California Politics: A sports betting showdown in 2022

Three times in California’s history, voters have ratified constitutional amendments related to gambling: in 1984 for the creation of a state lottery, and then in 1998 and 2000 to put in place provisions allowing Native American tribes to open casinos.

But the choice was binary in those elections, asking voters to accept or reject a single ballot measure. And the opposition campaigns to those proposals were focused mostly on broad societal issues related to gambling, not the fine print on how the enterprises would be run.

That historical context is worth remembering as we march toward next November, when voters could be asked to decide whether to legalize betting in California on professional and college sports. Tribes, card club owners and online gaming companies are all vying to shape a state-regulated system that offers the promise of a huge jackpot.

In some ways, it’s a political battle for control over a gambling industry that could be a 21st century Gold Rush.

“Assuming California stays largely in line with other states that have authorized sports betting, we would expect the retail and online sports betting market in California to generate north of $3 billion in annual revenue,” said Chris Grove, a partner at Eilers & Krejcik Gaming.

It didn’t start with sports betting

Veteran political watchers know that there’s a lot of prologue to this fight, most of it involving two decades of jockeying between the state’s Native American tribes that operate 65 casinos on tribal lands and California’s long-established card clubs that now include 86 locations in a variety of cities, many of those in Southern California.

Not only do the card clubs offer only a fraction of the games found at tribal casinos, but their operations are based on rules that generally require payouts to come from money wagered by other players, not the house. Tribal casinos also have exclusive rights to slot machines, a big moneymaker for any gambling facility.

There have been breaches to two decades of an uneasy truce between the competitors, most notably the failed 2004 ballot measure backed by card clubs and horse racing groups to get a slice of the action on slot machines. Tribes countered that year with a ballot measure to sharply expand their gaming operations, defeated in part by opposition from then-Gov. Arnold Schwarzenegger.

As the number of tribal casinos grew through the early 2000s, the number of California card rooms steadily fell. Even so, the card rooms had a built-in customer base, with their facilities in a number of cities, while tribal casinos were allowed only on federally recognized lands, often far away from urban areas.

The court, the clash

Tensions have run high in the gambling industry since 2018, when the U.S. Supreme Court struck down a federal law that sought to block states from setting up new sports betting industries. California lawmakers kept talking about the issue but found the various players at odds on how to proceed.

In the interim, 33 states have either launched sports betting activities or approved plans to do so. Grove, whose firm provides data and analysis about the gaming industry, said there’s no one set of rules favored by most states.

“Each state and the respective stakeholders in that state have a unique agenda and outcomes in mind when they approach legal sports betting,” he said in an email to The Times.

Any new legal gambling in California requires a constitutional amendment to be ratified by voters. The hope, though, was that the various interested parties could come up with a compromise brokered by the Legislature, a unified plan that voters would see as ensuring clear regulation and enough tax revenue to fund important government services.

The COVID-19 pandemic may have played in hand in killing that effort. In the early summer of 2020, lawmakers threw in the towel on their efforts and a trio of the state’s most successful gaming tribes moved full steam ahead with their own ballot measure. That proposal, which has qualified for the Nov. 8, 2022, ballot, would allow sports betting at tribal casinos and horse tracks while earmarking 70% of taxes on those operations to be spent on a variety of state general fund programs.

What the qualified ballot measure doesn’t address is the growing sector of online sports betting. In August, officials in three California cities that are home to card rooms submitted a ballot measure for both in-person and online sports wagers — adding card rooms to the locations where the bets can be placed while also requiring multimillion-dollar licensing fees and taxes. Much of the resulting revenue would be spent on housing, education and mental health needs.

The $100-million bombshell

Just a few days after the cities-backed proposal was unveiled, a huge bet was made by a group of major gaming companies that includes the online operator DraftKings — submitting a separate 2022 ballot measure focusing exclusively on legalizing online sports betting in partnership with California gaming tribes that meet certain qualifications. The backers of the measure have already deposited $100 million in a campaign account and fashioned their plan, similar to the one from the cities, to set aside money for homelessness and mental health services. Their proposal received its formal title and summary from the state on Thursday.

Earlier in the week came word, amazingly, of a fourth sports wagering proposal that could be waiting in the wings for 2022 — one that would give exclusive rights to tribes for operating both in-person and online sports betting. And according to reporting by the website PlayCA.com, this proposal would also embrace homelessness and mental health funding for government fees or taxes.

It’s possible, perhaps even likely, that all four measures wouldn’t end up on next November’s ballot. Three of them still have to collect voter signatures to qualify, a process that will rely on paid petition circulators and cost several million dollars. There’s also the chance — perhaps we should call it equivalent to holding four of a kind in poker — that all sides could come together under prodding by the Legislature and sort all of this out, though last year’s failed negotiations involved fewer players than have now come forward.

It’s not just about sports betting

What many voters might miss as those ballot measures make their way to the streets is that the proposals aren’t exclusively about legalizing sports betting.

The initiative that has already earned a spot on next fall’s ballot would give tribes permission to offer roulette and games played with dice, such as craps, at their casinos. It also includes a provision allowing civil lawsuits alleging illegal gaming activity to be brought by anyone — a salvo that card rooms believe is intended to tie them up in endless litigation.

Card rooms, meanwhile, would be able to offer games in which players bet against the house under the initiative submitted by the group of city officials, loosening the long-standing rules against so-called banked games.

The most far-reaching proposal may be the one offered by the online betting industry — it wouldn’t legalize betting only on sports games, according to a review by the nonpartisan Legislative Analyst’s Office. “The measure defines sports events to include athletic events as well as certain non-athletic events, such as award shows and video game competitions,” the analysts wrote last month.

Gaming analyst Grove estimates some 75% of California’s potential market would come from online betting, which explains why the scramble now seems to be for a ballot measure that goes beyond the brick-and-mortar locations envisioned in the tribal initiative that’s already guaranteed a spot on the ballot. (Remember that since 2014, proponents of an initiative have been able to withdraw their plan, even if the signatures have been collected, up until the last minute.)

And Grove didn’t mince words about how big a deal this debate is going to be.

“Assuming California authorizes both online and retail sports betting, the state would quickly become the single largest market in the U.S. by a wide margin,” he said.

California politics lightning round

— Depleted public schools arts programs would get a huge boost under a proposed statewide ballot initiative put together by former L.A. schools Supt. Austin Beutner, with A-list endorsements from entertainment and music industry figures.

— With the first official draft maps expected next week, a key question for California’s citizens redistricting commission is whether there will still be two House seats in Los Angeles for Black members of Congress.

— Gov. Gavin Newsom abruptly canceled plans to lead a California delegation to this week’s United Nations Climate Change Conference in Scotland, citing “family obligations.”

— Los Angeles has undertaken a major shift in its approach to homelessness, one that puts a priority on clearing unsightly street encampments even when insufficient permanent housing exists for the people being moved.