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Could California legalize sports betting? Epic fight unfolding between casinos, Legislature

by: DALE KASLER for www.sacbee.com/ - posted on: 22-Jun-2020

Legalized sports betting has flourished across the country, while California has watched from the sidelines. That could be changing for the largest and richest state.

Two separate proposals have emerged to amend the state Constitution and allow gambling on baseball, football and other sports, generating new tax revenue for a state budget devastated by the coronavirus.

The competing proposals have generated a fierce political fight over how this historic expansion of gambling in California should unfold. A proposal in the Legislature — one favored by the NFL, NBA and Major League Baseball — has run into opposition from California’s wealthy and powerful Native American tribes.

Protective of their casinos — governed by compacts negotiated with the California governor — the tribes are pushing a far more limited version of sports betting that excludes online wagers. The tribes are also proposing changes designed to crack down on what they see as unlawful behavior by their longtime gaming rivals, the card rooms.

The legislative proposal faces a pivotal vote Tuesday in the Senate Appropriations Committee. The legislators have offered to compromise with the tribes, including proposing a delay in the onset of online betting, but as of late last week, the tribes weren’t mollified.

Regardless of what happens Tuesday, the issue of sports betting will be around a while. Voters will have the ultimate say on whichever version of sports betting survives the current battle. To bring legal sports betting to life, Californians would have to approve a constitutional amendment at the ballot box, either this November or in 2022.

Even as opposing sides dig in, general momentum toward legalizing sports betting is growing.

Nearly two-dozen states have approved it in the past two years. The professional sports leagues, after years of warning their games could be corrupted, have made their peace with gambling, and are cutting deals to ensure they benefit financially. Even some organizations that usually oppose gambling believe sports betting should be legalized as a way of bringing it out of the shadows.

“There’s a black market on it,” said Cheryl Schmit of the anti-gambling group Stand Up for California. “It’s much better if it’s out in the public.”

There’s also the issue of money. Californians already wager billions of dollars on sports, through offshore websites or illegally through bookies. Elected officials covet the tax revenue that legalized betting could bring to a state treasury facing a $54 billion deficit because of the coronavirus.

“We have billions of dollars in sports gaming being bet right now ... and there’s no regulation,” said state Sen. Bill Dodd, D-Napa, who’s leading the charge in the Legislature for sports betting. “We seek to legalize it, regulate it, tax it ... and generate significant amounts of revenue.”

California’s tribal casinos, an $8 billion-a-year industry in California, are not subject to state income tax. They once contributed as much as $330 million a year to the general fund through compacts negotiated with the governor, but that amount has dwindled considerably after a judge ruled those payments constituted an illegal tax.

They do provide about $170 million a year to a pair of state-run funds that help non-gaming tribes and operate programs for problem gamblers.

Dodd believes his sports-betting plan would generate $500 million a year to help the state’s general fund and bolster the programs for problem gamblers. Tax experts say the true number is likely a lot smaller.

If their plan survives Tuesday’s committee vote, Dodd and co-author Assemblyman Adam Gray, D-Merced, would need to secure a two-thirds super-majority of both houses to get their proposal on the November ballot.

TRIBES OPPOSE ONLINE SPORTS BETTING

Both the Dodd-Gray and tribal proposals would allow sports betting inside tribal casinos and a handful of horse racetracks — including Cal Expo in Sacramento under the legislators’ plan.

Both would allow wagers on professional and college sports, although the tribes would prohibit bets on college games involving teams from California. Tribal officials say their public opinion surveys revealed voters aren’t comfortable with allowing bets on California college teams.

The major split is over online betting.

Dodd and Gray’s proposal would allow it. Experts say it’s where the money is. In other states where it’s legal, 85 percent of the action occurs online.

The sports leagues want it, too. The NBA, Major League Baseball, the PGA golf tour and five of California’s professional teams — the Giants, A’s, Warriors, Dodgers and Angels — sent a June 1 letter supporting Dodd and Gray’s proposal and insisting that online betting be included.

“To ensure that consumers move away from the illegal market that exists today, any legal sports betting framework must include options for Californians to wager online and on mobile devices,” the group wrote. A separate letter from the NFL called mobile betting “a key component of moving the illegal market into a regulated setting.”

