Tribes, cardrooms need to come together on CA sports betting
Online Poker Report

Problems And Solutions For Legalizing California Sports Betting

CA sports betting

The following is an opinion column; the views expressed are those of the author.

A path to legal sports betting is developing in California. Still, two issues that must be resolved before the legislature will enact legislation offering the electorate the opportunity to legalize sports betting there (The state constitution requires any expansion of gambling to be approved by the voters.).

First, and it’s a lengthier discussion, the tribes need to stop going to war with the card rooms over having table games in card rooms. As the reader will see, this longstanding dispute, which has generated millions of dollars in legal and lobbyist fees, only benefits the corporate lawyers and lobbyists who treat their tribal clients like ATMs. 

The second discussion is much more basic. If betting becomes legal in California, it must involve the sportsbook operators themselves. If they can’t be interested in participating in the political process and having their voices heard, then there won’t be sports betting.

This fact is in spite of several authorities estimating the gross gaming revenue in California to reach the billions (with a “b”) in the early going.

That’s potentially more than $100 million in revenue for the state. Even with a state budget topping $180 billion, with a $100 million here and $100 million there, it becomes real money at some point. 

The biggest threat to tribal gaming in California is tribal gaming

Yes, you read that right. It’s completely logical. 

So, this is an inconvenient truth to the tribes. Like their card room counterparts, tribes publicly don’t blame other tribes when business is off. But the reality is no less obvious. Make no mistake; business is currently off in California.

My theory: The economy has been off for some time, with a lot less disposable income to spend at the casino, and the so-called Trump tax cut has raised taxes on the middle class.

The table games dispute started in 2011

The table games issue began in 2011. California was in the throes of the worst economy since the Great Depression. The chairman of the Yocha Dehe Wintun Nation (Cache Creek) wrote a letter to the state attorney general complaining about card rooms offering (player-) banked table games, which have been in operation since 1984, i.e., before the Cabazon decision and the Indian Gaming Regulatory Act.

The chairman relied on language in the compacts granting tribes “the exclusive right to operate [these games].”

The tribes have long maintained that they have a monopoly over banked table games and slot machines in California. While it is true to a certain extent, the reality is somewhat different.

There is a substantial difference between a de facto monopoly (read: the only game in town), and a de jure (constitutionally granted) one with enumerated rights, privileges, and bargained-for exchange for obtaining that monopoly.

I’d speculate that the biggest threat to Cache Creek’s revenues (I must add that it’s one of the finest destination resort casinos) is the presence of the Lytton Casino. In 2000, the tribe got to place a Class II casino in a defunct card room 65 miles away from their ancestral homeland, right off I-80 in San Pablo, roughly 10 miles from the Bay Bridge. 

Earlier this year, a group of tribes sued the state in federal court for breach of compact, and a second group sued a number of card rooms for unfair business practices in state court. In both instances, the judge tossed the cases with fairly summary opinions in both cases. 

Taken in this context, especially in the light that the tribes are currently 0-2 in court on this issue, and couldn’t get past motion in both cases (with an outright dismissal in federal court) may expose the fact that the real problem isn’t the card rooms.

Dilution of tribal gaming in California

As we’ve seen with the Lytton, the real problem isn’t the card rooms; it’s other tribes getting compacts to operate new casinos in areas that compete with established tribal casinos. These frequently have superior locations to the established tribal casino.

Consider these three examples:

Madera

The North Fork Rancheria, after many years in court, finally got the go-ahead to build a casino off of Highway 99 in Madera County. It is about a 25-minute drive from downtown Fresno and about 15 miles from their ancestral reservation.

This location will more than impact the two tribal casinos north of Fresno (Table Mountain and Chuhchansi Gold) and the two card rooms in the Fresno area (roughly 40 tables at Club One in downtown Fresno and a little over 20 tables in nearby Clovis).

Marysville and Mettler

Both of these casinos (Marysville opened on Oct. 30; Mettler is scheduled for May 2020) are going to be operated by Hard Rock International. In other words, Seminole Gaming, the 800-pound gorilla of tribal gaming in the US. 

