EPISODE 170 | LSR Podcast

California Sports Betting Goes Down in Flames


23 min
Video preview

California sports betting goes down in flames | LSR 170

Welcome back to the Legal Sports Report Podcast, Ep. #170! California Sports Betting Goes Down In Flames. Two propositions that would have legalized sports betting in the largest state went down in lop-sided fashion. So what’s next for California? (00:57) We also break down the big arbitration case between Fox and Flutter (12:03) and take a closer look at player data’s relationship to sports betting (19:24).

Full transcript

Matt Brown (00:06):

Hello, and welcome to episode number 170 of the LSR Podcast. My name is Matt Brown, joined each and every week by the brightest minds in all of the gaming industry. With me …

Dustin Gouker (00:15):

I’m Dustin Gouker.

Adam Candee (00:16):

I am Adam Candee.

Matt Brown (00:17):

You can follow them on the Twitter machine for free, and you should. Make sure it’s the right account, though, because anyone can get their handle these days and try to pretend that it’s Dustin or Adam. But it’s Adam Candee, two E’s no Y, @dustingouker. If you hate yourself, you can follow me @mattbrownm2. You ain’t got to worry about anybody trying to imitate me, so it’s fine. It’s definitely going to be me. We’ll talk about what’s going on. Flutter, FOX Bet, things like that. FanDuel, radar stuff going on with the NBA. But guys, Election Day has come and gone. Adam, this was something we had predicted. We had predicted this over a month ago. But we did, in fact, get shot down over in California.

What’s next for California?

Adam Candee (00:57):

The story is not that California sports betting was rejected by voters; the story is how it was rejected. Because we saw polling all along that said, wow, this is only polling at about 25%, 26% approval and thought, wow, that’s low. But hey, it’s polling. It has a margin of error. Maybe it ends up at a third. No. No. It turns out that the error was all the way down. Prop 27, which would have legalized online sports betting in California, received a grand total of 17% support. Guys, I worked in politics for quite a long time, and the idea of being able to rally 83% of people around anything. You could say puppies are good and the cat lobby would be out there at 25% being able to get that much vote against you. That’s just how soundly this was defeated. It raises a whole host of questions that I know we’re going to talk about, about whether California will ever have online sports betting.

Matt Brown (01:54):

Dustin, we are looking here. Listen, $200 million spent well, I guess, if you ask the tribes. They would probably look at it and say, “Hey, money well spent. When this is all said and done, we got what we wanted.” Probably not even going to have to deal with this for another two or three years anyway for trying to have to come back in with a bunch of money to shoot down something yet again. So I imagine they are probably doing a couple of victory laps over all this.

Dustin Gouker (02:20):

Absolutely. The tribes got what they want. This is the fundamental understanding when people are seeing sports betting propositions shot down. The tribes don’t want this. They don’t care. They want the status quo. That is totally fine with them, and they got that. Yes, absolutely, money well spent to defeat both of them. They didn’t even care about the other one. Prop 26, which they sponsored. It would’ve been nice, but their whole end game was just to have the status quo.


I think on the other side, it’s embarrassing now. We’ve been talking about this for a while, but this is an embarrassing waste of money and an embarrassing lobbying effort by the sportsbooks. It is hindsight, but I think the three of us have been saying this was maybe not the right way to go about it. Like Adam says, how do you take an issue like legalizing sports betting, which is not really that controversial or negative in just the court of public opinion. We’ve seen polls from major polling outs that just legalization of sports betting is popular. It’s not 80% on the other way. It’s not like people are sitting here voting against sports betting generally, so to run a campaign where you get defeated this badly.


We also know they didn’t really make it about sports betting, which is just a huge tactical flaw at this point when we look back, is that you made it about funding homelessness, which sounds like a great issue. But instead, people just didn’t know that, hey, we’re legalizing sports betting. That would’ve gotten us a much better starting point. I’m not sure it would’ve gotten us all the way to winning, to having the proposition passed, have online sports betting, but it was a much better starting point.