The tribes, however, oppose online sports betting. They say it would be nearly impossible to regulate — and could open the door to under-age gambling.

“Once you start to talk about online gaming ... there’s no way to know who’s using that hand-held device. It could be a child. That’s our biggest worry,” said Anthony Roberts, chairman of the Yocha Dehe Wintun Nation, owner of Cache Creek Resort Casino in Yolo County.

There are other concerns. In a letter to Dodd and Gray, Roberts said it’s possible that online wagering — because it would take place off Indian lands — might be illegal under the federal law governing tribal casinos.

I. Nelson Rose, a consultant and legal expert on Indian gaming, said the tribes’ opposition to online sports gaming is also rooted in practical business concerns.

Sports betting simply isn’t very profitable, no matter where the wagering occurs, Rose said. They’d rather keep their customers in their casinos dropping money into the slot machines.

“They don’t want people to stay home and bet on sports events,” said Rose, a professor emeritus at Whittier College. “They want people to come on in and play the slot machines and table games.”

The tribes have poured $8.5 million into a ballot measure that would limit sports betting to casinos and racetracks.

Dodd has offered a compromise. Gamblers would be able to place bets on their phones in 2021, but only from within casinos and racetracks. A year later they’d be allowed to gamble on sports from anywhere, but only after they’ve gone into a casino or racetrack and created a registered account. Wide-open internet gambling with no such pre-conditions wouldn’t be legal until September 2023.

The tribes, however, say they’re still opposed to the Dodd-Gray proposal. They acknowledge that online sports betting is probably coming eventually to California — but want to control when and how it arrives.

Having online betting “dictated to us is unacceptable,” James Siva, chairman of the California Nations Indian Gaming Association, said during a recent webinar on tribal gaming issues. “Whether online gaming is three years down the line, five years down the line, if it’s 10 years down the line, or if it’s not even in the conversation ... it needs to be a tribal decision.” Siva’s tribe, the Morongo Band of Mission Indians, owns Morongo Casino Resort near Palm Springs.

COURT OPENS DOOR TO SPORTS BETTING

For decades, Nevada casinos held a monopoly on legal sports betting in the United States. A 1992 federal law outlawed the practice, although Nevada’s sportsbooks, a fixture since the late 1940s, were grandfathered in, along with limited forms of sports betting offered in Oregon, Montana and Delaware.

All that changed when New Jersey legalized sports betting and challenged the constitutionality of the 1992 law. In 2018, the U.S. Supreme Court sided with New Jersey. Soon there was a flurry of states joining New Jersey and enacting their own sports betting laws.

Currently, 19 states allow it in one form or another. Three other states plus Washington, D.C., have legalized sports betting but the laws haven’t gone into effect yet, according to gambling website SportsHandle.com.

After decades of resistance to the issue, sports leagues have begun signing marketing deals and other partnerships with gambling interests. Barely two months after the Supreme Court ruled, the NBA agreed to a dealing making MGM casinos the “official gaming partner” of the NBA and the WNBA. Major League Baseball made a similar deal with MGM a few months later.

The economic shutdown created by the COVID-19 pandemic creates an additional impetus for legalized sports betting. States “are desperate for money to balance their budgets,” Rose said.

However, sports betting might not be the revenue goldmine that state officials imagine.

For one thing, the tribes wouldn’t be obligated to contribute anything to the state’s coffers; any contributions would be subject to negotiation with the governor.

The racetracks’ winnings from sports gambling would be subject to taxation. But Richard Auxier, who’s studied sports betting for the Tax Policy Center and Urban Institute, said the state’s annual tax revenue would likely fall way short of the $500 million estimated by Dodd.

“It’s definitely not a windfall,” he said.

And if the tribes get their way - and there’s no online wagering - the state’s take would shrink even more.

“You’ve got to go online because that’s where the money is,” he said.

CALIFORNIA TRIBES WIELD POLITICAL CLOUT

For years, California Indian tribes struggled to make a living off gambling. The laws were unclear, and the tribes were reduced to dusty bingo halls and gambling tents that did little to lift them out of poverty.

