino, which would include sports gambling.
While horse racing is generally considered to be a mature business, with two big paths final in the last ten years since the land has been more precious put to housing and other applications, it’s still a favorite pastime for a lot in California, along with the horsemen have political clout as well.
How they all intersect
As one might expect, the three stakeholders don’t like each other.
The real stakeholders, of course, are those of California, who’d probably see tax earnings approaching $100 million in the first year of operation, and up of this as the market evolves.
On the other hand, the CA state budget is roughly $180 billion annually, so everything is relative. An individual would think there is enough cash to move around this time, which wasn’t true with internet poker, which a minority of California tribes managed to defeat in the legislature on a nine-year (and counting) period.
A short legislative history of sport betting in California
Sports betting has been discussed at the legislature for nearly two decades now. Early in 2016, Assemblyman Adam Gray (D-Merced), who is also chair of the Assembly’s Governmental Organizational Committee (which oversees, among other things, gambling in the country ) introduced AB 1573, that would create a framework for supplying sports betting.
The invoice was rather vanilla concerning regulation: service providers licensing with a stakeholder to provide services. For a lot of reasons, for instance, federal 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 2017 using ACA 18, which will change the California Constitution to allow the legislature to regulate sports gambling. This also went nowhere, although it’s interesting to remember that Gray may or may not have needed his deadline backwards.
Generally, with regards to gaming growth 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 may not be a suggestion here that lawmakers believed it initially wouldn’t require voter approval to promulgate sports gambling regulations.
Transforming the constitution?
In the end, a group called»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 first ballot proposal sought to strike Article IV, Sec 19 (e) of the California Constitution. I initially believed this ballot proposal was sponsored by a sportsbook, since nobody with knowledge of how California politics functions would understand that the tribes would spend upwards of $100 million, and not batting an eye on the checks, to conquer this measure and protect their land interests.
This accomplished was the following:
It bothered the tribes , they used their political power to have any hearings canceled on the matter, so effectively killing any laws for 2018.
The step also annoyed the cardroom industry, since it preempted anything they had been attempting to achieve with sports betting, and because most tribes (wrongly) would believe the cardrooms were behind the invoice (they were not ). There is not a lot of trust at this time between the cardrooms and the sportsbook operators.
There’s a fear among both some tribes and some cardroom operators the sportsbooks could only sweep in and dominate the gaming business, and want to know more before deciding how to proceed. Whether that 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 that want to conduct off-reservation gambling (which many tribes probably would encourage ), and immediately authorizing the legislature to regulate sports betting, in the manner suggested by Gray’s 2016 AB 1573.
So, the present version of the ballot initiative appears more like it was composed by a celebration with some elegance as to how gaming functions in California, or at least got some help on the issue.
Finally, I’d expect some version of the prior ACA 18 or AB 1573, or maybe both, to reappear shortly after the legislature reconvenes following the holidays.
Who’ll get to split the money, and if?
The stumbling block in all this is an unnecessary battle as to who gets to own the game.
The tribes originally attempted to play the monopoly card, but realizing that the monitors are just too powerful to be excluded, enlisted them in an alliance against the cardrooms.
Moreover, it’s not a fantastic look to say 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 centre, you are advertising the reopening of it also. In equity, tribal interests are not necessarily aligned with this issue, based on the tribe. As you’re going to see, there is going to be something here for everybody who’s spent in this to hate.
The biggest problem, as I see California, is that you have two major entities who operate gaming businesses with substantial 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 own cardroom. Moreover, though some operators think of having the ability to bank their own matches (and hence eliminate the (Third-Party Providers of Proposition Player Services or TPPPS), the reality is that specific learning curve is going to be steep and probably very expensive. Game protection is an entirely different animal when it’s your bankroll at stake.
Tribal members get a test, and if they’re lucky, a wholesome check, each month from gambling revenues, but don’t really know how that check is generated. Thus, you’ve got two related, controlled businesses which are essentially mom and pop companies, regardless of the size of these, that normally rely on other people to inform them how to conduct their businesses.
The tribes are satisfied with the status quo and also leary of anything but, and that’s certainly understandable.
There are not any visionary Jack Binion or even Terry Lanni clones in tribal gaming or the cardroom market. What confusion that comes from that is certainly understandable. Unfortunately, this brings in several of actors which don’t always have their clients or investors best interests in mind.
No shortage of unsympathetic parties
The tribes, for the most part, rely on their corporate attorneys and lobbyists, that, for the large part, oblige them by treating them like ATM machines, promoting unneeded, unnecessary, and most importantly, unwinnable battle.
The latest growth is a suit filed last month by two Southern California tribes from numerous cardrooms, asserting that they are running banked table games from breach of their so-called monopoly on table games.
The first problem is that if that is true, they’re suing the wrong people; their beef is with the condition. The next problem is that if you are going to sue the State over breach of compact (the proper filing and cause of action here), that lawsuit always is heard in federal court. Since there’s a failure to join a necessary party to the litigation (the State of California) which likely will not agree to be sued in state court, the most likely result is probably that the matter will be dismissed on procedural grounds.