What I keep coming back to is they spent all this money, did all this, and it’s damaged now. I just don’t even know what’s next. I don’t know how we’re getting to online sports betting in California with the animosity that’s been engendered between the tribes and the sportsbooks. They’re like, “Yeah, legislature next year.” No, that’s not going to happen. Ballot measure in 2024, how’s that going to work? You just got clocked. And you can come back and say it’s sports betting, but then you’re just going to run into the same issues. You don’t have tribal buy-in. None of this is getting fixed in the next two years. So for people who said, “Oh yeah, this is just a step along the way,” I feel like it’s a step backwards along the way. I just don’t know what’s next.

Matt Brown (04:32):

Adam, we talked about this, but if people skipped a podcast here and there, I think one of the things we can bring up is just we were all really and truly taken aback as to how they framed this as far as why we needed to go this way. Look, we talked about it. Is homelessness a thing that needs to be tackled in California? Absolutely. But if you don’t live in the metropolitan area of San Diego or of LA or of San Francisco, right?


People don’t realize, California, there’s a lot of country. There’s a lot of middle America in California. I know it doesn’t seem like that because we only think California is Hollywood and the beaches and stuff or whatever. This issue did not matter at all to a massive amount of people out there. It could not have possibly registered less than it did with so many people. So instead of talking about the virtues of online sports betting and focusing strictly on tying it to this one issue, I thought it was DOA from the get-go. Of course, hindsight 20/20, not even getting 20% of the vote, we know that for sure it definitely was DOA.

Adam Candee (05:39):

I dug into the county-by-county numbers a little bit because I wanted to see how that urban versus rural divide played out, and it’s exactly as you would expect. The measure received more support in urban areas, whereas in some rural counties, it got 12% to 13%. Which, of course, is even more abysmal, but it’s not like it garnered that much support in the urban areas either.


So let’s not forget Prop 26, which would have legalized betting in person at tribal casinos and also allowed the tribes to have roulette and dice games in their casinos, got 30%. If we were just looking at that in a vacuum and saying, “Wow, 30%, that’s terrible,” we would be saying what exactly went on with Prop 26, right? It’s just that Prop 27 was so much worse that we’re looking at Prop 27. If we pull it out in the macro view and say, what comes next?


Well, like Dustin mentioned, the ballot’s going to be almost impossible to do again. Legislatively, it’s not like it hasn’t been tried before. This was tried a little more than a year ago, and it failed miserably as well against tribal opposition. If we pull it even to the wider view, go to Florida. When tribal opposition was there, they couldn’t even qualify it for the ballot could the sportsbooks. So there is a broader theme developing here that if the commercial interests think they’re going to be able to make end runs around the tribes, it’s been made very clear in multiple states that that’s not going to work.

Matt Brown (07:08):

So, Dustin, first off, we say subscribe, rate and review. If you are only listening to the audio version of this and if you do want to go over to the YouTube version of this, I suggest highly, at least for this episode, you go in there, as Dustin Gouker is sporting a Houston Astros hat as they soundly defeated his Philadelphia Phillies in the World Series. A lost bet to his significant other. So it’s worth the subscription over on the YouTube side of things as it is.


But Dustin, look, as we look at this, if you’re one of the big players out there in all of this, if you’re DraftKings, if you’re FanDuel, if you’re MGM, if you’re anything like that, at this point, you’re focusing all your efforts on Texas, all your efforts on maybe getting something done in Florida and all that. I can’t imagine you’re coming in and wanting to dump tens of millions, if not hundreds of millions, into California anytime soon because of what we’ve basically seen here. As you mentioned, if anything, this is going to get even more ferocious opposition from the tribes considering how this went down this first time. I don’t even know if we’re going to get support, really, from the big guys out there because it’s probably just lighting money on fire.