Then came Proposition 1A, in 2000, a landmark event in the history of California gambling. With a resounding 65 percent of the vote, they won the right to open full-fledged, Vegas-style casinos.

The proposition also gave them a statewide exclusive right to operate slot machines, a casino’s most profitable asset. Four years later, when their exclusivity was challenged at the ballot box, they spent millions and crushed the effort.

Proposition 68 was born out of the state’s budget deficit. It said that unless the tribes surrendered 25 percent of their winnings to the state, racetracks and card rooms could operate slot machines.

The tribes and their allies spent more than $50 million fighting Proposition 68, about twice as much as their opponents. The initiative gained just 16 percent of the vote.

The tribes don’t always win. That same year, they failed to secure passage of Proposition 70, which would have given them the right to operate unlimited numbers of slot machines.

Still, tribal casinos in California have become a major force in California politics. They’ve donated millions to political candidates over the years. And they’re bringing their clout to bear in the sports betting controversy, a fact Dodd acknowledged as he labors to find common ground between the two sides.

“There’s a lot of money and there’s a lot of power there,” Dodd said. “There’s a lot of sway with lawmakers, we get that.” The senator has received campaign contributions totaling $42,000 from Indian tribes since January 2019.

One influential tribe has stayed on the sidelines during this fight: the United Auburn Indian Community, owner of the ultra-successful Thunder Valley Casino near Lincoln, and no stranger to political skirmishes. The tribe’s spokesman, Doug Elmets, declined comment.

Just about every other big casino tribe has joined in, however. Yocha Dehe has led the way with a $2 million contribution, followed by $1.5 million each from the tribal owners of the Graton Casino in Rohnert Park, the San Manuel Casino near San Bernardino and the Pechanga Casino in Temecula.

Until the coronavirus stay-at-home order was issued in March, the tribal coalition had spent $7 million collecting signatures and believed it was well on its way toward qualifying its proposal for the 2022 ballot. Although it still has until July 20 under state law to circulate petitions, it’s suing the state and demanding more time.

TRIBES VS. CALIFORNIA CARD ROOMS

Compared to tribal casinos, California’s approximately 70 card rooms are small players. Their annual revenue is barely 10 percent of what the tribes pull in. They wouldn’t be participants in legalized sports betting.

But their future has become the focus of an intriguing subplot in the fight over sports gambling.

It has to do with the somewhat arcane rules governing their operations.

Card rooms technically aren’t allowed to take bets. They have to contract with third-party companies whose employees act as “the bank” and take the bets. Those employees pay the card room a small fee at the beginning of every hand, depending on how much is wagered — the only money card rooms make from gambling. What’s more, the bank role has to be periodically offered around the table, to each customer.

For years Indian tribes have complained to state officials that most card rooms routinely ignore the regulations, particularly the requirement about offering the bank role around the table.

Now they want to do something about that. The tribes’ ballot initiative would allow the state to close down anyone violating the rules — up to 30 days for repeat offenders — and give anyone the right to sue the card rooms for violations if the state won’t.

“We’re not trying to put these card rooms out of business but we want them to obey the law,” said Roberts, the Yocha Dehe chairman.

By contrast, Dodd’s proposal would fix a gray area in the law to make clear that the card rooms’ games are legal. At the same time, last week he offered the tribes an olive branch by proposing stricter rules for the card rooms — for instance, requiring customers to accept the “bank” role periodically instead of merely having it offered to them.

The tribes say it doesn’t go far enough. Last week Roberts said the tribes’ opposition to the Dodd-Gray proposal “is strong and unchanged.”

The card rooms have raised $7 million to fight the tribes’ proposal, which they view as an attempt to severely damage their viability.

“The reality is that our games are legal,” said Kyle Kirkland, owner of Club One Casino in Fresno and president of the California Gaming Association, which lobbies for the card rooms.

But he acknowledged that card rooms may be facing a difficult fight.

“Certainly the tribes are organized and influential and have talented people working for them,” he said. “I would hate to think it’s only whoever has the most money gets to dictate the rules.”

Dale Kasler

Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.

This article is a reprint from www.sacbee.com. Read and comment on the original.