Well, Actually… : Looking At Tribal Concerns Of A DraftKings Online Casino In California

Written By Steven Schult on October 20, 2022 - Last Updated on October 31, 2022

Is the battle for control of a potential California sports betting industry a façade for eventual online casino dominance?

Last week in Las Vegas, several tribal leaders spoke at G2E, one of the largest gaming expos in the country.

The panel featured four prominent members of California tribes. In a talk titled “California Sports Betting: Tribal Gaming Update,” Victor Rocha, Jacob Mejia, James Siva and Sara Dutschke discussed the two California sports betting ballot initiatives.

The title made it appear that the discussion was supposed to be centered around Proposition 26. The ballot initiative is up for a vote in just a few weeks and would allow in-person sports betting at tribal casinos and four horse tracks.

However, there was just as much talk about the opposing initiative, Proposition 27. It would allow major online operators like DraftKings and FanDuel to offer online sports betting in California.

Unsurprisingly, most California Tribes oppose Prop 27 and support Prop 26. The two competing initiatives virtually dictate which entities get the lion’s share of what is expected to be the country’s largest sports betting market.

The leaders espoused a few misleading about the proposal. Last week’s column covered those inaccuracies.

But this week, let’s look at an issue that’s a bit more nuanced.

Could DraftKings and FanDuel operate online casinos in California?

The groups supporting the two ballot initiatives spent hundreds of millions of dollars this year on media campaigns. Instead of advertisements supporting their proposals, most of the money was spent trying to torpedo its counterpart. As a result, both initiatives are projected to fail on Election Day.

This was especially true for the tribes. Mejia, the director of public affairs for the Pechanga Tribe, said as much at the start of the talk.

“We have not spent one dime on ‘Yes on 26.’ Not one dime,” said Mejia. “And it’s not trailing nearly as badly as ‘Yes on 27.’”

It seemed counterintuitive. Why spend so much on making sure the other one fails, while spending nothing on making sure yours passes?

Rocha, the conference chairman of the Indian Gaming Association, closed the talk by answering the question.

“They are trying to steal our future,” said Rocha about companies like DraftKings and FanDuel. “They are trying to steal our access to online gaming. And that’s where the revenue is. This isn’t about sports betting. This is about online gaming. The revenue isn’t that big in online sports betting, but it’s big in online gaming because you don’t have to split it. It doesn’t go to sports betting companies. There are not integrity fees. That’s where the money is. They know and we know. And that’s why the fight will always be fought like it’s our last fight. Because it could be.”

Well, actually…

I just put this headline in the piece because it’s how I’ve structured these articles in the past. It’s usually accompanied by a snarky argument about why whatever claim someone made is baseless.

When I heard Rocha make the statement, I thought it would be easily debunked. Give me a couple of paragraphs, and I can shut this argument down.

Well, actually… Rocha has legs to stand on.

Online casinos are legal in New Jersey, Michigan, Pennsylvania, West Virginia, Connecticut and Delaware. DraftKings spreads online casino games in five of those six states. FanDuel does as well. But for the sake of brevity, I’m going to focus on DraftKings’ operation.

DraftKings is probably not in Delaware simply because of how the state structured its industry. Only the three land-based racinos are allowed to offer online casino games.

Additionally, those three operators use Scientific Games and 888 Holdings to manage their branded sites. In other words, there’s not much room for DraftKings. A combination of the market structure and the smaller population of the state could be an easy explanation for why DraftKings isn’t offered there.

Partnerships are key for DraftKings online casinos

Over the last decade, DraftKings continually added more gaming options to its portfolio. The company launched a decade ago as a daily fantasy sports website.

In 10 years, the company added sports betting and casino games to its business model. Couple that with market access in five other states and it’s no surprise that California tribes are worried.

But DraftKings couldn’t access those states without first striking a deal with an already-existing land-based operator.

StatePartner
New JerseyResorts Atlantic City
PennsylvaniaHollywood Casino
West VirginiaHollywood Casino at Charlestown Races
Connecticut Mashantucket Pequot Tribe (Foxwoods Resort and Casino)
Michigan Bay Mills Indian Community (Bay Mills Resort and Casino)

In New Jersey, Pennsylvania and West Virginia, the company partnered with commercial casinos. But in those three states, tribal gaming doesn’t exist.

On the other hand, tribal casinos dominate the Michigan and Connecticut land-based markets.

Connecticut’s two tribes have exclusivity over the entire market thanks to their compact with the state. In Michigan, there are three commercial casinos in Detroit. The other 23 casinos statewide are tribal properties.

It looks like DraftKings would need to cozy up to California tribes if they wanted the ability to offer online casinos in California.

Well, actually…

One of the most common arguments against both ballot initiatives is simply that this issue shouldn’t be one. In nearly every major newspaper op-ed about the proposals, the editorial board argues that this is the legislature’s job.

The rebuttal is that it’ll never happen. Regardless of your political ideology, nearly everyone believes that politicians are corrupt.

In a state as large and diverse as California, the sheer number of special interest groups pushing lawmakers in a certain direction makes it impossible to pass a bill. Cardrooms, horse racing venues and tribes all want a piece of the action. And those groups will make sure their representative’s campaign fund is flush to get it.

If that’s the case, why couldn’t there be another ballot initiative down the road legalizing online casinos? A ballot initiative is what gave the tribes exclusivity over Las Vegas-style gaming in the first place.

Most states legalized sports betting through the legislature. And the few that didn’t only had one initiative to vote on.

If we dismiss the notion that the legislature could ever put forth a sports betting bill, it’s not a stretch for the tribes to worry about losing a market they are entitled to.

If legal, tribes absolutely have a right to online casinos

One of the tribes’ main talking points against Prop 27 is that it threatens tribal sovereignty. The idea that tribes should be the sole sportsbook operator is easily contested.

But nobody argues against the tribe’s exclusivity for brick-and-mortar casinos. The voters gave them that right by passing Proposition 1A during the 2000 election cycle.

If the tribes have the right in the brick-and-mortar realm, it should be theirs in the virtual world. Other states have followed that model and California probably would as well.

How much money is at stake?

Online casino games aren’t even being talked about at this point. Therefore, there aren’t any revenue projections for what the potential market could yield.

I’m not sure how to calculate it, so I’ll just try and make my best guess based on how other states are doing.

Let’s look at New Jersey. It’s pretty much the gold standard for online gaming. Maybe even for its overall gambling market.

Through the first three-quarters of 2022, New Jersey’s online casino revenue topped $1.22 billion. There are about 8.8 million residents in the state. At the current rate, Garden State online operators will gross a combined $1.6 billion this year.

California’s population is roughly 39 million, or about 4.5 times the size of New Jersey. If California has the same success as New Jersey, it could yield about $7.2 billion in revenue for the tribes.

This is most likely an incredibly flawed way to do projections. But there are multiple billions up for grabs. It’s why tribes are staunchly against ceding any ground to the online operators.

Is it likely that DraftKings ends up with a California online casino? In my opinion, no. It’s just too clear of a violation of the already existing structure.

But with that much money on the line, a little bit of paranoia is probably warranted from the tribes.

Photo by Shutterstock.com
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Steven Schult

Steve serves as managing editor for PlayCA and a handful of other sites across Catena Media. The New York native is a veteran of the gambling world. He started covering high-stakes tournaments in 2009 for some of poker's most prominent media outlets before adding the broader US gaming market to his beat in 2018.

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