Marysville, which is roughly 40 minutes north of Sacramento, and 25 minutes north of Thunder Valley, is one of the largest and most lucrative tribal casinos in California. While still farther away from Sacramento than Thunder Valley, with fewer machines (roughly 1,600) than Thunder Valley (3,400), it likely will impact Thunder Valley’s business. 

I should note that a tribal casino operated by Boyd Gaming is scheduled to open next year in Elk Grove, just south of Sacramento, as well. This proposed casino will likely impact TV as well as local card rooms. 

Mettler is on the Kern/LA county line, about 25 miles south of Bakersfield. While, to many, that’s in the middle of nowhere, a closer examination will reveal that that’s only facially true.

The new casino will be a little more than an hour’s drive, about 75 miles, from Los Angeles’ San Fernando Valley.

If you live in the valley, your gaming choices are currently Hollywood Park for card rooms (Bike or Commerce, for those closer to I-5 than the 405), which is close to an hour’s drive during the day.

Or Chumash, roughly a two-hour drive, or San Manuel, about a 90-minute drive). Again, depending on if you’re closer to the 5 or 405 (For that matter, if you live far enough north, the 118 freeway.).

While it will probably minimally impact San Manuel’s business, it may impact Chumash’s business profoundly. As such, Chumash might publicly blame the 22-table card room in Ventura, which had been around for many years before Chumash even had a casino.

Jamul

Jamul, which is 25 minutes from downtown San Diego, opened three years ago and was initially operated by a publicly traded corporate operator. The operator made many, many mistakes managing the casino, to the point where the casino only generated enough revenue to pay off its construction loan and not the loan to the operator.

The tribe eventually took over the casino. Since then, the casino has flourished at the expense of Sycuan (which recently expanded and is a phenomenal facility), but not at the expense of the 20-table card room in Chula Vista, where Sycuan and Jamul draw heavily from. 

Let me add, in closing, California plans on adding more tribal casinos in the years ahead. California tribes pay de minimus income tax to the state, a tiny portion of revenue, roughly .03% (yes, three-hundredths of 1%) goes to a fund supporting tribes who don’t offer gaming.

Considering, by some estimates, statewide revenue approaches $9 billion a year (compared to Nevada statewide’s GGR of a little less than $12 billion for 2018.) 

So, to make up for anticipated revenue shortfall at many tribal casinos, the addition of sports betting as a profit center is probably necessary. To try to shut out card rooms is not only foolish but financially counterproductive.

Card rooms are natural partners for the tribes

While there are several great card room facilities (think The Bicycle Club, Hollywood Park in the Los Angeles area, and M8trix and Bay 101 in San Jose), none of them can offer all the amenities or experience of a tribal casino.

Those include slot machines (usually at much more favorable pricing than their Las Vegas Strip counterparts), real, house-banked table games (as well as e-tables), rooms, choice of food venues ranging from food courts to coffee shops to gourmet steak houses, etc.

The one advantage that card rooms have over the tribes in LA, Orange County and the Bay Area is the real estate; it will attract the significant number of new players. However, in time, once a new player gets a taste of a poker room, they may want a more inclusive gaming experience, or they might like to gamble, but aren’t crazy about poker or player-banked table games.

At some point, they will try a tribal casino; without the card rooms, a player acquisition may be more challenging. 

Also, I should note here, in the early days of US gaming expansion outside of Nevada, every time a new jurisdiction opened, there was a similar expansion of gaming in Nevada. The biggest boom in gaming occurred in the 1990s, when Colorado, Michigan, Illinois, Indiana, Iowa and Louisiana, among other states, legalized casino gaming.

Tribal gaming blew up after the Cabazon decision and the enactment of IGRA, with destination resort casinos opening in California, Arizona, New Mexico and Oklahoma, among others.

A similar boom occurred in Nevada in the mid- to late-1990s, as well. You might want to consider something similar happening with the card rooms and tribes in California. 

Card room customers are customers of convenience

Most players will gamble at the card room or casino closest to their home. There is a vast difference between what Commerce (essentially, a factory) and a San Manuel (one of the best locals’ casinos anywhere) can offer. However, most patrons won’t drive the extra 30 minutes to San Manuel (or similarly in Orange County to Hawaiian Gardens and Pechanga/San Manuel. Pechanga may have the best product in the state, top to bottom, and better than most Strip casinos).

