When Bally’s joined the effort to pass an online sports betting initiative in California, CEO Soo Kim expected what became Prop 27 to be a collaborative effort with Indian tribes.
So how did the campaign become one of the most hostile, costly failures in the history of California ballot measures?
On the surface, national sportsbook operators tried to come into California and take on the state’s dominant gambling industry power, Indian tribes. The rancorous, unprecedentedly expensive campaign could set sports betting legalization efforts in the Golden State back years.
But behind the scenes, there were surprising discussions among operators and tribes in the early going. At some point, backers of Prop 27 felt they had reasons for optimism that big tribes would be part of their coalition.
When it became apparent that the campaign would be a fight with tribes rather than a collaboration, some sportsbook operators stopped supporting the effort while others continued to the bitter end.
Today, California’s election results became official. Here, with many exclusive, never-before-seen quotes, PlayUSA lets some of the key stakeholders tell the story of the 2022 election battle over California sports betting.
Setting the stage for the 2022 election
When the US Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in mid-2018, California tribes began studying sports betting.
It became the hottest policy issue in statehouses across the country. Tribes knew that sportsbook operators would soon make a push in California.
So four tribes led by Pechanga got out in front of any coming legislative effort. They filed a sports betting initiative in November 2019. The proposal, which became Prop 26, limited sports betting to in-person only at tribal casinos and horse racetracks.
Pechanga claimed, and independent pollsters later corroborated, that polling showed California voters didn’t support online sports betting. But the incremental approach also made sense for tribes. They needed more time to figure out how best to approach online wagering.
Tribes are very protective of their brick-and-mortar casino operations that fund tribal governments. Online gambling could threaten everything they’ve built to bring their people out of poverty.
Jacob Mejia (Pechanga vice president of public and external affairs): “For tribal leaders, the starting point was what is it that the voters are willing to support. And the answer for us was modest in-person sports wagering at tribal casinos. We recognized very early on that online sports betting would be an overreach.”
Failed 2020 legislative effort puts focus on initiative route
When the legislature took up the issue in June 2020, the sports betting companies largely stayed out of the fray.
Cardrooms led the attempt. They tried to attach a clause solidifying the way they use third-party vendors to offer blackjack. In return, they gave tribes exclusivity over sports betting. This after the tribes included in their initiative a clause to go after cardrooms.
Tribes easily rallied to block the legislative effort. That they all stuck together was a stark contrast to the online poker legislative battles of the previous decade.
Those fractures with big tribes aligning with different online poker operators provided hope for sportsbook companies looking to enter California.
But those online poker efforts through the legislature ultimately failed. When the sports betting legislative effort also failed, it showed sportsbook operators their only path forward was through an initiative.
However, Pechanga Chairman Mark Macarro, in no uncertain terms, warned others not to file a competing initiative.
Macarro: “I don’t know a case of competing measures put on the ballot and both win. The likelihood is both lose. So if the other side, whoever they may be, launches a competing measure, it’s going to be the Hindenburg.”
Mejia: “In late 2019 when we filed our initiative, we made it clear to [sportsbook operators] that our intentions were to pass brick-and-mortar sports betting in California and that they should stay out of politics. We specifically pointed to the decade-long stalemate on poker as why they should stay out of the politics. We had these conversations with vendors and some of the leagues.”
Sports betting companies attempt complementary initiative
Sportsbook operators stayed on the sidelines in the 2022 legislative effort because they knew a bill wouldn’t pass against united opposition from tribes.
So when they went about crafting an online sports betting initiative, they focused on partnering with tribes.
The proposal required all operators participating in California to have a tribal partner. And the plan was for each of the seven sports betting companies backing Prop 27 to find a tribal partner that would help support the initiative.
In the early going, operators felt hopeful about these discussions with tribes.
Following conversations with tribal backers of Prop 26, they added language to Prop 27 clarifying that the initiatives were complementary. The operators believed that the online sports betting and in-person sports betting measures could co-exist and help each other reach the finish line. And they lowered the tax rate to 10% to match Prop 26 before filing the initiative.
They also gave tribes the option to go about offering online sports betting on their own. San Manuel was on their minds with this change. The tribe later took part in filing another online sports betting initiative that would have made operators into vendors for tribal-branded sports betting apps.
