It’s official, Californians will have no more than two sports betting options when they had to the ballot box in November. According to Matthew Kredell of Play CA, the tribal coalition behind a mobile betting initiative announced it will not try to qualify for the November 2022 ballot, preferring to wait until 2024, when the sports betting ballot landscape is less adversarial and confusing.
That sets up a high-stakes showdown between a tribal-backed retail betting proposal and a mobile betting effort backed by national commercial operators. The tribal initiative has already qualified for the ballot. The mobile initiative looks like a shoo-in, having submitted 1.6 million signatures, 600,000 more than needed.
Under the Hood of the Competing Proposals
On the surface, the two proposals seem straightforward:
- The tribal proposal legalizes retail sports betting at tribal casinos and select racetracks.
- The commercial sportsbook initiative would legalize mobile betting through partnerships with tribes.
And here is how they are being presented.
Tribal initiative summary:
Allows federally recognized Native American tribes to operate roulette, dice games, and sports wagering on tribal lands, subject to compacts negotiated by the Governor and ratified by the Legislature. Beginning in 2022, allows on-site sports wagering at only privately operated horse-racing tracks in four specified counties for persons 21 years or older. Imposes 10% tax on sports-wagering profits at horse-racing tracks; directs portion of revenues to enforcement and problem-gambling programs. Prohibits marketing of sports wagering to persons under 21. Authorizes private lawsuits to enforce other gambling laws.
Commercial sportsbooks initiative summary:
Legalizes online and mobile sports wagering, which currently is prohibited, for persons 21 years and older. Such wagering may be offered only by federally recognized Indian tribes and eligible businesses that contract with them. Individuals placing bets must be in California and not located on Indian lands. Imposes 10% tax on sports-wagering revenues and licensing fees. Directs tax and licensing revenues first to regulatory costs, then remainder to: 85% to homelessness programs; 15% to nonparticipating tribes. Specifies licensing, regulatory, consumer-protection, and betting-integrity standards for sports wagering.
Of course, the devil is in the details.
The Non-Sports Betting Aspects of the Tribal Initiative
The Tribal Initiative goes beyond sports betting, as it:
- Authorizes several currently prohibited casino games, including roulette and craps.
- Requires the state and tribes to amend their existing compacts to include sports betting and/or the above-mentioned casino games.
- States, “Protecting public safety by strengthening the enforcement of California’s current gambling laws to allow Californians to hold illegal gambling activities and operations accountable.” A roundabout way of saying it allows a person or entity to sue a California cardroom for offering an illegal game, which is squarely aimed at the ongoing dispute about player-banked games at these venues.
The tribal proposal imposes a 10% tax on sports betting revenue at horse racing facilities – as sovereign nations, tribes would be exempt from this tax, but they intend to pay the same 10% tax. The tax would be distributed as follows:
- 15% to problem gambling funding and research,
- 15% to the Bureau of Gambling Control to cover enforcement, and
- 70% to the general fund.
Even with tribal contributions, the state’s cut of retail betting will be minimal.
Commercial Operators Want to Control Access
The commercial sportsbook initiative would license tribes as commercial online sports betting operators and create a new regulatory body within the California Department of Justice. The cost of a license is set at $10 million.
The catch is tribes would have to partner with “qualified gaming operators.” The definition of a qualified gaming operator is a huge barrier to entry, as the initiative requires a $100 million upfront licensing fee and the applicant to hold a sports betting license in at least ten other states.
Per Cal Matters reporting:
“The goal of this seems to be to create an oligopoly market for sports betting,” said Marc Edelman, a law professor at Baruch College who specializes in sports, gaming, and antitrust law. It would, he said, benefit a limited number of companies “to the detriment of smaller companies and consumers.”
“I think it’s absolute nonsense,” said John Holden, a professor at Oklahoma State University who studies sports gambling policy. “I think what’s effectively happening is, basically, the 5 to 10 frontrunners in the market have decided ‘Alright, let’s ensure that there’s no one else who can compete by agreeing to pay these exorbitant license fees.’”
Another aspect of note is licensees can slowly recoup the cost through a provision that allows them to deduct 20% of their licensing costs from tax revenue—coupled with promotional deductions, the ongoing tax revenue to the state at close to zero, and not the specified 10%.
Why the Tribes Decided to Push Mobile to 2024
Rob Stutzman, a spokesman for Californians for Tribal Sovereignty and Safe Gaming, issued the following statement to Play CA on the decision to wait until 2024:
“With the ongoing collapse of support for the FanDuel/DraftKings online sports betting measure and the effectiveness of our recent ads, our strategists have recommended that there is a better path for victory in 2024. We’ll continue to gather signatures until July and then submit them to ensure a Tribal-operated mobile sports betting measure with a far better revenue-sharing deal for California is on the 2024 ballot.”
The withdrawal of the third initiative is good news for Californians who want legal sports betting, whether retail, mobile, or both. James Siva, vice chairman of the Morongo Band of Mission Indians and chairman of the California Nations Indian Gaming Association (CNIGA) explained the situation at the IGA conference in April, “I think it’s a small, small possibility they all pass. I think it’s much more likely that all three ultimately fail because of voter confusion.”
Advantage Tribes
The now-shelved tribal initiative shared commonalities with both of its rivals, as it was a tribal-led effort and, conversely, was mobile-focused. That said, its withdrawal will only help the retail initiative supported by tribes.
It’s important to note the three tribes that introduced the alternative mobile betting initiative, San Manuel Band of Mission Indians, Rincon Band of Luiseno Indians, and Wilton Rancheria, are also supporters of the retail-only proposal. That means a united front of California tribes.
Further, suppose the tribe’s mobile initiative qualifies for or is on track to be eligible for the 2024 ballot. In that case, it can be used to counterbalance the commercial operators, who are likely to leverage the appeal of mobile betting in ad campaigns. Meaning, tribes can lay out a systematic path to mobile betting, run through California-based entities to voters while making the case that commercial operators are trying to bypass tribal exclusivity and run the show.
Without the possibility of a 2024 expansion into mobile betting (letting voters decide), the commercial operators would have been able to bludgeon the tribal initiative as anti-online. That is something they will have a much harder time doing if the tribes can say they are taking a thoughtful approach to gambling expansions and look forward to bringing mobile betting to the voters in 2024.
The Path to Victory
Neither measure has an easy path, as this is shaping up to be one of California’s most expensive ballot initiative fights.
With two initiatives to choose from, in-the-know voters will have their preferred initiative. The average voter is more likely to impulsively choose the tribal proposal, the commercial sportsbook proposal, both, or neither. And how those votes are split is of extreme importance.
Even if two-thirds of voters favor legalized sports betting, those votes will be split between two proposals. The only hope for either initiative is a plurality to vote yes on both. That will be difficult if Californians are bombarded with negative attacking the other side’s proposal, as the average voter will see this as an either-or issue.
Assuming 30% of voters are against gambling, and each initiative has a base of 20%, neither initiative is likely to hit 50% if the remaining vote is split. For California sports betting, every vote really does count.
