Legal sports betting nearly encountered a perfect storm for getting done in the California legislature in 2020. And then reality set in.
The intros include background information from sources who did not wish to speak on the record. The quotes from tribal leaders James Siva and Mark Macarro came from a June webinar. PlayCA conducted phone interviews with all others quoted in the story.
11/19: Tribes introduce their own sports betting initiative
In November 2019, a coalition of Native American tribes filed a ballot measure to legalize sports betting only onsite at tribal casinos and horse racing tracks. It also added craps and roulette to the games tribal casinos may offer.
For the tribes, coming together to file the initiative was a great victory. It was a two-year process to agree to language for a coalition that started at 18 tribes and has grown to the high 20s.
For all other stakeholders besides racetracks, the initiative was frustrating. Professional sports leagues and California teams had discussions with the tribes that they would support the proposal if it included mobile sports wagering and official league data.
But for the tribal coalition to come together, online sports wagering couldn’t be part of the initiative. They didn’t want a repeat of 2016, when online poker divided the tribes and it almost allowed a bill to get through that many of the large tribes opposed.
The initiative’s filing came when Sen. Bill Dodd and Assemblyman Adam Gray were in the planning stages for a hearing on sports betting to take place later in the month in Los Angeles. As chairs of the Governmental Organization Committee that handles gaming issues in the legislature, they had introduced placeholder bills earlier in the year to amend the state constitution to legalize sports betting. They ended up canceling the hearing.
The tribal unity established by the initiative ended up playing a key role in the fate of the legislative attempt to put a sports betting referendum on the 2020 ballot.
Mark Macarro (tribal chairman of the Pechanga Band of Luiseno Indians): I think most of us probably took the position that legalization of sports betting was going to happen with or without us, whether we were at the table or not. So it was better to be out in front of the legalization effort rather than sitting back and waiting for it to happen. What if this is done without tribes at the table and then it goes to an online version of this?
Sen. Bill Dodd: We’ve been trying to work on this a long time. We came together with the tribes two years ago trying to seek a resolution in these issues. They really had no interest, and then, when they came out with their ballot initiative which benefited them and them alone, we felt we had no choice but to move forward with ours.
David Quintana (tribal lobbyist): I think it was the smartest move the tribes have done in my history representing tribes. I’m so glad they introduced the initiative because it really saved us. By doing that, we created leverage. If they hadn’t done that, we would have been completely at the mercy of the people behind Dodd’s bill. This way, we get to chart our own future.
Tribal beef with cardrooms becomes part of sports betting
Nobody was more upset with the tribal initiative than California cardrooms. They didn’t expect the tribes to include them in sports wagering. But a clause in the initiative sought to give tribes the private right of action to directly go after cardrooms for the way they offer traditionally house-banked games like blackjack, pai gow and baccarat.
A 2000 ballot initiative approved by more than 60% of voters amended the state constitution to give tribes exclusivity to offer banked and percentage games.
Cardrooms got creative by contracting with third-party proposition players (TPPP) to sit in the player-dealer position and serve as the bank, allowing games to continue much like they do in Las Vegas. The state sanctioned the activity by licensing and regulating the TPPP firms. Rolling them back now would be difficult because the cities in which cardrooms are based have come to depend on the revenue they produce.
Tribes had filed two lawsuits in the past two years trying to stop cardrooms from using this method. Judges dismissed each case. The initiative language is a direct response, seeking to create a mechanism for better legal results by allowing tribes to file civil suits directly against cardrooms if the state attorney general doesn’t address their complaints.
Previously, cardrooms had hoped to participate in sports betting. Fearing the initiative signaled that the tribes were going to try to litigate them out of business, they shifted focus.
Dodd and Gray long were frustrated that the tribal-cardroom issue seemed to hang over every gaming issue brought to the committee, preventing progress on gaming in the state. The tribal initiative made it more pressing for them to seek a solution.
Kyle Kirkland (president of the California Gaming Association): The tribal initiative is not a sports betting initiative at all. It’s a half-hearted Trojan horse to provide tribal casinos with craps and roulette without them needing to provide more money to California, and then it provides them police power over cardrooms.
Dodd: Based on the tribal initiative, we knew that clarification was necessary. Chairman Gray and I had members coming to us really worried about losing cardrooms in areas where they generated 50 to 70% of the general fund for the communities they represented.
5/20: Lawmakers introduce sports betting language
On May 28, Dodd (pictured right) and Gray released new language to fill out their constitutional amendment bills. On its surface, the idea was simple.
The legislators took much of the actual language of the tribal initiative to give tribes sports betting, roulette and craps. So that sports betting brings revenue to the state, they added a 15% tax for online wagering and 10% for in-person betting, along with a $5 million (later raised to $10 million) initial licensing fee with $1 million (later cut to $500,000) annual renewal for online wagering platforms. For the cardrooms, they included assurances that they could continue operating as they have been.
