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California Sports Betting Initiative Proponents Offer To Hand Unregulated Market To Tribes

Written By Matthew Kredell on November 8, 2023
California Sports Betting Initiative

California sports betting initiative proponents are offering Indian tribes ownership of online gambling companies currently operating illegally in the state.

Kasey Thompson and Reeve Collins shared with PlayUSA an ambitious plan to cleanse illegal operators and give tribes control of a massive unregulated sports betting market that already exists in California. And that’s just the beginning of broader aspirations to rid the entire United States of unregulated online gaming by bringing the sites into the light.

“We’re going to take those illegal assets that operate in California today, companies that are worth billions,” Thompson said. “And they’re going to be owned, with no bad actors, completely cleared, all the technology, front and back, handed to these tribes with ownership papers, lock, stock and barrel. This will clean up the entire illegal black market that plagues the state.”

Thompson and Collins are behind the two proposed California sports betting initiatives filed Oct. 27 with the state attorney general. The co-founders of Pala Interactive hope to work with tribes to develop acceptable language for an initiative by Dec. 1, the deadline to amend the filings.

Tribal leaders contacted by PlayUSA are hearing out the proponents, and some are intrigued by the idea of capturing the unregulated market. But they’ll need to come a long way in little time to support a sports betting initiative.

James Siva, chairman of the California Nations Indian Gaming Association made up of 50 tribes and vice-chairman of the Morongo Band of Mission Indians, told PlayUSA:

“At some point in the very near future, they’re going to have to get a large number tribes in the same room so they can deliver this proposal to all of them. Falling short of that, I don’t know how they’re going to get enough momentum behind this to make it viable. If tribes are going to be supportive of this, it’s going to take a lot of tribal input and edits, and the clock is already ticking.”

Plan to transfer unregulated CA sports betting to tribes

The California sports betting initiative proponents are offering tribes three ways to participate in online sports betting:

  1. For tribes that want to operate their own online sports betting app, they will provide them with everything needed to do so.

Thompson hopes bigger tribes such as Morongo, Pechanga and San Manuel see this as an opportunity to enter online sports betting on their own terms. But he said the offer is open to any tribe, or group of tribes, that want to be sportsbook operators.

Thompson explained:

“To start an online sportsbook, the things that you need are a PAM, which is a player account management system. That’s your backend, your payment services, your fraud detection. That is Pala Interactive, which sold for $170 million. You have your front-facing sportsbook, your cashiers, your employees. All the stuff is crazy expensive. It’s about $400-to-$500 million to build one of these things out, and a lot of people have tried and failed.

“What I’m proposing to do is give it to them all for free, every bit of it. From start to finish, everything that DraftKings and FanDuel is offering to do for them for 40%, we’re going to give them for free.”

  1. Partner with the sportsbook operators regulated across the US. These are the operators who backed Prop 27, plus a few more. Thompson expects 12-to-15 tribes to take this route. And given the other options available, tribes would have better leverage to negotiate contracts with operators than under Prop 27.
  2. Participate in a Tribal Sports Development Fund in which the bulk of smaller California gaming tribes will share in ownership of the California operations of formerly unregulated sports betting apps in the state. These sites will continue to operate, owned collectively by the tribes in a regulated environment, and tribes can draw from the annual profits.

Currently, in California, 72 limited- and non-gaming tribes are part of the Indian Gaming Revenue Sharing Trust Fund, each drawing $1.1 million annually from the revenues generated by the more successful gaming tribes. Thompson sees these tribes making up the Tribal Sports Development Fund getting a massive increase in gaming revenue share.

“Those assets today are collectively worth $3 billion in California alone,” Thompson said. “After legalization and regulation, their value will increase to $5 billion. If 80 tribes participate in the fund with 100% ownership of these assets, that’s about $50 million in equity value for each tribe.”

How transfer of unregulated sites would work

Thompson formed Eagle 1 Acquisition Co. to transfer the California operations of unregulated online sports betting sites to tribes. Thompson serves as CEO of Eagle 1. Collins, the founding CEO of cryptocurrency Tether, is COO of the company.

Thompson asserted that Eagle 1 has a path to distribute to tribes unregulated online gaming sites with more than $4 billion in annual handle and a player database of 1.2 million in the state.

Eagle 1 would stabilize the assets and have them cleansed of all bad actors before handing them to tribes, he said.

Thompson said the arrangement would work under the Indian Gaming Regulatory Act and be in compliance with all Indian law.

Eagle 1’s plan is to transition the assets to tribes over a five-to-seven-year period. During that time, Eagle 1 would work with tribes under management service contracts. After the five-to-seven-year transition period, Thompson said Eagle 1 would pull out and give California tribes full control of a previously uncontrollable, unregulated market.

