Five Must-Haves To Make California Sports Betting A Reality

Written By Play CA Editorial Team on November 10, 2022
The road to legal sports betting in California

Sports betting in California won’t be legalized anytime soon. Voters roundly rejected Propositions 26 and 27 on Tuesday after the most expensive ballot initiative battle in US history.

The decisions involving Prop 26 and Prop 27 were called early and for good reason. As of midday Wednesday, 70% of ballots cast went against Prop 26, while more than 83% went against Prop 27.

The next time California sports betting could be on the ballot is two years from now, in 2024. In order for the results to be different, many attitudes toward the process need to change.

PlayCA covered many sides of the sports betting battle. In light of Tuesday’s outcome, it now offers the five of the most important things that must happen in order for sports betting to be legalized in the Golden State.

1. Tribes need to want sports betting to happen

Sports betting will come to the Golden State when California’s Indian tribes want it. It’s that simple.

Tribes control gaming in California, and they reminded national sportsbook operators of that fact in the 2022 election. No ballot measure is going to pass in California when tribes spend more than $200 million to defeat it.

Operators now know they can’t ram something through in California without tribal buy-in. The only way to get tribes on board is to let them take the lead in developing a sports betting proposal.

Tribes were ready to implement in-person sports betting this time around, but they didn’t really want it. That was evidenced by how willing tribes were to make no effort to pass Prop 26 and focus instead on defeating Prop 27.

Not to mention how they tried to slip in language allowing tribes to directly sue California cardrooms over the way they skirt tribal exclusivity over house-banked games to offer blackjack. You don’t do that if passing sports betting is your priority. If not for that clause and the backlash from cardrooms, Prop 26 wouldn’t have faced any real opposition.

Getting tribes on the same page

For the most part, tribes came together to defeat Prop 27. Even then, there were two distinct tribal coalitions.

Where they seemed to split was around online sports betting. The Pechanga-led coalition wanted an incremental approach, beginning with in-person sports betting. The San Manuel-led coalition proposed an online sports betting alternative that didn’t qualify for the 2022 or 2024 ballot.

For online sports betting, the most difficult part is figuring out how to satisfy the 110 federally recognized California tribes when there won’t be even one-quarter that many operators to go around.

The San Manuel proposal provides a starting point for tribal online sports betting, but it’s far from perfect. California tribes began discussing how to move forward on sports betting in September at an all-tribes meeting in Sacramento. You can be sure that more discussions are to come following the election.

By mid-2023, tribes need to reach an agreement on the details of sports betting to file an initiative for the 2024 ballot. If they can come up with a single proposal and make it reasonable enough that sportsbooks are willing to support it rather than file a competing measure, California could legalize sports betting in 2024.

2. Learn from frameworks established elsewhere

Tribal gaming leaders, state government officials and the sports betting industry can come together. It’s already happened in other states.

Michigan is seen as the gold standard for such a compromise. There, tribes entered into commercial agreements with online operators leading up to a January 2021 statewide launch.

The state also sweetened the pot for tribes, slicing an extra portion of the tax revenue for tribal governments, just as Detroit’s commercial casinos had done for the state’s largest city.

It was guaranteed money that came in handy as brick-and-mortar casinos were disrupted by the pandemic. Perhaps more importantly, it was a show of respect and a nod to the sovereign tribal governments.

Sure, there are differences here, notably the amount of California tribes and their stronger position in the balance of power given the gaming monopoly. Plus, the Great Lakes State had online casinos ready to go at the same time, ensuring a bigger pie to divide at the table (speaking of potential lessons learned …).

But before working out how to slice any pie, California gaming leaders have to find the table first.

3. Want a proposition to pass? Write a good one.

In order for a proposition to pass in California, it has to be fully understood and well-perceived by the voters.

Prop 26 and Prop 27 confused and disenfranchised California voters, who didn’t pick sides between the tribes and operators. They simply rejected propositions they didn’t like or were baffled by, for any number of reasons.

Prop 26 would have legalized in-person sports betting at California tribal casinos and select horse racing venues. However, it also would have banned betting on California’s college sports teams, such as USC and UCLA. It also introduced the possibility of lawsuits against California cardrooms.

Prop 27, meanwhile, marketed itself as a solution to California’s homelessness and mental health crises. Voters, though, clearly didn’t buy those claims. Neither did Gov. Gavin Newsom, who scoffed at that idea over the summer before formally opposing Prop 27 in October.

Many also didn’t fully grasp Prop 27 was an online sports betting measure because of the initiative’s title. Prop 27 was the California Solutions to Homelessness and Mental Health Support Act, which clearly doesn’t mention online sports betting at all.

Imperfect measures lead to imperfect results

California sports betting stands to be a massive business. A few months ago, PlayCA estimated a market that included $40 billion in bets during a full year. That means many stakeholders with strong opinions will want pieces of the action.

