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For Latest California Sports Betting Proposal, Silence May Be Golden

Detailed look at what's in the proposal and why sports betting will be linked on ballot to homelessness, mental health

Jill R. Dorson by Jill R. Dorson
September 16, 2021
in Analysis, Regulation
California-Ballot-Initiative

(Shutterstock)

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When a group of sports wagering operators in August submitted paperwork in California for a 2022 ballot initiative that would legalize digital betting, the response was oddly quiet. Just weeks before, after a group of four cities that have card clubs offered up its take on the topic, the state’s tribes were vehemently opposed and both operators and tribes were scratching their heads about who was behind it and how it would play out.

But on and since Aug. 31, the response has been, well, crickets, in what would be the biggest sports betting state in the U.S. to offer live sports wagering.

“I think no one is reacting right away, and that is the right move,” said James Siva, chairman of the California Nations Indian Gaming Association, during Victor Rocha’s weekly The New Normal webinar Sept. 8. “I think they want to sit back and see if anyone breaks ranks.”

Said Rocha: “It’s not hated like the card club [proposal]. That was a hard ‘no.’ It’s, ‘Ah, we’ll think about it.’ Here we are, the Vikings have landed, the question is if they come bearing gifts?”

The Vikings — aka, national operators Bally’s, BetMGM, DraftKings, FanDuel, Penn National/Barstool Sportsbook, and WynnBET, plus Fanatics — believe they have landed bearing gifts. As a coalition, they have framed the proposal as “complementary” to the tribes’ bid to legalize retail sports betting at tribal casinos and horse race tracks, but not at card clubs, with whom the tribes have a long-standing feud. It calls for higher licensing fees for commercial operators than tribes, it does not address retail wagering in any form, and it would require operators to partner with a tribe.

The tribe’s own initiative would legalize retail wagering. Voters could approve both ballot questions, and the state would end up with retail and statewide mobile. But the operators’ proposal likely speeds up the tribes’ timeline for digital sports betting.

“Your market share opportunity is going to be high,” one industry executive said. “But even when you break it down to any who could be bringing in double-digit market share, it’s worth it. The opportunity to put on major events, major partnerships … it doesn’t cost the tribes anything, and they are going to benefit. It was crafted to be a no-lose proposition for the tribes, which is why we are confident that there are partnerships.”

Tribal support a good possibility

Several operators told Sports Handle they have had conversations directly with certain tribes about partnering and believe that at least some will support their proposal, which is now being vetted by the California Attorney General’s Office. BetMGM already has a tribal partner in California, and Caesars, which seems a good bet to join the group backing the initiative, has multiple properties branded under the Harrah’s name in California.

But there is another group that might also want in — professional sports teams. Operators are clear that they will not entertain any overtures from card rooms. Doing so would cross the tribes. There is an expectation among stakeholders that sports teams, who were left out of the tribes’ retail initiative, which has already qualified for the 2022 ballot, might want in — and operators say they would listen. Many, if not all, of California’s 18 professional sports teams already have partnerships with tribes.

For example, the Pechanga Band of Luiseno Indians, which owns the massive Pechanga Casino in Temecula, in 2019 partnered with SoFi Stadium and the NFL teams that now play there: the Los Angeles Rams and Los Angeles Chargers. The Pechanga brand is prominent at a field-level club and elsewhere in the stadium. And the San Manuel Band of Mission, which owns the San Manuel Casino in San Bernardino County, has agreements with 10 teams and venues, including the Los Angeles Dodgers, Los Angeles Kings, Santa Anita Park, and the Rose Bowl. As a partner with the teams, the tribe’s casino has branded spaces and signage in pro stadiums.

Should any teams ask for a way in — and the expectation is some will — the operators will have to do a delicate dance to keep all parties happy. The initiative can be amended within 35 days of filing, which would be on or about Oct. 5. The public-comment period closes Sept. 30.

Regardless of who partners in or supports the latest initiative, it marks the third one that could potentially get on the 2022 ballot, and that raises the question of how voters will react to multiple options on the same topic.

Who will control sports betting in California? | Dan Walters https://t.co/yrgYTzkuh3 via @SantaMariaTimes

— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) September 10, 2021

According to a public affairs and communications specialist as well as representatives from multiple operators, the group attached its ballot measure to new funding to address homelessness and mental illness because both have reached crisis levels in California. Surveys have shown the issues “matter” to Californians and “resonate”  — and estimates put the number of homeless people in California at more than 150,000.

The phrases “sports betting,” “wagering,” and “gaming” do not appear anywhere in the title of the proposed initiative, the California Solutions to Homelessness and Mental Health Support Act, and that’s not by mistake. With at least one other gaming initiative already on the ballot, there is potential for confusion among voters, so keying to a cause was a calculated decision.

“Hopefully, we don’t have a mess on our hands and this doesn’t get pushed into the mid-2020s or beyond,” said Brendan Bussmann, a partner with gaming consultant Global Market Advisors, also as a guest on The New Normal. “With multiple ballot initiatives, it’s easy to see this getting kicked down the road.”

In an informal poll of friends and neighbors in California, this reporter found that nearly everyone questioned would vote for a “solution to homelessness,” regardless of where the funding came from.

The group of operators behind the proposal have already committed $100 million to the ballot initiative. Should the AG’s office approve it as a possible referendum, the next step is to begin signature gathering, which must be complete and approved by June 2022 in order to make the ballot that November.

