Billions at stake in fight over future of California gambling

The most expensive political fight of next year’s midterm elections is erupting in California, where a growing field of competing interests are at war over America’s largest untapped gambling marketplace.

Traditional card rooms, Native American tribes and some of the largest gaming companies in the world have all launched competing ballot measures that would dramatically change the rules that govern how Golden State residents can bet on games of chance and on sporting events.

The four proposals — one of which has qualified for next year’s ballot, the other three of which have begun or will soon begin collecting signatures to make the ballot — vary tremendously in which types of gaming would be allowed, how and where residents could access those games and how gambling revenue would be allocated. 

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Most crucially, each initiative determines just which entities would be allowed to administer the games, and therefore control a market that would almost immediately generate billions of dollars a year in revenue.

“Assuming both retail and online sportsbooks are authorized, the California sports betting market would quickly become not only the largest in the U.S., but among the largest in the world,” Chris Grove, a partner at Eilers & Krejcik Gaming, a California-based research and consulting firm, told The Hill in an email. “A competitive retail plus online sports betting market would easily be worth in excess of $3 billion a year in total revenue.”

The varied proposals illustrate the uneasy coexistence of several types of gaming entities in California and the sudden explosion of online action that has happened across the country after a 2018 U.S. Supreme Court decision struck down a federal law that blocked all but four states from allowing sports betting. In the years since that decision, two-thirds of states have taken steps to allow sports betting, and 21 states and the District of Columbia already operate online gaming systems.

But no market is bigger or more lucrative than California, home to 1 in 9 Americans and 18 professional baseball, basketball, hockey, football and soccer teams.

The measure that has qualified for the ballot is backed by 18 Native American tribes throughout the state — specifically, those that already operate Las Vegas-style casinos. It would permit sports wagering, albeit only on tribal land and at horse-racing tracks, along with roulette and dice games like craps.

“This is an important step toward giving Californians the opportunity to participate in sports wagering while also establishing safeguards and protections against underage gambling,” Mark Macarro, chairman of the Pechanga Band of Luiseño Indians, said in a statement announcing the measure earlier this year.

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The California Gaming Association, a trade group that represents the industry in Sacramento, objects to the tribal ballot measure, which they say consolidates power in the hands of the tribes at the expense of the rest of the industry — and leaves billions in potential revenue on the table by omitting an online component to sports wagering.

“Ninety percent of sports wagering is done over a mobile device nationwide,” said Kyle Kirkland, the president of the California Gaming Association and owner of a card room in Fresno. “To legalize sports wagering without that is nonsensical.”

The tribal governments that back the proposal have already contributed more than $12 million to the campaign, a huge sum so early in the process — but an amount that pales in comparison to backers of another measure, sponsored by some of the nation’s largest gambling companies.

Those companies, including BetMGM, DraftKings, Bally’s Interactive and FanDuel, have dropped $100 million into an initiative campaign that would allow online gaming to be controlled by both the major corporations and tribal entities.

The backers of the initiative, calling themselves Californians for Solutions to Homelessness and Mental Health Support, have attracted an all-star team of heavy-hitting strategists, including campaign manager Dana Williamson, who served as California Gov. Gavin NewsomGavin NewsomVirginia's Youngkin gets the DeSantis treatment from media Equilibrium/Sustainability — Solar-powered cars on the EV horizon Newsom vows crackdown: Rail car looting like 'third world country' MORE’s (D) top aide, and Nathan Click, Newsom’s former communications director.

The corporations wrote the initiative to dedicate 85 percent of tax revenue generated by online gaming to homelessness and mental health initiatives, two crisis-level problems facing a state with a growing housing shortage. The remaining 15 percent would be dedicated to Native tribes that do not offer online sports betting.

The initiative “will create hundreds of millions of dollars each year that cities like Oakland can use to help those experiencing homelessness off our streets and into housing and supportive services,” one backer, Oakland Mayor Libby Schaaf (D), said in a statement.

A third measure is backed by a coalition of smaller cities, those with card rooms that already generate revenue for their local communities. That measure would open the online sports betting market to a wider array of licensed operators and levy taxes on those operators — including Native tribes, which would not be required to pay taxes under the other measures.

The initiative backed by cities takes a similar approach to the one backed by the large corporations: It would dedicate 100 percent of the tax revenue it generates to public education, homelessness, affordable housing, mental health, problem gambling programs and gaming administration.

“Sports wagering was happening already, but it was being done illegally. If this were made legal and we’re able to tax it now, that would be a new revenue source for California,” said Tasha Cerda, the mayor of Gardena, a small town south of Los Angeles that is home to several card rooms. “We have a vested interest in this as well. It’s a revenue source for our community. It pays for a lot of things that are important.”

Earlier this month, a fourth group indicated they would weigh in with a proposed initiative, too: In a letter to fellow Native American tribes, tribal leaders from the Rincon Band of Luiseño Indians and the Federated Indians of Graton Rancheria and Wilton Rancheria said they would file their own initiative to allow tribal governments to offer online gaming, something the tribe-backed measure that has already qualified for the ballot does not include.

“If the DraftKings Measure or the Cardrooms Measure passes in November 2022, tribes would lose their exclusivity to class III gaming in California and such passage would accelerate the legalization of online gaming by non-tribal interests, threatening the existence of Indian gaming as we know it,” the tribal leaders wrote to their colleagues.

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Native American tribes gained the right to operate casinos in constitutional amendments approved by voters in 1998 and 2000. In the decades since, those tribes that have opened casinos have come to rely on the revenue they generate to improve lives of their members and to build political clout in the state.

“It’s become extremely important for some tribes, those that are fortunate enough to have geographic locations to build casinos and have people come have done well in gaming,” said Frederick Boehmke, a political scientist at the University of Iowa and an expert in Native American politics and gaming. “Tribes now make the list of top lobbying groups of powerful interests in the state of California, and they’ve been important in the evolving political process.”

The three measures that have not yet qualified for the ballot must collect nearly a million signatures within 180 days of winning clearance to circulate in order to qualify for the ballot. Groups that support California ballot initiatives frequently pay for signature gatherers, meaning the initiatives will cost millions of dollars just to earn the right to compete for voter approval.

There is a risk, some California political experts said, in running multiple measures on the same subject: Voters faced with confusing choices are more likely to vote against everything, rather than choosing one among four different proposals. And if multiple measures pass, ironing out the differences would be left to the legislature, which would set off its own million-dollar lobbying battle between competing interests.

“Not only do you have an industry that’s only grown, but it has more players who are all fighting to dominate it. That is simply a recipe for more political spending,” said Thad Kousser, who chairs the political science department at the University of California-San Diego. “That’s nothing new in California.”