The interests of tribes, operators and others in the space vary wildly. That’s a big reason why there were two propositions on the ballot, rather than one measure that unified everyone involved.

A majority of voters, though, thought neither initiative measured up. Those behind Prop 26 didn’t publicize their own piece of legislation and directed their efforts to stopping Prop 27. The latter campaign worked spectacularly and played a major role in ensuring not only defeat at the ballot box, but a blowout loss.

In order to be successful, future propositions need to be able to stand up to criticism from opponents. Given the abundance of possible opponents and the money in their respective war chests, that could prove difficult. However, in order for legal sports betting to come to California, the ballot initiative in question needs to be as airtight as possible.

4. Ensure facts, not fear, are spread from media outlets

The two competing initiatives were the most expensive proposals in US history. Backers of the two initiatives spent a combined $458 million on advertising.

During the next attempt, stakeholders should spend some of that money on public relations. According to a recent poll, 48% of Californians believe sports betting is bad for California.

This is partly because of the overwhelming amount of attack ads from the tribes’ No on 27 campaigns. It certainly didn’t help, however, that there wasn’t a single major media outlet in the Golden State that endorsed either proposition.

The larger publications don’t have a direct tie to any of the tribes, but some of those outlets are at least sympathetic to them. Most criticisms of Prop 27 were nearly straight out of a tribal-backed ad.

There were certainly flaws in Prop 26 and Prop 27. However, most of the op-eds from the largest newspapers in the state were filled with complete falsehoods and misleading statements.

Ads and outreach need to focus on rebutting misconceptions

While each newspaper added a slightly different twist to why they were encouraging voters to say “no,” there were a couple of themes that appeared in most of them.
Backers of the initiatives need to find common themes and develop talking points to rebut them.

For example, most newspapers pointed to a rise in problem gambling if voters said “yes” to the initiatives.

The arguments were centered around the same anti-gambling talking points that have been around for decades. They express concern about the impact on kids and the increased costs of a society with higher gambling addiction rates.

This is an easy argument to poke holes in, mostly because there’s no evidence that legal sports betting correlates with an increase in gambling addiction.

Here’s a direct quote from the National Center for Responsible Gaming:

“Research does not substantiate the belief that some games – such as online poker or slot machines – are riskier than others. People can get into trouble with all types of gambling, from sports betting and the lottery to bingo and casino games.”

Furthermore, there are countless other states with retail and online sports betting that haven’t seen an increase in addiction.

Stakeholders need to take these arguments and go on the offensive. Get out in front of the negative press that will inevitably come.

There are plenty of ways to do this. And with a nine-figure budget, there are plenty of resources to execute them.

5. Compromises must be made

Tribal casino operators and online gambling companies overreached in their efforts to seize control of what is projected to be the largest legal sports betting market in the US.

Both sides came off as greedy and dishonest, leaving a sour taste in the mouths of Californians in the process. Then, they doubled down on the mistakes.

One side is taking victory laps, which looks petty. The other tucked its tail and ran before the race was over, which looks weak.

But, make no mistake, neither California gaming tribes nor online gambling corporations are going to throw in the towel. There’s too much money at stake.

California eventually will have legalized sports betting. What that model will look like for consumers and operators remains to be seen.

However, when the Golden State gets into the sports betting game, tribal casinos and online gambling companies are both going to have to alter their expectations.

Sports betting in California should be a lay-up for tribes, online books

Is “compromise” a dirty word in California politics? Probably.

But it wouldn’t be in the eyes of the public, which doesn’t really care who controls California’s sports betting market. People just want to be able to partake in an activity already available to most of the country.

California Native American tribes will be sitting at the head of the table when it comes to bringing legalized sports betting to the state. For a variety of reasons too long to list here, all leverage belongs to the tribes.

Given this country’s historical treatment of indigenous people, the tribes’ unwillingness to play nice in the sandbox is understandable. That doesn’t mean it’s a good play going forward.

Legal sports betting in California would be underwhelming as an in-person-only offering. Online sports betting generates the revenue operators want, the taxes politicians want and the open market gamblers want.

Online sportsbook operators come to the bargaining table with brand loyalty and recognition. Like it or not, the big boys of the digital sportsbook world are running laps around the national competition. By themselves, FanDuel, DraftKings or BetMGM would command more market share in California than all of the tribal casino operators put together.

Online operators, however, need to cede more control to the tribes. Namely, how much and where online sports betting tax revenue goes.

The 10% tax rate proposed in Prop 27 was too low for a market as large as this one. Operators must be willing to give up more to gaming and non-gaming tribes in California for any compromise to work.

Bringing legal, regulated sports betting to California should be a slam dunk. Somehow, every effort to do so thus far has been blocked.

A common-sense compromise between California tribes and online gambling operators should be a lay-up.

Matt Kredell, Matt Schoch, Andrew Champagne, Steve Schult and David Danzis contributed to this report.

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