Deal includes shutting down illicit online casino market

California tribal leaders often have expressed concern that opening the state to regulated online sports betting operators would lead to online casinos, threatening their brick-and-mortar casinos that fund tribal economies.

Most of the online gambling sites illegally offering sports betting in California also include online casino gaming.

By putting these companies under tribal control, Thompson said tribes can stop the biggest threat to tribal governments, illegal online casino operations.

“The best part of this is that tribes get to shut down the illegal activity that is pilfering their casinos. This is one big step toward eradicating the majority of online casino play currently happening in the state, taking those people offline and driving them back into tribal brick-and-mortar casinos.”

Cleansing unregulated operators nationally

Speaking recently at the Global Gaming Expo, DraftKings CEO Jason Robins and FanDuel CEO Amy Howe described trying to attract bettors from an unregulated market that remains larger than the regulated market nationally.

Howe cited Google statistics that showed 50% of searches for sports betting sites across the US are for unregulated offshore operators. And in California, where there isn’t a regulated option, that figure increased to 80%.

Thompson elaborated:

“For every DraftKings and FanDuel, there’s an illegal operator just as big if not bigger. Collectively, those illegal sites make up 200% of the regulated US marketplace. It’s all being done by about eight-to-12 companies. Two years ago, I set out to eradicate the US of illegal gaming play, get it taxed, bring revenue to the states and remove all bad actors.”

Thompson said those efforts to gain regulatory compliance are already underway in several states. And bringing the unregulated market into the light will double the tax revenue from sports betting in each state.

He compares it to how PokerStars was once considered bad actors for offering online poker in US states where it wasn’t legalized. But after Black Friday indictments and seizures by the US Department of Justice, PokerStars owners reached a settlement with the DOJ. After being acquired and cleansed of previous owners and executives, PokerStars now operates legally in New Jersey, Pennsylvania and Michigan under Flutter Entertainment, the same parent company as FanDuel.

Joe Versaci had the experience of working for PokerStars during this transition, then helped launch Ultimate Gaming, which included the first legal and regulated online poker site in the US (Nevada) and the first group of regulated online casinos in New Jersey. Now he’s working with Eagle 1 to help prepare the operations to be handed over to California tribes and readied for regulated markets in other states.

Versaci explained:

“I think in many ways they’re doing what states and federal governments have struggled to do, which is clean up and consolidate these offshore illegal operators so regulated sites can benefit. To maximize the potential of the California market, they need to do away with offshore illegal operators.

“Illegal revenue is being wagered every day in California. Tribes have the right to gaming revenue in California, and this places it squarely back in their hands. We’ve acquired these assets and are ready to transfer it to them. It’s very much a new ball game saying these businesses already exist and we’re handing the assets over in California for the benefit of our larger global and national aspirations.”

Like PokerStars founders Isai and Mark Scheinberg, Thompson said owners of these sites saw the writing on the wall that it was time to get out of the unregulated market.

“No one wants to operate illegally anymore in a market that’s moving to legal,” Thompson said. “This is a regulatory arbitrage to rid the entire United States of unregulated gaming.”

Tribes taking time to consider CA sports betting proposals

Thompson told PlayUSA that many tribes have expressed interest in his proposal, but they won’t come out in support until they see the amended language.

Siva didn’t doubt that some tribes have expressed interest.

“Tribes are going to look at it for sure and have conversations. I know tribes are already doing that internally. I’m not sure how it will go. I think some tribes will immediately balk at it, some tribes will be open to the language, and some tribes will come in and say, ‘We’ll support this if it is amended to this.’”

Jacob Mejia, speaking for one of the tribal coalitions that opposed Prop 27, balked:

“This proposal has not been well-received by tribal leaders. The vast majority of leaders learned about it only after it was filed with the attorney general. Any efforts to change the constitution and directly affect tribal sovereignty and gaming rights should be undertaken by tribes themselves.”

One tribal representative who requested anonymity because he did not have approval from the tribal council to make a statement questioned the wisdom of using tribal sovereignty to cleanse offshore, illegal assets for use in California.

Siva said the proposal would have a better chance if communication came directly from a tribal leader instead of non-tribal entities that once were affiliated with a tribe. And he agreed that a major criticism of tribes is the lack of outreach prior to filing.

“I do think there will be some tribes that come out in support of this. I just don’t believe it’s going to be the mass support they would need. It will take a massive amount of movement within Indian Country to get behind this with very little time remaining.”

Proponents filed two potential initiatives. One mostly uses language from an online sports betting initiative filed last election cycle by tribes led by San Manuel, which didn’t make the ballot. The other merely amends the state constitution to ensure that the state legislature may not authorize in-person or online sports betting for any person or entity other than an Indian tribe.

No tribe would disagree with the sentiment of the constitutional amendment, but Siva pointed out that doesn’t mean tribes would support it.

