Anyone who has followed California’s futile efforts over the years to legalize online poker knows not to get their hopes up. It only ever results in disappointment.
But while online poker has turned into a busted flush (more on that later), perhaps regulated sports betting stands a better chance of becoming a reality.
If the Golden State did give the green light to sports wagering, it would be the biggest domino to fall since PASPA’s repeal last year.
Besides boasting a population of almost 40 million, California is also the country’s wealthiest state. In fact, if it were a country in its own right, its $3 trillion economy would be the fifth-largest in the world.
Furthermore, sports-loving California is home to 19 major professional sports teams, easily eclipsing any other state.
Jennifer Roberts, associate director of the International Center for Gaming Regulation at the University of Nevada at Las Vegas, said, “California is certainly an attractive state for regulated sports betting because of the size of the population and the number of college and professional sports teams.”
These factors alone clearly indicate California would be a mammoth market if state-sanctioned sports betting was permitted.
Boutique analyst firm Eilers & Krejcik Gaming forecasts that California could generate as much as $2.1 billion in annual taxable revenue from legal sports betting. That’s if the legislation includes mobile wagering.
By comparison, New Jersey generated $200 million in revenue from nearly $3 billion in bets in the 12 months following sports betting’s launch in June 2018.
California’s gambling stakeholders
Certainly, achieving legalized sports betting won’t be easy, though, especially as various parties have skin in the game. CA’s key stakeholders in gambling are:
- The tribes
- The card rooms
- Horse racetracks
- The CA Lottery
There are more than 60 tribal casinos throughout California. The dominant tribes are controlling gaming in the state, an industry worth around $8 billion in revenue a year.
When it comes to sports betting, the tribes are opposed to having to reopen their agreements with the state. They are also against splitting the gambling market with the likes of the tracks and the card rooms.
As well as casinos, more than 70 legal card rooms of varying sizes are in California. However, individual rooms offer player-banked versions of casino games, like blackjack and baccarat.
This means players take turns to assume the role of the house, and the card room takes a cut of the action. This shrewd workaround of the law led to tensions with the tribes for years and was the subject of a recent lawsuit.
However, a trio of tribes lost the case in federal court in the summer.
Is California wagering ‘a zero-sum game’?
While the resolution to this dispute gives the prospect of sports betting and online poker a slight boost, we are still a long way off the main stakeholders seeing eye to eye.
Richard Schuetz, who spent four years as commissioner for the California Gambling Control Commission, said, “The three industrial actors (tribal casinos, card rooms and tracks) basically treat any expansion of wagering as a zero-sum game.
“That is, if one benefits, it hurts the others. And then there is always a challenge as to what the constitution and the tribal compacts allow, and that often becomes confused by the different actors.”
Meanwhile, Roberts said, “The addition of a new form of gambling raises complicated questions, such as who will be allowed to offer it: state lottery, card rooms or tribes. And whether it impacts any exclusivity, compacts or authorized forms of gambling.
“I don’t see (legislation) going anywhere until these key stakeholders can come to an agreement.”
What needs to happen for California sports betting to pass?
For sports betting to become a reality, California needs to pass a constitutional amendment.
The first step to kickstart that process began in June. For the second year running, Assemblyman Adam Gray and state Sen. Bill Dodd introduced an amendment in their respective chambers.
Legislative rules mean bills with tax implications need a two-thirds majority to pass in both the Assembly and the Senate. California voters also have to give the green light to the amendment by a straightforward majority.
The earliest an amendment could be put on the ballot would be in November 2020. Issues relating to the cost of licenses, tax rates and who could offer sports betting would be decided later.
That means we would likely be looking at sports betting launching in California in late 2021 at the earliest.
That would be three-and-a-half years after PASPA’s repeal. And even then, it would also probably be restricted to land-based venues, at least at first.
However, Jim Ryan, CEO of the online arm of California’s Pala Band of Mission Indians, which is behind PalaCasino.com in New Jersey, remains skeptical.
