Since 1850, when California first joined the union, it’s been perceived as a kind of American Shangri-la, drawing adventurers and opportunists with its balmy weather, waving palms, dramatic coastline and hills filled with gold. It’s the land of swimming pools, movie stars, and California girls. It’s also the most populous state in the U.S., and the largest untapped sports betting market.
Multiple Choice
That could all change next year. When voters go to the polls in November, they could be confronted with up to four ballot questions on legal sports betting. One proposal favors the state’s gaming tribes—the only measure now assured of a place on the ballot. Another is supported by the state’s card rooms and their host cities. One was proposed by a group of online sportsbook companies. A late-coming fourth entry, from a faction of three tribes, departs from the original tribal measure by proposing mobile as well as land-based sports bets.
They’re all competing for a place at the table, and a slice of what could be a mammoth industry. Chris Grove, a managing director for Eilers & Krejcik Gaming, has called California “easily the largest prize in the U.S. sports betting market.” Analysts say the market could generate $2 billion in the first year, for state tax revenues of $200 million, and up to $30 billion a year at maturity. By comparison, Macau GGR topped out at $36.4 billion in 2019, and in the same year, the total amount wagered in Nevada was $5.3 billion.
Let’s look at each plan:
1. The tribal-backed initiative would permit in-person betting at casinos and racetracks, but exclude card rooms and other entities and also prohibit mobile sports betting. The measure would impose a 10 percent tax on gross gaming revenues from sports wagering at horse tracks. Tribal casinos would kick in a share of revenues. Kyle Kirkland, president of the California Gaming Association (the card rooms’ group), says the initiative “does nothing to advance sports wagering, and instead expands the tribal casinos’ tax-free monopoly on gaming and rewards those operators for prioritizing their own wealth over public health and safety.”
2. A second initiative, pushed by California’s 86 card rooms, would allow tribes, licensed horse racetracks and professional sports teams along with their own operations to offer in-person, online and mobile sports betting. The measure also would let card rooms offer more types of games. As a sweetener, the deal would set a 15 percent tax on sports betting profits, with revenues going to help the homeless, public education and mental health.
3. A third measure supported by FanDuel, DraftKings and other mobile gaming providers would allow in-person betting at tribal casinos, which could also offer online bets through partnerships with—who else?—them. It includes a 10 percent tax on online betting profits and also would earmark the money for the “California Solutions to Homelessness and Mental Health Support Account.” This coalition has earmarked $100 million for a campaign to win voter approval.
4. The outlier, that fourth measure, was put forth by three gaming tribes, two of which also backed the original tribal measure. It would give tribes the right to online and mobile sports betting, the latter through servers on tribal lands. That plan leaves out racetracks, commercial card rooms, sports franchises and corporate online operators. Columnist Dan Walters of CalMatters called it “a hedge against the DraftKings-FanDuel measure, because it assumes that given a choice between wagering online or driving to a casino to place a bet, bettors would prefer the former.”
Turf Wars
In October, the tribes came out four-square against the competing measures. In a statement, the California Nations Indian Gaming Association (CNIGA) and the Tribal Alliance of Sovereign Indian Nations (TASIN) said the measures backed by card rooms and online sportsbooks would “seriously (undermine) tribal sovereignty and the voters’ repeated support for Indian gaming in California.”
And tribal lobbyist David Quintana took issue with Plan 4, noting that the three tribes in question all partner with out-of-state operating partners to run their California casinos: the Rincon Band of Luiseno Indians (Harrah’s); the Federated Indians of Graton Rancheria (Station); and Wilton Rancheria (Boyd). “This should never be called a tribal proposal,” he carped. “It should be called what it is: a proposal by out-of-state operators with tribal stalking horses.”
Anthony Roberts, chairman of the Yocha Dehe Wintun Nation, said the “deceptive measures” were created for “the sole financial benefit of their corporate sponsors and funders.” And CNIGA Chairman James Siva expressed skepticism about the homelessness rider attached to two of the three plans. “Don’t be fooled,” he said in a statement. “These measures are not a fix to homelessness, but rather a massive explosion of gaming that will directly undercut tribal sovereignty and self-sufficiency.”