It was a bold attempt to get cardrooms constitutional approval for the way they operate their games. But two developments in recent months, both related to the coronavirus pandemic, left an opening to try.
First, the pandemic derailed the tribal initiative from qualifying for the 2020 ballot. The initiative was on pace to get the 997,139 valid signatures required to make the ballot before social-distancing orders prevented signature gathering. Second, the economic effects of the pandemic made it so California was facing a budget deficit in excess of $50 billion.
Dodd: Our members on the GO committee are constantly being asked to weigh in on competitive issues between the tribes and the cardrooms. We felt this was an opportunity that we could put that behind us, solve some of the problems, and have less issues like that to deal with in the legislature.
Kirkland: In the political realities that are out there, if we can get clarity or protection from conflict on 70% of our existing activities, would we go for that? Sure, we would like to be a part of sports wagering and have it within our facilities. But, if there’s an opportunity to compromise and resolve conflict, we should do that for the benefit of our communities and employees. Dozens of cities in the state are dependent on the cardroom industry. If we have the opportunity to get peace by giving up some value, that’s the spirit of compromise.
Macarro: I think one of the reasons SCA 6 even got introduced is I think the bill’s authors thought the tribal initiative was dead because of the shelter in place and lack of enough signatures having qualified the measure.
Jacob Mejia (spokesman for tribal coalition behind initiative): The timing of this move – in the midst of the COVID crisis – was especially disheartening to tribal leaders.
Kirkland: The idea has always been to get some kind of a global resolution to gaming issues in the state.
Scott Wetch (horse track lobbyist): My first thought was that including the cardroom issues in the bill was going to make it extremely difficult and most likely impossible to pass. It should have been apparent to anyone who has been involved that including that issue in a sports wagering bill was going to tank it. It’s not relevant to sports wagering, it’s controversial, it draws a lot of fire, and for my clients who do want to see a sports wagering bill, they didn’t think it had any place in that bill.
6/20: GO hearing reveals a lot about CA sports betting bill
All of the stakeholders had the opportunity to publicly voice their thoughts on SCA 6 at the Senate Governmental Organization Committee hearing on June 2. The hearing revealed a lot about the bill’s chances.
Because of social distancing, the committee had people call in to announce their support or opposition. Before the phone calls started, the chairs had Joe Lang (pictured right) introduce the bill, describe what it does, and make his pitch for why it was good policy.
There’s a reason the lawmakers had Lang speak first. With Hollywood Park, the Los Angeles Rams, Los Alamitos Race Course, DraftKings and FanDuel as clients, the influential lobbyist took the lead in putting together a bill that all stakeholders could accept. Except, of course, the tribes.
At the hearing, Macarro called the release of the language a sucker punch. According to Mejia, the tribal coalition didn’t know what was in the bill before being informed by the media.
Dodd explains that, after tribes went their own way with the initiative and turned away overtures from the chairs to discuss the sports betting bill in January, he and Gray felt the only way to get an effort going was to craft a bill agreeable to other parties and bring it to the tribes as a starting point for negotiations.
Although there were more calls in support of the bill, including from cardrooms and professional sports leagues and teams, the hearing showed that, outside the cardrooms, much of the support was lukewarm. Wetch, who represents Santa Anita Park, was the only horse racing voice in support, and he prefaced the support with concerns over the cardroom language. Sources indicate that DraftKings and FanDuel specifically told lobbyists calling on behalf of other clients not to mention them.
On the other side, tribes showed unity and zeal in their opposition.
Dodd knew the bill wasn’t going to pass without some tribal support and seemed to plead with tribal leaders to work with him to address their concerns. But when he invoked the name of Rincon Band of Luiseno Indians Chairman Bo Mazzetti as someone who had contacted him to discuss the bill, Mazzetti and other tribal leaders saw it as an attempt to divide them. Their resolve to stay together only strengthened.
SCA 6 needed a revote just to get the nine votes needed to get through the committee. Sen. Steve Glazer, who spoke up for the tribes at the hearing, switched his vote only after getting a promise from Dodd that he would not bring the bill up on the Senate floor without his approval.
Dodd: It’s an easy mantra to say we surprised everyone with this, but to me, it’s just not right. There’s no doubt Pechanga knew what we were doing and what we were trying to do. There’s no doubt.
Kirkland: I think Sen. Dodd has been pretty thoughtful and tried to be pretty accommodating. When the tribes dropped their initiative on people, they didn’t check with anyone, much less the elected officials in the GO committee. They just filed it.