“There needs to be a constitutional amendment, which the residents of California need to vote on in a ballot. I just don’t see the will to do that at this point in time based on the discussions we have had with the various tribes in the state.”
Schuetz is equally pessimistic about progress in 2020. “My guess is you will see some lobbyists, lawyers and legislators make money by making some noise about sports wagering, but at the end of the day, nothing will pass. It will mainly just be a dance that seems to happen year after year after year.”
But what about California online poker?
Efforts to legalize online poker in California have been going on for more than a decade.
Alas, lawmakers have failed to pass a bill in all those years, while key stakeholders struggled to agree on the framework for online poker.
Although no constitutional amendment is required, there still needs to be a two-thirds majority for it to be given the go-ahead. However, hopes are fading for Californians ever being able to play regulated online poker.
“I would make online poker a huge underdog for legalization in 2020,” Schuetz said. “It is an election year, and the conventional wisdom is that this is never a good time to make an effort to pass gambling-related legislation.
“Moreover, there just isn’t much energy behind poker anymore, partially because it has been upstaged by sports wagering. And, secondly, because it has been something of a non-event where it is legal.”
That non-event he referred to is poker’s struggling fortunes in other states. In the only meaningful US market where regulated online poker exists, New Jersey, revenues continue to disappoint.
The Garden State’s poker sites generated revenue of $1.7 million in August, which was down 9.5% on a year earlier. Poker was dwarfed by online casino’s revenue of $39.4 million for the same month, meaning poker accounted for a paltry 4.1% of total gaming revenue.
The right ingredients for California online poker to thrive
What California isn’t lacking is liquidity to make a success of online poker. To illustrate this point, the state’s population is more than four times greater than New Jersey’s.
There is also a real appetite for the game, backed up by the vibrant land-based poker scene. California was even thought to be one of the world’s largest online poker markets before Black Friday in 2011.
California’s population likely has an appetite to sustain three or four large poker sites. And that’s even without compacting with other states to increase player pools.
But despite all this, Ryan said the wrangling and subsequent impasse has all but killed poker’s chances.
“I think everybody got exhausted by it, and I just don’t think anybody has the will to try to make poker happen. Right now, if anything is going to happen, people will be focused on sports betting.
“I think it is a larger market opportunity and is a product that doesn’t exist. Many of the tribal casinos would welcome that in their properties, whereas poker does exist in a land-based environment today.”
Using online poker to acquire players
Regulated online operators in markets like New Jersey and the UK use poker as a low-cost customer acquisition tool and cross-sell players into casino and sports betting.
But there won’t be online casinos in California, and possibly not even online sportsbooks. Without these other products, online poker loses much of its appeal from a revenue generation standpoint.
Summing up online poker’s chances, Schuetz sounds even more downbeat than Ryan.
“From all of my experience in California, I would be startled if online poker ever became a reality in the state.
“Back when I was in the middle of this debate, the operators would say there are millions and millions of dollars to be made. But in a state the size of California, it was basically budget dust. It is just too contentious between the different industrial actors and not enough money in it for the state to take much of an interest.”
A gloomy outlook for sports betting, poker in California
In conclusion, things don’t look too good for the prospect of sports betting, and especially online poker.
While sports betting does appear to have the greatest chance of being legalized, much rests with the politically influential tribes. They hold all the aces.
So, it’s a frustrating wait if you’re a Californian who is itching to play regulated online poker or place a legal sports wager in a regulated environment.
H2 Gambling Capital estimates that Californians gamble around $200 million a year on offshore casino and poker sites. The research firm suggests another $200 million is bet annually with offshore sportsbooks.
That’s hundreds of millions of dollars bettors are wagering via unregulated channels and the state is missing out on taxes.
Ryan said, “If the government is unwilling to present them with a regulated product, they are simply betting with offshore books. All you need to do is go to a sporting event in California and you will see a number of people around you betting on their mobile devices.
“The horse has already left the barn, but the question is, do you want to regulate it, tax it, create jobs and protect the consumers? That is what state governors need to wrap their heads around.”
We say, don’t hold your breath.