Dustin Gouker (08:18):

What the path forward is, you take your tail between your legs and you go talk to the tribes and figure out how this gets done because you’ve basically lost. And part of it is yes, they could still sell a story. Oh, we have California in the future. I guess that’s an interesting story because then you don’t have to rely on current revenue from California. You’re like, “Oh, California. Someday in the future.” Great. But if you really actually want to get into California, you have to go to the tribes and say, “How do you want to do this and how do we make this happen?” Because it’s pretty clear at this point that it’s not going to happen without them. And that price has gone up. Whatever you’re going to do, you’ve now basically exhausted your options. What are you going to go give them so that you can go get … What kind of rev split? Are you just basically being a pass through so that they … They own the terms of engagement.


And again, we could have told you this. I don’t run a lobbying firm, but anybody could have said, “Hey, Dustin, what do you think about California?” I was like, “Go talk to the tribes and get them on board before you do anything else.” And that didn’t happen and that’s the part that’s so … People got paid a lot of money to run this effort and thought this was a good idea, and it was obviously just a ridiculously bad idea from the get go. Especially, again, with seeing the results, you can say, yes, this was an awful idea. So I don’t know.


But that’s what you have to do. You have to go and say, “What does this take? What do you want?” And give it to them, I think, at this point if you really want California sports betting in the next one, two, three years. Longer tail and you just want to wait, maybe you can get something through if you … But I think if you really want it in California, you have to sell it. You have to sell the tribe something more than what you sell them anything, which is they have … We’ve given them nothing so far to operate in California, so we’ll see.

Matt Brown (09:59):

Adam, to put a bow on this, not lost in all of this is the shortsightedness really, though, of the tribes in all of this. We’ve talked about this in Nevada with some of the old-school people that run stuff here in Nevada. But the notion that someone is going to not choose to go play in your casino if they decide to put a $5 parlay on their phone is just … Listen, the two things are not mutually exclusive. There’s no way. Listen, I gamble, you gamble, everyone. I’ve never said, “Oh, I’m going to make this $10 bet on my phone, or I’m going to put on my pants and get in my car and physically drive down to a casino and go and game in person.” It’s not monopolizing people going into the casinos and things like that. So again, not lost in all of this is the fact that this line of thinking is still antiquated and doesn’t make a ton of sense.

Adam Candee (10:53):

I’ll push back with this much. It’s not about sports betting for them, it’s about online casino, and it always has been about online casino. That truly would cannibalize who goes into their properties, and that’s what they’re really worried about. Victor Rocha has said as much at the National Indian Gaming Association this year, that the real concern is not about sports betting, it’s about opening a door to online casino. Which we know from many other markets in the US is really what is going to be profitable for DraftKings, FanDuel, et cetera, who are offering a casino in other places. That’s the one that they’re really worried about. So if we were specifically talking about sports betting cannibalizing, Matt, I agree entirely that that’s not the case. But if we’re going to start talking about offering online slots and et cetera, et cetera, then I think that there is a concern to be registered there.

Matt Brown (11:41):

I would agree from that aspect. But as we know, how difficult that is to get done anyway with anything like that. I tend to kind of say, “All right, well, whatever.” We’re getting the cart before the horse here with all of that. All right, Dustin. Let’s talk a little bit here about what’s going on with FanDuel and Fox, specifically Flutter.

Big arbitration case between Fox and Flutter

Dustin Gouker (12:03):

God bless Adam for catching this late. We haven’t had a good old-fashioned Friday news dump in a while, right? We got one on Friday. Adam says, “Oh, what’s this?” Yeah, this court case is … Well, not court case, arbitration case that has been going on for a while between Fox and Flutter, the parent company of FanDuel, got a ruling from the arbitration service that was overseeing this process. What had happened is Fox had sued that it was not getting the right valuation for the stake that it could buy out of a past deal with FanDuel. It had an option to buy up to 18.6% of FanDuel. The two sides did not agree on the valuation that Fox wanted to pay, the value when the deal was made. FanDuel wanted the valuation to be present day. So we got the ruling, and what happened is Fox is able to buy now up to just under 20% of FanDuel here as part of this.