When discussing card rooms versus tribal gaming in California, I like to use a grocery store analogy. Some people will shop at 7-Eleven; they’ll pay a higher price with a poor selection in exchange for the convenience.

Most people will shop at Kroger or Safeway and will eschew the poor selection and high pricing that 7-Eleven offers. At the other end of the spectrum, some folks are status-conscious and shop at Whole Foods or Gelson’s Market and pay a premium because they like the experience of shopping there.

The casino equivalents of these? The card rooms, tribal casinos (or casinos that are servicing the Las Vegas locals’ market) and (luxe) Las Vegas Strip casinos. 

Sportsbook operators and the political process

There are several factors why sportsbook operators have shown little interest in California sports betting so far. 

First, they’ve seen what a couple of politically powerful tribes have done with online poker in California. Even though a majority of tribes and card rooms wanted it, a couple of the most politically powerful tribes in the state didn’t.

And, as such, there still isn’t online poker in California, and won’t likely be any in the next 10 years or longer. There’s little appetite in spending millions of dollars on lobbyists and campaign contributions when one or two politically powerful entities can defeat them. 

While the proposed revenue, before taking mobile betting into account, is exponentially more than online poker could ever generate. Unfortunately, you have some tribes which put personal vanity over profits, and still sometimes use that voice solely because they like to hear themselves talk, no matter what it costs them in the long run.

Not to worry, you have many “old school” card room operators who think the same way, and that’s probably cost them over the years the same slot machines and banked table games the tribes have.

The reality is for all the enmity the tribes and card rooms have for each other; the parties are mirror images of each other. 

While both sides are investors in a commercial gambling enterprise, neither one understands how casino gambling works.

On the card room side, there’s no such thing as house money at risk.

On the tribal side, the tribe hires outside operators with varying degrees of experience and acumen; the tribes, for the most part, are laymen when it comes to the casino gambling business (even after operating slot machines and banked table games for over 20 years in Calfornia).

With that much in common, one would think they should put aside those differences and start talking directly to each other, as opposed to through their attorneys. However, in fairness, it’s understood that’s beginning to happen. 

Second, the sportsbooks are too busy dealing with other states who have legalized it. They are dealing with various sets of regulations in each of the 13 states (and counting) that currently offer legal sports betting. Moreover, as many as 22 other states, not counting California, are considering legalizing it. 

Third, while California is one of the “holy grail” jurisdictions, undoubtedly, many sportsbook operators aren’t interested in allocating resources where there isn’t yet a consensus on how to proceed. That’s before discussing whether they’re going to roll out with retail only or mobile. (Spoiler alert: some card room operators prefer mobile, as do virtually all the tribes.

It would surprise me, once legal sports betting comes to California if mobile doesn’t roll out at the beginning). There has been some reluctance that some of the sportsbooks will open with only retail operations. 

However, it’s probably in the best interests of both the service providers and the stakeholders to have legalization as expeditiously as possible. Remember, not only is California the poker capital of the world, but it’s more famously known as the entertainment capital of the world. It’s already starting, but everyone wants a piece: broadcast networks, entertainment companies, Internet behemoths like Amazon, and last but not least, the sports leagues themselves.

I would think that it’s in the best interests of the current stakeholders to persuade the legislature to act on this before the field gets crowded, and while they have all the equity.

You may see a completely different legislative package for the 2022 session, one that would allow, say, betting at kiosks in grocery stores or bars, if there are no sports betting regulations in place by then. 

Finally, as this article goes to print, it’s been rumored that an informational hearing on ACA 16. It would give the electorate the right to allow the legislature to regulate sports betting. The hearing was discussed for Nov. 20 in downtown Los Angeles (specifically, the Staples Center, where the NBA’s Lakers and Clippers and NHL’s Kings play).

Once the information is announced, one can visit the Assembly website for the date and location. Since Assembly hearings are usually announced about three weeks ahead of schedule, I would speculate that a confirmation of the rumor is imminent.

Vincent Oliver
- Vincent Oliver - Vincent Oliver is an attorney whose primary area of practice is gaming law with emphasis on development and emerging markets. He is a member of the California bar and consults with clients in CA, NV and FL. He is based alternatively in Los Angeles and Las Vegas, and can be reached at [email protected]
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