Mejia: It’s too bad that some in the sports community were led to believe this was a viable effort. It was a big mistake to align with cardrooms that make the 2017 Houston Astros look like a beacon of integrity.
Wetch: My clients would like to see sports wagering. They’re supportive of the proposed tribal initiative. They would be supportive of allowing online sports wagering. Our position on the SCA was that we were not opposed in its form but we were supportive if they amended out the cardroom language.
Amendments don’t interest tribes
Dodd followed through on his attempt to address tribal concerns by delaying online sports wagering and adding cardroom restrictions, but in a way that was acceptable to the cardrooms.
For the most part, tribal leaders refused to negotiate changes they wanted to see in the bill. But their points of contention with cardroom games were already well known. The amendments addressed two big ones by requiring a fee of 25 cents be collected from each player for every hand of play (currently, the TPPP covers all tables fees), and prohibiting cardrooms from advertising that they are offering “Las Vegas-style” games.
But the main point of contention, player-dealer rotation, was changed in a superficial way. The dealer position would have to rotate from a TPPP to an actual player once every hour.
In December 2019, the California Bureau of Gambling Control, under attorney general Xavier Becerra (pictured right), put out concept language requiring the player-dealer position to rotate every two rounds, which would effectively end TPPPs. There’s a long way to go for it to be finalized in a formal rulemaking process and withstand litigation, but it’s a tangible effort the tribes prefer over these amendments.
Cardrooms contend that such a move would put them out of business, costing state and local governments hundreds of millions of dollars annually.
Another amendment proposed to phase in online sports wagering. The first year of California sports betting would be retail only, followed by a year with in-person registration.
Dodd: We heard a lot of things in the GO committee that we agreed with tribes on. We listened to the many complaints from the opposition and realized we were actually giving cardrooms more than what they had before. That was not our intent but that’s what happened, so we reined that back in and then brought in clear, concise rotation language, clear, concise enforcement, and that really took care of a lot of issues that they had. If you looked at the last set of amendments, the cardrooms are worse off because of my bill, not better off.
James Siva (chairman of the California Nations Indian Gaming Association): The gaming industry has been one of the biggest landfalls for tribes. So to have the kind of control and expansion of any kind of future gaming dictated to us is just unacceptable. We need to be able to control the narrative and shape how that context looks. Whether the online gaming is three years down the line, five years down the line, 10 years down the line or not even in the conversation, it needs to be a tribal decision.
Dodd: There were two or three tribes that were willing to talk, but they were willing just to offer their suggestions or thoughts. They didn’t feel like they could talk on behalf of all the tribes. We got a lot of ideas and subsequently what we put forward was amendments that really gave a lot to the tribes to get this thing done.
Quintana: What they seemed to be doing was to try to pick off one or two tribes to say, “Look, we’re working with tribes.” I don’t think calling individual tribes and trying to strike deals is operating in good faith. When you have a united opposition, you should approach the tribes in a united manner, not try to pick them off.
Tribes stay united, refuse to engage
It’s true that lawmakers knew there were many tribes they were never going to bring on board, but if they could get others to support the bill then it might have a chance.
Twenty-five tribal leaders sent a letter, previously unseen by the public, to Dodd and Gray.
In the letter, tribal leaders wrote:
“If SCA 6 was a Trojan horse for expanded gambling rights in favor of a crooked industry, then the proposed amendments offered to fix it are window dressing, designed to create the illusion of honoring tribal rights and respecting the law.”
Here’s the full letter:
Senate President pro tempore Toni Atkins and Senate Majority Leader Bob Hertzberg are strong friends to Native American tribes. Dodd had two tribes in his district that were not happy with him.
The Senate Appropriations Committee held SCA 6 in suspense. Atkins told Dodd to take the weekend to try to get tribes on board with the effort.
When Monday came around and tribal leaders had refused to work with him on the bill, Dodd followed through on his pledge not to bring it to the Senate floor without tribal support and pulled the legislation from consideration.
Dodd: There was no doubt about it, their strategy was that if we don’t talk this won’t happen, and it worked.
Quintana: I cannot give enough credit to California tribes for how they stuck together on this. It’s the first time I’ve seen it in over a decade.
Kirkland: Most people at the table were trying to find workable solutions. The tribes said no, we want it all, we think we’re entitled to it all, and we’re going to spend money and influence to defeat this bill. And if it means California is not going to benefit, then so be it because we mean more than the people of California.
Dodd: The Yocha Dehe and Graton have been good to me. I consider them friends. So to hear how much they hated this bill didn’t make me feel good. Unfortunately, my job is not only to represent them but to represent the state of California, so I had to do what I felt was best for my constituents and my state over the interests of two businesses in my district.