Both sides, as Adam can tell you after I stop talking, were claiming victory in the wake of this, which I guess means both sides got what they want. Maybe that means it’s a fair outcome. Usually you’d say if both sides were pissed, that mean the right thing was … But they were both running victory laps that this is what they wanted. Fox did not get the smaller valuation, what they wanted, so they’re going to have to pay $4.1 billion on the current value on the evaluation that the arbitrator landed on. That’s less than FanDuel wanted, more than what Fox wanted to pay, so it landed in the middle.


What does this do? We’re still learning that, too. We obviously have FOX Bet out there that is also run alongside of all this. We have News Corp. and Fox, which are contemplating a re-merger to look at the opportunity in sports betting. We presume that Fox will exercise this option and take a large stake in all of this, in what is the best pure play to be in the North American market. But we also know that this could hold up a possible IPO around just spinning off the FanDuel business, even though I think Flutter put some cold water on that in its earnings call just most recently.


So there’s a lot of fallout here to still come, but the baseline is that Fox, which would like to be more in the sports betting space, can take this pretty large stake in FanDuel if it wants to. And also, reading tea leaves, reading all of this, it seems like I would see the shuttering of FOX Bet. Otherwise, you’re competing against yourself. Why? I don’t know. This all seems to add up to … I don’t think FOX Bet’s a thing that’s going to exist. Now, I could be very wrong on that front, but this is just my gut reaction. I don’t know why you’d continue to pour … If you’re Fox, you’re pouring a bunch of money into … You want FanDuel to succeed, you want your stake in that to succeed. If you take that option, you’d be out of FOX Bet. I know Adam has thoughts here. I’ll shut up and let him give his thoughts, as well.

Matt Brown (15:11):

So, Adam, out of this, what we figured out is the current day valuation of FanDuel is around $22 billion, which would then make that 18.6% stake about $4.1 billion, should they want to come in. We should also notice that there is also a minority holder in Flutter, as well, of Boyd, which holds a small percentage as well.

Adam Candee (15:37):

Sure. If we go back to the decision coming down on Friday and both sides saying, “We’re pretty happy with this,” our legal expert John Holden wrote at legalsportsreport.com that that says the arbitration process did what it was supposed to do, if both sides essentially can praise the ruling. This was binding arbitration that was essentially a court alternative that both sides agreed to as part of the deal here.


So let’s look at what the situation is right now. Because Dustin mentioned FOX Bet, which is an important consideration when it comes to everything here, because the ruling also talked about whether or not Flutter had given Fox appropriate resources to promote and sustain FOX Bet. Fox had said that it hadn’t, the arbitration ruling said that it had. Now, essentially, what’s going to happen here is that we’re going to get another ruling coming here in a few months that’s going to talk more about the potential for an IPO. That’ll have a lot to do, I think, with Fox’s interests in the long run as to whether FanDuel ultimately is going to go public. Also, there are some terms of the deal essentially here that say that we will know more by August of 2023 what the future of FOX Bet is. I would encourage you to go read the story to get all of the details of that.


When it comes to the future of FOX Bet and whether or not Fox wants to continue to promote it, it seems like throwing good money after bad at this point. Because we can talk about whether or not certain brands are going to be where they are in five years from now. Will FanDuel still be the market leader? Will DraftKings be a number two? Who knows. That might shift around within a top three, four, or five. But single digit operators like FOX Bet, it’s not happening, and that has been made clear. Whether that is a result of it being choked off under the Flutter umbrella as a larger part of The Stars Group deal that was made that led to all of this, you can argue that all you want.


The point of the matter is, if you have the brand reach of Fox and this has not become something more in the time that you have, if you have three hours every Sunday in front of NFL fans to promote this brand and it hasn’t gone anywhere, then it’s probably time to cut losses and get in on something like the FanDuel stake that it can buy, if for no other reason than to see where that stake goes. They might not want to continue along the way that they’re going here, but that stake could eventually be spun off later, and probably for a profit if FanDuel continues the kind of lead that it has in the market.


