In Prop 27, sportsbook operators give Indian tribes three options for participating in California online sports betting. But a tribal attorney only sees one option as potentially viable.
Jeff Butler, general counsel for the Yocha Dehe Wintun Nation, tells PlayCA that he doesn’t think any tribe would take the option of creating its own online sports betting platform.
He also doesn’t think any tech platform would want to give up all control to partner with tribes.
This leaves the only option as partnering with sportsbook operators, which would limit online sports betting in California.
If Prop 27 were to pass, which Butler doesn’t think it will, he expects nine mobile sports betting apps to serve bettors in the Golden State.
Options for entering online sports betting in Prop 27
Prop 27 includes three ways for tribes to participate in online sports betting:
- Partner with a qualified gaming entity. A QGE is an online sportsbook operator that pays $100 million for a license. It assumes all responsibility and liability for the sports betting operations.
- Reach a market access agreement with an online sports betting platform provider. The platform provider pays $10 million for each tribe to which it provides its platform. It also assumes all responsibility and liability for sports betting operations. The book, however, operates under the tribal brand.
- A tribal applicant pays $10 million for a license and develops its own online sports betting platform.
Why tribes won’t create online sports betting platform
Butler doesn’t think any tribes will pick the third option to develop their own online sports betting platforms. Here’s why:
- The cost of developing an online sports betting platform from scratch is prohibitive.
- The tribe would then pay the $10 million upfront licensing fee and assume all risks in bookmaking.
- A tribe would have to waive its sovereign immunity and agree to pay taxes and consent to the possibility of being sued by the state like other sports betting licensees. No tribe wants to give up sovereign immunity.
A spokesman for the Prop 27 campaign told PlayCA that the third option was included to provide tribes another possibility. But he didn’t expect any tribe to take that option given the associated cost.
“I think this is the first time they’ve publicly acknowledged that no tribe is going to go at it on its own,” Butler said. “Given the practical and technical difficulty with setting up an online sports betting platform from scratch, the odds of a tribe going on its own are close to zero. It’s not an option at all, though they keep saying it is.”
Platform provider deals also unlikely
If operators enter market access agreements with platform providers, they wouldn’t have to waive sovereignty or pay the license fee.
But that’s why Butler doesn’t see this as a viable alternative for the platform providers. This entails a tribe hiring a tech platform to run online sports betting on behalf of the tribe and under the tribal brand.
“No tribe is going to go at it alone and I think zero will be able to do the online tech platform option because of how it’s written,” Butler said. “So we’re really talking about a very small number of tribes who will be able to participate.”
He doesn’t see why a tech platform would put up a $10 million application fee and accept being subject to enforcement only to be nothing more than a vendor to a tribe. All while the tribe has full control.
“There’s no way that any business entity of any sophistication is going to say, ‘sure, we’ll take the risk. We’ll put up all the money up front and you get to be the controller.’ That’s not going to happen. You don’t have to be a business genius to know that no tech platform is going to operate on those terms. And if they do, they’re not going to put money in without a sovereign immunity waiver.”
So how many online sports betting apps under Prop 27?
Butler thinks there might be nine California online sports betting apps if Prop 27 were to pass.
Seven potential sportsbooks financially back Prop 27. And restrictive language in the initiative limits qualified gaming entities to companies operating sportsbooks in at least 10 US states or territories, or five states along with operating/managing 12 physical casinos in the US.
“Their definition of QGE is hyper-limited, designed specifically to include only them,” Butler said. “So there’s going to be a really limited number of these ‘partnerships’ that are going to exist by definition.”
Limited market would put tribes at disadvantage
So far three small tribes have come out in support of Prop 27. Presumably they did so in hope of partnering with an operator.
These tribes are:
- Big Valley Band of Pomo Indians
- Middletown Rancheria of Pomo Indians
- Santa Rosa Rancheria Tachi Yokut Tribe
Butler contends that these small tribes would have no bargaining power with nine operators that have more than 100 California tribes to choose from.
But he also claims a clause in Prop 27 intends to prevent the Division of Online Sports Betting Control from intervening in such arrangements.
Section 19767 (b): “The terms of the market access agreement shall be determined solely by the parties to the agreement.”
Butler expands:
“That sentence wasn’t included by accident. It is particularly intended to prevent the Division from opining about the terms of an agreement even if they are egregious. And I promise you they will be. Because what these very limited number of QGEs are going to do is find small tribes like Middletown that are desperate for money that they can hoodwink and do this partnership deal where tribes get a pittance or nothing.”