If they really wanted to take on the tribes, operators would have written their initiative a lot differently. Rather than requiring operators to partner with tribes, they likely would have tried for a more open marketplace similar to the language filed in another initiative by some cardroom interests. Particularly, they would have looked to include California’s professional sports teams.
Kim: “When we were approached by members of what became the coalition backing Prop 27 about sharing expenses and working together, the concept was to be complementary to the tribal efforts and that each member would have a tribal partner for access.”
Nathan Click (Prop 27 campaign spokesperson): “The coalition crafted Prop 27 with a deep respect for Tribes, their sovereignty and the role of Tribal gaming in California, and our intention has always been for California Tribes to be at the center of any online sports betting market in the state. That commitment can be seen throughout the language of the measure – how no bet could be made without going through a California Tribe, the numerous ways that Tribes could choose for themselves to participate – or not participate – in the marketplace, how every Tribe – including non-gaming Tribes – would benefit financially from its passage, and how the measure included language to allow both 26 and 27 to pass concurrently.
“In other states (such as Michigan, Connecticut, Arizona), companies have partnered with Tribes to bring legal sports betting to market and create new economic opportunities for Tribes, and our intention in California was the same.”
Dan Little (San Manuel chief intergovernmental affairs officer): “We had conversations with their lobbyists early in 2021. They were just asking what we’re doing and if we had any interest in partnering, but it never went anywhere after that. They did share with us their initiative right before they filed it asking what we think about it. Obviously, we didn’t like their initiative and we let them know.”
Kim: “We met with more than one tribe and I know other operators were meeting with other tribes. If they were opposed to our efforts, then the meetings would have been moot from the start.”
Operators rebuffed in attempts to partner with big tribes
Tribes really had to feel each other out and assess the overall tribal reaction to the proposal. Everyone knew that these conversations were happening between the operators and tribes. And if a few tribes took the bait on Prop 27, that could change how the others would handle it.
But lessons learned from the online poker efforts of the previous decade again made a difference. Tribes didn’t want to relive those contentious battles.
They rallied around the idea that operators were trying to fracture Indian Nation. And it was easy to agree that if online sports betting happens in California, they should determine the method rather than have it dictated to them by out-of-state interests.
Kim: “We expected there would be big tribes as part of the coalition. It’s fair to say we thought it would generally be supported by tribes. Could there have been some spin [from those leading the coalition]? I think it’s possible. But our perspective was based on the representation made to us at the time and also our read of the situation and conversation with operators. It was not all spin and no substance. I think there were changing circumstances.”
Mejia: “Several tribes were exploring the market and having conversations with potential vendors before the pile of turd that became Prop 27 was dropped, and that includes us. Certainly, recalling at the time, there were a lot of rumors that were swirling about so-and-so meeting with so-and-so. We recognized pretty early on that operators were employing the age-old trick of divide and conquer. As far as Pechanga was concerned, the notion that we would support 27 is ludicrous.”
James Siva (Morongo vice-chairman, CNIGA chairman): “We caught a lot of flak for trying to be one of the leaders in iPoker. Tribal leadership didn’t have the appetite to go at it again and be in the middle of these tribes versus tribes conflicts, especially with polling showing it wasn’t going anywhere. Having been involved in this battle for online poker and coming out much worse from the wear, we didn’t feel like it was right to jump into the middle of the fray.”
Tom Reeg (Caesars Entertainment CEO): “We were invited to participate in the push to pass Prop 27. We declined. And when we were approached, we pointed to the decades of relationships we have in tribal country with contracts that go back to the early ’90s and have been renewed several times. We value those partnerships, so we’re not going to do anything that our tribal partners are not on board with. And it was very clear to us early on that our partners were not on board with Prop 27.”
Little: “It was a horrible deal for the tribes. They could deduct marketing costs, the $100 million licensing fee, even the federal excise tax. They were really cocky. When you think about it, they would probably only be paying about a 4.5% to 5% tax. And then you had to be active in 10 other states, so the pool to partner with tribes goes small. They just weren’t realistic when they wrote that initiative.”
Continue reading Part 2 of the four-part series.