I’ll stop there before I go farther over my financial skis than I really should. But in the end, I think if you were to say which side of this deal feels better about where it landed, realistically, it’s Flutter. Because it’s not like the December 2020 valuation was put down at a point where, oh my God, they’re going to be selling for below market value. No, Fox is going to have to pay market value for that FanDuel stake. And remember, there’s a 5% escalator in the deal every single year up until 2030. So the price doesn’t stay $4.1 billion, it could escalate probably as high as $6 billion, which is what is assumed if the valuation got to $30 billion by 2030.

Matt Brown (18:51):

I think the writing’s on the wall for FOX Bet, as you mentioned, Adam. If you watch any of their pregame stuff these days, they promote the Super 6 thing more than they even promote FOX Bet, right? It’s basically a go play. I think they’ve really pivoted that arm of everything to the free play, free play, free play. Let’s collect your email addresses, let’s whatever, all the stuff like that. We can market to you other things down the line or whatever. But yeah, everything’s about the Super 6, it’s no longer about FOX Bet. Adam, take us home here with some more FanDuel news.

Player data’s relationship to sports betting

Adam Candee (19:24):

It has not been just about the lawsuit when it comes to FanDuel. I would strongly suggest going and checking out a story that we have by our John Holden right now talking about a new deal between Sportradar and FanDuel. As we had, let’s just say pointed out to us by some folks involved in this story, they want to make clear that it is not an exclusive deal between Sportradar and FanDuel for this NBA player tracking data. But player tracking data will now be available as collected by Sportradar to FanDuel, and can be used to integrate into certain types of bets.


Look, we’ve talked about biometric data before and just what sort of Pandora’s box gets opened here in terms of offering that. But I think John’s point is well taken in terms of this. When we talk about data that is only available to one side of a bet, we have potential problems here about the perceived integrity of that bet, right? Because a lot of this tracking data is not available publicly. So if the sportsbook has data that is not available to the better, then we have to ask questions about the veracity of that bet, right? Essentially, there’s no way to verify the bet from the bettor side. As much as we talk about how, whether it’s syndicates or sharp bettors do a good job of using information within their algorithms to create potential outcomes, that’s information that is available to anyone who wants to get it. So I think it’s a great article by John talking about the potential pitfalls of this and what it means to be talking about player tracking level data being used in betting.

Matt Brown (21:07):

So, Dustin, with Tuesday behind us as we get out of here, really, all eyes shift to Texas. We know that Stacey Abrams got soundly defeated in Georgia. She had mentioned sports betting. That’s not going to happen in Georgia anytime soon or whatever. So really, we shift our attention to Texas in which, like we said, we at least have three billionaires that are on board with it, and a pop culture figure in Mattress Mack and whatever and all that. So that is where we’ll be focusing our attention here over the next year.

Dustin Gouker (21:38):

It’s the biggest market. Certainly other states that we’ll be following, but now that California is dead in the water for a while, it’s Texas. Can they get it done in those three months when they meet for … And they only meet three months every two years, so very short window. It’ll be very big news, I’m sure, assuming it is actually really taken up. We’re looking at online casino in a few places too. Indiana and New York, there will be lots of discussion. There’s also, I think, more than a handful of states that could legalize sports betting next year. As we get in the holiday season, Adam and his team will be ramping up for that to cover that and make sure we’re all well informed on where the next wave of legalization is going to happen.

Matt Brown (22:18): Everything we talk about here, guys, over on legalsportsreport.com. So go and take Adam’s team, all the great stuff that they do. They watch and read everything so you don’t have to, so please go support them. We’re on Apple, Spotify and Google, so please hit that subscribe button. And of course, over on the YouTube, you can see Dustin in his Houston Astros hat, so we appreciate you doing that. For Adam, for Dustin, I’m Matt. Talk to you guys next week.

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