California voters rejected both Prop 26 and Prop 27 on Tuesday, rebuking two distinctly different attempts to legalize sports betting in the state.
Prop 26 would have allowed for retail sportsbooks at tribal casinos and the state’s four licensed horse racetracks.
Prop 27 would have allowed national sports betting companies like BetMGM, DraftKings, or FanDuel to partner with tribes in offering mobile and online California sports betting.
NBC News called both elections roughly an hour after California polls closed, with 35% of the votes tallied. At that time, 70.5% of voters rejected Prop 26 and 84% rejected Prop 27. These were the first two propositions to legalize sports betting rejected by voters in the United States. Voters in South Dakota, Maryland and Louisiana had previously approved similar measures.
While the failure of Prop 26 feels less like a loss for tribes because their expensive anti-Prop 27 campaign at least helped keep national competitors away from their near-monopoly of California gambling, other stakeholders are celebrating a win.
California Casinos polled industry experts to find who won with Prop 26 and Prop 27 losing.
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Bad polling began resigning the gambling industry to this outcome by September, and on Oct. 10 a Wall Street Journal report detailed how a coalition of national sports betting powerhouses including DraftKings and FanDuel were pulling $11 million in funding for TV advertising scheduled through Election Day in favor of print.
It had become obvious that no matter the sway of national sports betting brands spending wildly to penetrate a state that Eilers & Krejcik Gaming estimates could generate $3.1 billion in annual sports betting revenue, it was being muted by tribal influence in California. The fact that the electorate seemed irritated by the media blitz and ambivalent to the issue didn’t help, either.
Just three of California’s 110 federally recognized tribes supported Prop 27 even though it would have required sportsbooks to partner with them to provide online wagering.
The tribal purveyors of some of the state’s largest casino operations — Pechanga, San Manuel, and Graton — successfully painted DraftKings and FanDuel as “out-of-state corporations” and therefore helped insulate their gambling monopoly, albeit without sports betting. But even with sports betting estimated to generate billions annually, it remains an amenity for most casinos, a dalliance meant to bridge gamblers into the casino games that are more lucrative for the house.
So, ultimately, it seems it was worth it to the tribes to keep national players like DraftKings and FanDuel out — in the name of tribal sovereignty and commercial independence — to, for now, assure they couldn’t offer online casinos at some point, too.
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FanDuel CEO Amy Howe succinctly framed the whole debate with what she said at the Global Gaming Expo:
“We absolutely live to fight another day. … Whether we get there in 2022 or 2024.”
At a separate panel, here’s what Jacob Mejia, director of public affairs for Pechanga Development Corp, said:
“If you’re fighting tribes, you’re losing.”
There are decades worth of acrimonious exchanges to underscore the latest point.
This chapter is reminiscent, said Brendan Bussmann, an industry analyst and founder of B2 Global, of a failed bid to legalize online poker in California in 2021. Although the San Manuel and the Morongo Bands of Mission Indians supported the plan, the vast majority of tribes were opposed.
The Native American gambling industry’s influence can increase even when its disparate parts act with self-interest.
“The tribes do come out stronger because they’ve proven that this is their territory,” Bussmann told California Casinos. “I say that not just once, but this happened with iGaming. We saw this a dozen years ago and apparently, the industry still needs to learn its lesson that we’ve got to be collaborative in that relationship to be able to go forward and get as many stakeholders on board as we can.”
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Unregulated Offshore Sports Betting Sites
The American Gaming Association estimated in October that $300 billion in potential handle annually is lost to offshore sportsbooks.
Howe later pondered at G2E: “Can you imagine a smartphone industry where a third of the revenue goes to illegal operators?”
Added DraftKings CEO Jason Robins: “It is a massive thing that tens of millions of Americans are betting in illegal markets. Not only does that create a threat in terms of having something that’s not safe for consumer, from a competitive standpoint it also puts us at a disadvantage because we have to pay taxes and do checks.”
There’s no doubt Californians are using unregulated offshore sites right now. In a California Casinos survey from August 2022, 10.4% of respondents who answered an open-ended question about sportsbooks they currently used listed Bovada, Stake.com, Betcha (now Vivid Picks), BetOnline, MyBookie, 1xBet, BetUS, FortuneJack, and Sportybet — all unregulated offshore sportsbooks.
It stands to reason many would have continued to do so if either proposition passed, until they experienced an unseemly event with the offshore book and had no recourse.
“The black market folks, this is a win for them,” Bill Pascrell III, a gambling industry lobbyist from Princeton Public Affairs Group told California Casinos. “It clearly is because they’re going to continue to not have any diminution of their market share. And that’s unfortunate.
“I think the industry needs to do a far better job of explaining and advocating and educating politicians, not only in California but across the country, that the best way to continue to see explosions of gambling addiction and the black market is to not regulate.”
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California remains open for shadow business and may be primed for an uptick. In an era of the half-listening public, there are sure to be Californians who sign up for offshore accounts because they vaguely remember they voted on a sports betting proposition and a Google search sends them to a server in Antigua.
California Card Rooms
The purveyors of the state’s most popular venues‚ Commerce Casino, Hawaiian Gardens Casino, and Casino M8trix — considered beating Prop 26 an existential fight. That’s why their ownership groups and their third-party service providers anted up more than $48 million to fund an anti-Prop 26 ad push.
Prop 26 would have allowed tribal casinos not only to offer retail sports betting, but roulette and dice games that would have further strengthened their grip on the California gambling market. Tribes would also have been allowed to sue card rooms under Prop 26 if they deemed the parlors were engaged in illegal activity.
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Gov. Gavin Newsom
The incumbent Democrat running — jogging lightly — for re-election in very-blue California came out against Prop 27 after a wash of bad polling made the outcome seem all but certain. Skeptical about the homeless component in the proposition from the start, Newsom was able to sidle closer to the state’s tribal leaders as a double dip in low-effort, low-risk politics.
“(Newsom) was skeptical of this from the beginning,” Pascrell III said. “I think he’s continuing to try to understand exactly what the value proposition is here moving forward. And I’m hopeful that the industry will do a check and come back and handle their politics and government relations in a far different manner.”
California’s top executive stayed out of the fray even as his party joined the Republicans in opposing Prop 27, saying in August “it is not a homeless initiative. And I know Angelenos can read between the lines and they know better.”
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Newsom also avoided any acrimony with the tribes on staying mum on Prop 26 until he rushed in, as a former state gaming board official said, to finish off the mortally wounded on the battlefield.
Daily Fantasy Sports, Fliff
DFS and Fliff, a promotional sweepstakes social sportsbook, are legal in California. So they will remain the dalliance of choice for those unwilling to serve up a credit card to an offshore website or deal with their friend who knows a guy. If you know what I mean.
DraftKings and FanDuel won’t be plying their sports betting trade in California any time soon, but their brands will remain ubiquitous and their databases will keep cataloging those valuable email addresses until that time through DFS.
A record $453 million was spent in carpet-bombing Californians on the virtues and vices of legal sports betting. The next attempt won’t come at a discount. Because those valuable potential new sports bettors, likely the type of occasional dabblers sports betting companies hope to harvest one little losing bet at a time, will have to be re-programmed.
“The market that exists today is going to be the market that exists for at least the next two years, if not the next four years,” Bussmann said. “I say four because (pro- and anti-Prop 26 and Prop 27 groups) have sat here the last year and completely just trashed why mobile sports betting doesn’t work. And you are going to have to go back to the voters and say, ‘Nope, it’s OK now to be able to do that.’
“And that just doesn’t happen overnight.”