How California Sports Betting Hearing Shows Pitfalls Ahead For Bill

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California sports betting

Legislation to legalize California sports betting took its first step forward on Tuesday. But testimony in the Senate Governmental Organization Committee hearing showed the bill faces a contentious path.

California sports betting referendum bill SCA 6 advanced through the committee by a vote of 9-3.

The legislation authorizes on-site and online sports betting for California tribal casinos and horse racing tracks while ensuring that cardrooms can continue with their current offering of games.

The proposal advances to the Senate Appropriations Committee. Before the vote, sponsor Sen. Bill Dodd assured members that he would not bring the bill up on the Senate floor until further discussions are had with all stakeholders.

“Based on our deadlines, we need to move forward with our committee vote today, but I’ve committed to come to the table for those substantive, good-faith negotiations and I will not bring the bill up on the floor before we’ve had a chance for those discussions,” Dodd said. “Any bill we bring to the floor will have amendments to help address the concerns of the tribes.”

Why lawmakers are pushing for CA sports betting

California is facing a $54 billion budget deficit because of the economic impacts of the coronavirus.

Legislators are considering $14 billion in cuts proposed by Gov. Gavin Newsom. Dodd and Assemblyman Adam Gray want to use California sports betting revenues to lessen cuts.

Research from Eilers & Krejcik projects that CA sports betting would produce $503 million in revenue for the state at market maturity. The firm projected $282 million in the first six months, including initial license fees. Gray said that number could eventually eclipse $1 billion.

“We can take revenues from online sports wagering here in California and do a lot of good for Californians,” Gray said. “I said on the floor recently that it’s awfully hard for any of us to go home and explain to our constituents that we responded to the greatest public health crisis in the last 100 years by cutting health care. Let’s take every step we can to ensure we don’t have to make those cuts.”

Finding a solution to cardroom-tribal fight

Dodd admitted the proposal also is about the legislature putting an end to a decades-long squabble between tribal gaming and cardrooms over exclusivity on house-banked card games.

“When I became chair of this committee three years ago, I suddenly found myself in the middle of a very fractured relationship that has existed between the cardrooms and tribes for way long before I became chair,” Dodd said. “As chair of GO and alongside Chairman Gray, we believed it was time to try to work together on a solution.”

As testimony showed, communities in California are suffering from coronavirus-related shutdowns and are depending on revenue from the tribes and the cardrooms.

What’s at stake?

Tribal casinos provide more than 120,000 jobs producing $9 billion in wages and $20 billion in economic output. These casinos are economic generators supporting tribal nations and their people.

The cardroom industry generates $5.6 billion in economic activity, more than 30,000 jobs and $500 million in tax revenue. Host cities depend on cardroom revenues for health, housing, homeless services, and emergency services.

Cardrooms support California sports betting bill

Testifying in favor of SCA 6 were a slew of cardrooms and representatives of municipalities that depend on their revenue. Those included the American Federation of State, County and Municipal Employees.

Interestingly, the legislation cuts cardrooms out from offering California sports betting. But cardrooms are willing to compromise to give up sports betting in return for ending tribal challenges to the way they offer games like blackjack.

“It will allow CA card clubs to continue offering the same games they are currently offering and authorized to play in the same manner in which they are currently played,” said Joe Lang, a lobbyist for the cardroom industry. “While card clubs would strongly desire to also offer sports betting, this measure does not allow that and cardrooms are still supportive of the measure.”

Lang presented four expected results from the measure passing and gaining the approval of voters:

“All of those are positive results and depend on each other,” he said.

Tribes voice opposition to CA sports betting bill

Many tribal spokesmen stressed that they were strongly opposed to SCA 6.

Jeff Grubbe, the chairman of Agua Caliente, questioned why the legality of cardroom games is part of sports betting legislation.

“Why does a sports wagering bill contain the gift of banked games to a cardroom industry whose entire business model is built around circumventing California law for its own benefit and the direct expense of tribal governments?” Grubbe said.

He added his belief that state revenue estimates from sports wagering are severely overestimated.

“The tax revenue generated from these measures will have no meaningful impact on the massive budget deficit,” Grubbe said.

Mark Macarro, tribal chairman for Pechanga, called out lawmakers for using the economic crisis to push this legislation.

“The timing of moving this bill, SCA 6, during the COVID-19 pandemic is odious and indeed is a sucker punch to us,” Macarro said. (The “sucker punch” references a quote given to LSR on Monday.)

Tribes still don’t want online sports wagering

While online sports betting in California likely offers more revenue, many tribes prefer to limit sports betting to land-based properties.

Grubbe claimed that online sports wagering raised regulatory challenges as to how to identify minors and assist problem gamblers. He also expressed that the opposition of mobile wagering was to protect tribal investment into their brick-and-mortar facilities.

“It appears that our out-of-state sports leagues and our out-of-state sports wagering platforms will be the big winners if SCA 6 becomes law,” Grubbe said.

Dodd and Gray countered that California must include online to maximize revenues from sports wagering and capture the black market. Gray noted that 85% to 90% of sports wagering revenue in other states comes from online wagering.

The coalition of 18 tribes supporting the tribal ballot initiative issued the following statement:

“Tribal leaders are disappointed but not surprised by this vote. Tribes will not allow for another broken promise by the State of California, especially one that rewards cardrooms that misled the state’s own regulators and have been fined for millions for flouting anti-money laundering laws.

“The notion of bringing online sports wagering out of the shadows while existing gaming laws are blatantly ignored is ludicrous.”

CA lawmakers seek compromise in coming weeks

Tribal leaders pushed for their own ballot initiative that might still move forward. Lawmakers didn’t try to bring them back to the table before filling out the bill, angering some tribes.

However, the chairmen pledge to listen to all stakeholders in the coming weeks.

“Your decision to move this bill forward today gives us that opportunity to make sure that even those that have walked away from the table can come back,” Gray said.

What truly lies ahead in CA

The only reason cardrooms are are willing to give up their claim to sports betting is the assurance that they can continue operating as they have been. Tribes will not agree to forsake the exclusive gaming rights for which they fought so hard.

“We will not compromise,” Macarro said. “There is no room to deal on our exclusive gaming rights, and that’s what this bill purports to do for the cardrooms’ benefit.”

A bill needs to pass by a two-thirds vote in both chambers by June 25 to make the ballot. The legislature is taking summer break on June 19. Gray expressed optimism that stakeholders can start fresh with them in negotiations.

“I think we’re so close to moving forward with something that’s good for our tribal government partners as well as the communities around California that drive great benefit from the economies around cardrooms and horse racing, and the opportunity for fairs,” Gray said. “I believe today, with the leadership shown by Chairman Dodd, the Senate and this committee, we can reset those discussions in a way that may move us forward.”