Go-live would be August 2023

The timeline laid out in the proposal would mean that legal online wagering could start just ahead of the 2023 NFL season. According to the papers filed with the attorney general’s office, if the initiative passes, the approximate timeline (assuming counting all days, not just business days) would be:

Jan. 1, 2023: New law becomes effective.

Jan. 31, 2023: Deadline for appointees to advisory committee to be completed.

April 29, 2023: Deadline for proposed emergency rules to be published, including application forms.

May 29, 2023: Deadline for emergency regulations to be adopted.

June 8, 2023: Application process opens.

Aug. 27, 2023: Go live for digital wagering.

If it comes to pass, California would join a growing list of Western states to legalize sports betting. It is bordered by Nevada; Arizona, which went live Sept. 9; and Oregon, where wagering takes place online via lottery and in some tribal casinos. The first Washington State tribe began offering retail wagering on Sept. 9.

Very bullish on the sports betting tech space

Wildly attractive TAM outlook, with some of the largest potential markets (CA, TX) still untapped

Excited to see more tech disrupt the incumbents in the years ahead 👊 pic.twitter.com/ORLwmHu5zd

— Aaron Farr (@aaron_farr) September 11, 2021

Operators effectively writing law

In many states, a ballot initiative is just the opportunity for voters to say “yes” or “no” to an issue, and then the state legislature follows up with the details or framework and, in some cases, the plan for regulation. As examples, voters in Louisiana and Maryland legalized sports betting on the November 2020 ballot. Since then, lawmakers in both states have passed legislation that lays out what can be bet on, a tax rate, and other details.

In California, the group submitting an initiative essentially writes the law. California’s tribes and the group of four cities had the same opportunity with the ballot initiatives they proposed. The operators’ proposed California Solutions to Homeless and Mental Support Act is a 62-page document written by those who would be offering and profiting from sports betting.

It would ostensibly create an open, competitive marketplace of the type that stakeholders often tout. Some of the specifics favoring the operators, however, show what they have learned during the legislative process in other states.

As an example, the proposal explicitly bars the state from setting a cap on the “hold.” In an effort to maximize revenue, Tennessee imposed a 10% cap that is higher than average hold for bookmakers around the U.S. (usually around 7%), which has caused some product complications and perhaps some inferior pricing at sportsbooks in the state, if only in certain limited markets.

The operators’ proposed California initiative also spells out how patrons can fund accounts, which includes everything from credit cards to wire transfers, and includes language that would allow the regulator to approve “additional funding and withdrawal methods, including but not limited to, cash deposits at approved locations and secure cryptocurrencies.”

Licensing fees favor tribes

In part of their effort to make the proposal attractive to tribes, the operator initiative would charge tribes $10 million for a license if they want to “white label” a platform vs. $100 million for operators who brand their platforms. A white-label platform would be run by a company like IGT or USBookmaking but have the tribe’s name on it. Those fees are for a five-year period, with a $1 million renewal for tribes and $10 million for operators, also for five years.

There’s no question that operators active across the country are savvier now than three years ago about what works best for them and helps them achieve the best profitability, and that is reflected in the proposal.

If the referendum passes, more than 60 digital platforms in California could be possible. The only cap on platforms is the number of tribal casinos, as operators must be tethered to get access, and the proposal allows for only one commercial partner per tribe. California has more than 100 federally recognized gaming tribes that own and operate 69 casinos across the state. Those include Siva’s Morongo Band of Mission Indians (Morongo Casino near Palm Springs) and Rocha’s Pechanga Band of Luiseno Indians (Pechanga Casino in Temecula).

Details: Remote registration, no proxies

Here are some other highlights of the operators’ proposal:

  • Betting on professional, college, and amateur sports would be permitted. “Competitive or novelty” events may also be wagered on, including awards shows and current events, but not elections.
  • The tax rate, referred to as a “surcharge,” would be 10% of adjusted gross revenue.
  • The legal betting age would be 21.
  • Remote registration would be permitted, meaning patrons could register for apps via mobile device. In-person registration would also be allowed.
  • The new “Division of Online Sports Betting Control,” which would be part of the state Department of Justice, would regulate sports betting.
  • Proxy betting would be banned.
  • A 17-member advisory council would be created, including appointees from the governor, Senate president pro tem, the House speaker, the lieutenant governor, and others. The council would advise the regulator on technology and regulations and would seek to maximize revenue to the state.
  • The state and operators would make a voluntary exclusion list accessible, and operators would be required to post contact information for problem gambling help on their platforms. There would be restrictions on advertising to minors or excluded persons. Notably, the proposal does not earmark funds for problem gambling.
  • Pre-launch advertising would be allowed.

Interestingly, under the proposal, those who bet offshore and those who offer black-market wagering sites would be penalized — any Californian betting on the illegal market would be taxed at 15% while offshore sportsbooks would be required to register with the state and report the names of those making bets.

How the state would implement, let alone enforce these requirements, is unclear, but the message is that the operators want to stamp out illegal wagering and maximize return on what begins as a $100 million investment in the Golden State.

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Jill R. Dorson

Jill R. Dorson

Jill has covered everything from steeplechase to the NFL and then some during a more than 30-year career in sports journalism. The highlight of her career was covering Oakland Raiders during the Charles Woodson/Jon Gruden era, including the infamous “Snow Bowl” and the Raiders’ 2003 trip to Super Bowl XXXVII. Her specialty these days is covering sports betting legislation across the country. You can reach Jill at jill@bettercollective.com

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