Why the CA sports betting bill failed
To put a constitutional amendment in front of voters, the legislature needs to pass a bill by a hard two-thirds vote. This means that, regardless of how many lawmakers make roll call that day, there need to be 27 yes votes in the Senate and 54 in the Assembly.
That’s a difficult threshold to reach without near-unanimous support from stakeholders, even with the state in need of revenue.
Lawmakers tried to consider the needs of all stakeholders and made a legitimate effort to do good by the tribes, but at the end of the day it wasn’t acceptable to the tribes.
The sports leagues, DraftKings and FanDuel, and the horse racing industry never made a real push for the bill after hearing the tribal response in the GO committee. They either have relationships they want to retain with tribes, or they want to leave open the possibility of being in business with tribes in the future. Trying to force through a bill they opposed didn’t make sense.
Consideration was given to dropping the cardroom language from the bill, according to sources. A bill that gave nothing to cardrooms would still have been better for them than the tribal initiative with its private right of action clause. But there was a belief that tribes would not drop their opposition, and perhaps even were more concerned with online wagering in the bill than the cardroom language.
Mejia: This was a failed attempt to take sports wagering hostage and use it as ransom to legalize unlawful cardroom games. Inclusion of unlawful cardroom games knowingly created a tremendous amount of distrust. We will never know (if tribes would have supported the bill without the cardroom language), but it would have been a step in the right direction.
Dodd: I thought we would be able to sway the concerns of the tribal opposition. I really believed that the cardroom provisions in the bill were there to, first and foremost, make clear in California state law the rules and regulations as it pertains to the dealer rotation, which is the big bone of contention the tribes have had with the cardrooms over the years, and then we were able to talk about other things that would be of benefit to the tribes.
Steven Maviglio (spokesman for cardroom-backed “no” campaign on tribal initiative): If this was a majority-vote bill, this would have been over in 10 minutes. But two-thirds is super hard.
Kirkland: Legalizing sports wagering in the state would have been a huge benefit for Californians. It would provide something the electorate wants to do and a lot of value to the state. It was 100% better than the tribal initiative, which really is just an effort to slap at the cardrooms.
Quintana: This was not a collaborative effort. It was pushed by a lobbyist for the cardrooms as a way for them to undercut the tribal initiative. For the fact that they didn’t bring everyone to the table until they already had the thing written and it was moving, I think it was a de facto jam job. That’s why it failed. You can’t cut out the biggest gaming entity in the state when trying to put together a constitutional amendment that affects gaming.
Dodd: COVID-19 affected our ability to reach out to the tribes early and played a part in our ability to discuss the merits of the bill with a number of different stakeholders. Normally, these kinds of situations are done face to face. Zoom or a conference call just didn’t cut it.
Mejia: There was an obvious underestimation of the tribes’ resolve and ability to organize and effectively unite to stop this threat. We appreciate that legislators saw this for what it was: an effort to break yet another agreement between California and Native American tribes.
The future of sports betting in California
Dodd said he and Gray plan to get right back to working on a sports betting constitutional amendment for 2022, but he’s not sure if they will continue where this bill left off or start from scratch.
Either way, a legislative avenue seems less likely after this attempt. Even in a time when the virus and budget difficulties added urgency for new revenue, the tribes were able to kill the bill.
Dodd hinted that the cardroom language would be separated from sports wagering in future efforts, but the tribes have little reason to negotiate on a legislative bill when their initiative is back on track for 2022.
Tribal leaders behind the initiative went to court to get the deadline to gather signatures extended to Oct. 12, with a promise from the judge that they can come back to push the date further if warranted by continued pandemic restrictions.
With this effort showing that a legislative attempt for sports wagering couldn’t work even during the perfect storm, some who spoke with PlayCA for this article expect the focus for any competing option to the tribal proposal to shift to the initiative process.
For the professional sports leagues and teams, DraftKings and FanDuel, and any others who want to see online sports betting, they now know that isn’t likely to happen legislatively. But if they introduce their own initiative for 2022, they can let CA voters decide on mobile wagering.
Dodd: We probably should have just come out with the language back in January and socialized it better. Hindsight is 20/20, but that’s what I’d do different.
Wetch: I think the cardrooms were trying to shoot for the moon. They feared tribes would be successful in getting the initiative on the ballot, so they found a way to take advantage of the budget situation to try to throw a Hail Mary. I think the cardrooms were looking at it through a prism of, this is our one shot to try to head off the initiative, which if it’s on the ballot I think passes.
Dodd: Theirs didn’t qualify for 2020, and perhaps we can work together on an initiative for 2022. Chairman Gray and I are not done in this area.
Mejia: In contrast to this failed effort, over a million Californians have signed our petition to authorize sports wagering, making it the most viable path to legalizing sports wagering in California — especially with so much support from voters.