Columnist Walters said, “It would surprise no one if hundreds of millions of dollars are spent on the campaigns next year, because the millions would be pocket lint compared to the billions of wagering dollars that would flow through the hands of whichever interests can claim legal authority.”
In many ways, this battle is already won. California gaming tribes run a $20 billion industry employing some 125,000 people in the state. For 40 years, they have been a vital part of their local economies, have forged strong bonds with their communities, and have wielded considerable political muscle.
Out in Front
The gaming tribes’ initiative shuts out mobile sports betting, at least for now. Part of the popular narrative is that a mobile industry would siphon off traffic from land-based operations, especially in smaller, remote locations where the tribes depend on in-person visitation.
But New Jersey has proven that the brick-and-mortar market hasn’t diminished because there’s a very vigorous online sportsbook and online gaming market. The tribes simply want to proceed cautiously, to keep their hands on the reins of an important new industry and revenue stream. Most observers believe the original tribal initiative, which is already slated for a 2022 referendum, will prevail.
Richard Schuetz, CEO of Schuetz LLC and former member of the California Gambling Control Commission, says the commercial sportsbook measure (DraftKings, FanDuel, et al) “will definitely get on the ballot, because they have the money to do it.”
He’s less certain about the card rooms, but understands the urgency for these businesses and their host cities. In the city of Hawaiian Gardens, for example, “The last I checked, about 85 percent of the municipal government funding came from this one card room.” Revenues from the card rooms help to fund local police and fire departments and other vital services. “So it’s really critical to a lot of these cities—they just need these dollars.”
Schuetz says the card rooms “want to qualify on the ballot, or at least have people believe they’re going to qualify to have a ballot initiative, just to get in the discussion. They don’t want to be left on the side of the road.”
And how about the homelessness rider, which ties the success of sports betting to relief for social problems?
“Would you vote for a gambling initiative that could solve homelessness versus one that lets an out-of-state company take the money elsewhere?” asks Schuetz. “Through polling, the homelessness issue just tested very high.”
The latest report on homelessness from the U.S. Department of Housing and Urban Development ranked California highest for the overall number of homeless, followed by New York, Florida and Texas. And on a “Top 10” list of U.S. communities with the greatest number of homeless, six were in California: L.A. County, Santa Clara County, Alameda County, San Diego and Orange counties, and the city of San Francisco.
Despite the appeal of measures to fund homeless and mental-health services, Schuetz believes the tribes remain in the pole position.
“There are 109 federally recognized tribes in California. They’re kind of tight with their communities. Sometimes there are some tensions, but by and large, they employ a lot of people in those areas, and that’s a strong army moving forward.
“They’re really good at running these campaigns, and it would be foolish to underestimate them.”
The End Game
Whatever happens at the polls next year, Schuetz says the battle for sports betting in California is a smokescreen concealing a bigger prize: iGaming, which represents 90 percent of gaming revenues when it coexists with sports betting.
“This is a longer-run play” for operators, he says. “Once (lawmakers) get accustomed to sports betting and find out it can be regulated, they’re going to say, ‘If we add slots, that’ll generate even more tax revenue for the state.’ That’s the end game, I would argue, and anybody who says otherwise has been smoking something.”
Behind closed doors, the wheels are turning, and some future alliance of tribes and commercial sportsbooks could be in the offing.
Amid all this infighting, one thing is pretty certain, and that’s the enthusiasm of Californians for sports, which likely would translate into a strong appetite for legal wagers. The Golden State has more professional sports teams than any other U.S. state—16 (Florida is second, with nine).
By some estimates, as a single state it represents 30 percent to 35 percent of the entire United States sports betting market, perhaps more. If any legal sports betting measure flies at the ballot box next November, fans will be betting within months—certainly by Super Bowl LVII in February 2023.