On the flip side, you have a range of»old school» cardroom investors that keep score by not how much they could make, but by how far they could get over. You’ve got a couple of operators who frankly should not, in my opinion, hold gaming licenses, and the tribes’ complaints into the state about their inability to govern (read»discipline») those operators is a legitimate one.
It also rather begs the question whether or not the state is suitably equipped to really enforce bad behavior (as opposed to allowing the miscreants write a check to»settle» the accusations). If they can’t reverse a licensee for egregious anti-money laundering offenses, it makes one wonder if they could fairly regulate a company which handles substantially more money.
The tribes have fought the cardrooms for any number of years on the so-called player-banked sport issue. Cardrooms, due to California legislation, can offer table games, as long as the players bank the matches and not the home. Services called TPPPS will bank the games when no one would like to. The occurrence of these companies is at root the center and soul of the meat that the tribes have with the state.
They claim that they have a»monopoly» on table games and slot machines, in which the fact is that they have neither. They understand this, too. For many years, they have threatened all types of litigation.
The issue is, any lawsuit against the State of California would necessarily occur in federal court, and not say. Why is this significant? Having a US District Court judge, which is an appointed for life standing, the judgment will be on the legislation, and just the law, rather than the political triangulation elected state court judges often offer as a guise to interpreting the law.
To get past motion in federal court, you’re going to need to prove you have been injured; Quite simply, you are likely to have to prove you actually have a monopoly. Hanging your hat on a vaguely written part of the state constitution is a surefire method to jeopardize what monopoly can exist in your own mind.
While courts have employed the term»monopoly» within their remarks regarding tribal gaming in California, there’s been no explicit grant of a monopoly by the electorate. The constitutionality of Art IV Sec 19 (e) hasn’t been contested, 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, in the litigation which has previously taken place, it has been by individual members of tribes suing as individuals, using some creative procedures for getting their grievances aired in (state) court. So, looking at things from a purely historical manner, the tribes likely know precisely where they’re at with this.
The truth is CA sports gambling There are four problems that are static and real.
The convenience factor First, cardroom clients are almost always customers of convenience. Think about the man who would rather shop at 7-Eleven (poor choice, high prices) compared to the Safeway, because the 7-Eleven is across the street and he must drive ten minutes to the Safeway.
Most gamblers just wish to be in action as soon as possible. That is the reason why a gambler who lives in Alhambra, east of downtown Los Angeles, that is perhaps 45 minutes from San Manuel, one of the greatest locals casinos anywhere, would rather drive the 15 minutes to Commerce Casino, though the comforts are inferior and the cost of gaming is a lot higher.
Therefore, even if some of the table games went off tomorrow, the cardroom consumer would probably just go back to enjoying the conventional player-banked games (i.e. Pai gow tiles, Pai gow poker, etc) or poker. Yes, cardroom earnings would fall somewhat but the tribes could get hardly any . Definitely not any the millions they have invested with the attorneys and lobbyists on this specific issue up to now, for sure.
Second, the actual criticism the tribes have with the cardrooms online sports gambling, is all 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 sport gambling, it’s possible that the path will duplicate what other authorities have done before: roll out the merchandise as land-based only to start. This is about to the tribes, but maybe they don’t have any 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 little 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 isn’t really firm the tribes are receiving anyway, and you’re almost certainly losing business due to it. Quite much like the table games issue, in my view.
What is the Strategy?
Third, it’s pretty clear the sportsbooks don’t have a plan for California, at least however. Exhibit A are the first ill-advised ballot proposition, which killed any chance of finding the matter to the Republicans in 2018, and certainly did not help matters for 2020 and possibly beyond.
Some European operators are online only; the idea of performing retail (walkup, conventional ) mortifies some of them. But they are also natural partners for the cardrooms, as in any legislation that goes through, the cardrooms likely wouldn’t have the ability to accept stakes themselves, and could be consigned to charging to their operator-tenant.
So, some of this delay in the process is technology-driven, or rather the inability of several contemporary online operators to run a»conventional» sportsbook. However, some operators have walkup novels in Nevada, the united kingdom, along with other authorities and can surely use their experience to a competitive edge if and when California opens for business.
Finally, and most importantly in my view, unlike the struggle to receive internet poker legalized, there is more than enough cash to go around. Pretax earnings for a mature California marketplace, retail publications simply, was projected to approach $1 billion, or about 40 times what online poker has been estimated to earn.
In a ten percent tax rate, which is a reasonable one for all parties involved, taxation earnings could approach $100 million.
While the legislature has traditionally deferred to the stakeholders to hammer out their own deal and get back to these, maybe its time for the legislature to legislate more harshly rather than defer, because of the quantity 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 are owed a duty by the people who represent them in Sacramento to get this issue to ballot as efficiently as possible. Especially as there will be layers within this, due to the inherent previous disputes, the legislature will be well advised to be much proactive this time around.
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