“You have to look at the practicality of getting something like that passed,” Siva said. “Because if you put it out there and it fails, what does that mean for the future of tribal gaming as it relates to sports betting? I don’t think it’s something tribes would want to rush into because if it failed, the ramifications would be far worse for tribes.”

Proponents address criticisms

Thompson planned to have Pala Band of Mission Indians Chairman Robert Smith pitch the initiative.

As co-founders of Pala Interactive, Collins and Thompson helped Pala become the only California tribe to make a success out of online gaming thus far. And Thompson said the tribe profited $100 million from the 2022 sale to Boyd Gaming.

And Smith did reach out to other tribal leaders to tease the initiative before backing out of the filing. When Smith didn’t sign the initiative petition, proponents needed another California registered voter to file it. They had Ryan Tyler Walz, who they called a friend and “part of our team,” file it.

That delayed the initiative about three weeks.

But waiting until late in the filing period was a strategic move by proponents to be the only sports betting initiative on the ballot. And that’s why, although they discussed the initiative with specific tribes for more than a year, they didn’t make all tribes aware of their plans.

“We didn’t want another bill filed, especially not by DraftKings or FanDuel,” Thompson said. “We got our bill in as the only one.”

A potential solution for all tribes to benefit

Thompson and Collins are trying to convince tribes that by acquiring assets and technology from the unregulated market, they can control the California sports betting market rather than be at the mercy of the regulated operators behind Prop 27.

One reason California tribes have not yet made a real run at legalizing online sports betting is the difficulty in finding a way to make it work for all 110 federally recognized tribes in the state. There are a limited number of successful online sports betting operators to go around, and the tribes who partner with market leaders FanDuel and DraftKings will get a distinct advantage.

If viable, this proposal has the potential for all 110 tribes to participate in online sports betting. Revenue-sharing tribes in particular might find that attractive.

“It really removes a lot of the question marks of how to do the California market in a way everyone wins,” Versaci said. “That’s been the big question, right?”

Thompson also believes FanDuel and DraftKings would appreciate entry into the US market, even if it means competing with formerly unregulated sites in the regulated market.

“Why would they go and put cyanide in a pond when they’re buying a house on that pond?” Thompson said. “This is not a bill they’ll want, but it’s a bill they’ll take.”

FanDuel spokesperson Chris Jones responded:

“We intend to listen to and learn what the broader tribal community thinks of the initiative.”

What’s next for sports betting initiatives

Proponents are planning a series of meetings with California tribes to pitch their proposal and get tribal feedback on what to include in the initiative.

Siva advises them to have full details of their plan ready to explain to tribes.

“If they’re going to want tribes to sign onto this, tribes are going to have to know exactly what they’re signing onto. So if they get all tribes in a room, it needs to be this is exactly what we’re offering, this is what we’re willing to spend and this is the arrangement we’re looking to have with tribes.”

For their part, Thompson and Collins say they are willing to work with tribes to include in an initiative whatever language best unites them.

“We’ve done a lot of planning and strategy, but we also need a lot of feedback from the tribes on how to navigate this,” Collins said. “We’re not trying to dictate anything to tribes; we’re just here to give them options. We’re doing everything possible to make it a win-win, and part of it is getting feedback from the tribes. If for some reason they don’t think it’s a win-win, tell us and we’ll fix it.”

Unlike the proponents of Prop 27 last year, Thompson and Collins say they will not move forward without tribal support.

If tribes cannot come to a consensus on language in time to amend the initiative, they have the option of pursuing the constitutional amendment for tribal exclusivity and filling in the language at a later date. But if enough tribes want them to continue, they will fund the entire initiative from start to finish.

“If I have the tribal support, I will spend what it takes to get it passed,” Thompson said. “They have my commitment that if I don’t have tribal support, I won’t move forward. And it’s also my commitment that this will be zero cost to them.”

Although the idea might seem a little harebrained at first, they are hopeful that California tribes will see how taking over the unregulated online gaming market in the state can solve a lot of their problems.

“If we’re right with what we’re saying, we’re talking about a tribal coup of the online gambling world of epic proportions,” Thompson said. “And I’ve got to tell you, bro, we’re going to do it.”

Photo by PlayUSA
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Matthew Kredell

Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 after federal passage of the Unlawful Internet Gambling Enforcement Act disrupted his hobby of playing small-stakes online poker. He has since interviewed more than 300 lawmakers around the country and written extensively about online gambling legislation. He has led coverage of bills to legalize online gambling in most states. A lifelong Angeleno and USC journalism alum, Matthew started his career working as a sportswriter for a decade at the Los Angeles Daily News. He has written on a variety of topics for Playboy Magazine, Men’s Journal, Los Angeles magazine, LA Weekly and ESPN.com.

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