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NEW TGS COVER STORY...HIGH-STAKES PROPS IN CALI--PART II 

by Bruce Marshall, Goldsheet.com Editor

“The more things change, the more they stay the same”-
Jean-Baptiste Alphonse Karr, French writer, 1849


Let’s rewind back to the autumn of 1984, not to college or pro football, but rather to the general election in November. Among the countless races and ballot initiatives across the country was a measure in California to legalize a state lottery. The so-called “Proposition 37" was not without its detractors, however, as a robust “No” campaign emerged and inundated the airwaves. Among the “No” supporters were various education groups, including the California State PTA, railing against the acknowledged evils of organized gaming. (Interestingly, the platform for “Yes on 37" centered upon aid for the state’s schools, the intended beneficiaries of the new lottery. More on all of that later in this piece.)

Joining these dissenting educators and parents on the “No” side, and in fact the leading contributors to its cause, were none other than California’s racetracks, Santa Anita and Hollywood Park chief among them. Supporters of Prop 37 could not suppress their laughter, as the anti-gaming message of the “No on 37" campaign was being financed primarily by the only entities at the time that were granted gaming licenses by the state. Apparently, the main “No on 37" campaign benefactors adamantly opposed to the lottery and its effective Keno game were just fine with gaming... as long as it was Daily Doubles and Exactas and the traditional win, place, and show bets at the racetracks, to which the “Yes on 37" supporters had a bit of fun.

Racetracks and PTAs, eh? Indeed, politics can make strange bedfellows!

Of course, Santa Anita and Hollywood Park’s motives were hardly altruistic. They were simply interested in holding on to their gaming monopoly in the state, fearing the introduction of the lottery would cut into their profits. Which fooled no one; their support of the “No on 37" campaign was strictly self-serving.

The election would prove no photo finish like the Classic at the first Breeder’s Cup, held at Hollywood Park, no less, five days after the '84 election. Pat Dye, aboard Wild Again, was a narrow winner in the initial Breeders Cup Classic, unlike “Yes on 37" that had stretched the margin to near Secretariat-at-the-‘73-Belmont-like 58-42% of the vote in a clear wire-to-wire win earlier in the week.

Which brings us to 2022 and the next significant gaming measure on the ballot in California. In last week’s issue we set some of the background for the Golden State’s eventual entry into legalized sports wagering, which was inevitable once SCOTUS repealed PASPA (as covered in depth in numerous past featured stories in TGS) in May of 2018. With various stakeholders vying for the inside position on the rail, California’s march to sports gaming has had to navigate many more twists and turns than most of the 30 states that have already legalized sports wagering in one form or another (not to mention the pending implementation in six more states.). Nonetheless, sports betting in California will finally arrive at its Judgement Day on the November 8 ballot.

For better or worse.

As we noted in last week’s feature, which was updated from its original form on these pages in November of 2020, the scramble to be first in line for what promised to be a mega-lucrative payoff for some entities was always bound to be a rough-and-tumble exercise between competing forces. But we’re not sure even the most cynical observers could have predicted as the various campaigns for the November election have devolved into something almost unrecognizable from the underlying issue of sports gaming.

Meet Propositions 26 and 27...the most-expensive political campaigns in state history. And some of the potential stakeholders are involved in the same sort of deception game that Santa Anita and Hollywood Park were playing when the Lottery was on the Cali ballot back in 1984. 

What are the differences, and dollar specifics of the campaigns to date? The no-nonsense website Ballotpedia provides the following tutorial.

“Committees supporting and opposing California Propositions 26 and 27, which would enact in-person and mobile sports betting respectively, have raised over $256.4 million becoming the most expensive ballot measures in California history. The committees eclipsed the 2020 app-based drivers initiative, Proposition 22, which raised $224.3 million.

“Proposition 26, backed by American Indian tribes, would legalize sports betting at American Indian gaming casinos and licensed racetracks in California. Proposition 27, which is supported by BetMGM LLC, FanDuel Sportsbook, and DraftKings, would legalize online and mobile sports betting.

“The latest campaign finance filings filed on Aug. 1 cover through June 30. The Yes on 26, No on 27 – Coalition for Safe, Responsible Gaming PAC is leading the campaigns supporting Proposition 26 and opposing Proposition 27. The PAC reported over $73 million in contributions.

“No on 26 – Taxpayers Against Special Interest Monopolies is leading the campaign against Proposition 26. The campaign, along with the now terminated No on the Gambling Power Grab PAC, raised $42.24 million. The top donors to the opposition were gambling-related companies, including the California Commerce Club, Hawaiian Gardens Casino, Knighted Ventures LLC, Park West Casinos, The Bicycle Hotel & Casino, and PT Gaming LLC.

“Yes on 27 – Californians for Solutions to Homelessness and Mental Health Support PAC was registered to support Proposition 27. The PAC raised over $100 million with BetMGM LLC, FanDuel Sportsbook, and DraftKings each contributing $16.7 million. (Ed. Note: Major League Baseball, alone among the pro sports leagues, at least to this point, has also contributed support for Yes on 27.)

“No on 27 – Californians for Tribal Sovereignty and Safe Gaming PAC was also registered to oppose Proposition 27. It reported over $41.1 million in contributions. The top contributors were the San Manuel Band of Mission Indians, the Rincon Band of Luiseno Mission Indians of the Rincon Reservation California, and the Pala Casino Resort Spa.”

(Mind, these numbers are from August 1, more than three full months before the election. Given the inundation on the airwaves for all of the campaigns noted above, the state spending record for campaigns is likely to set a Joe DiMaggio 56-game hit streak-like bar for future campaign spending to clear. By early September, the reported expenditures had topped $357 million...and heading north, with nearly two months to go before election day.)

Never have a group of stakeholders concurrently supported and opposed such related ballot measures with this type of fervor. Props 26 and 27 go about it much differently, however...hence the very clear lines in the sand drawn by all of the potential stakeholders. It’s the stark differences in the implementation of sports betting as defined by 26 & 27 that have caused the various factions to claim their own territories against one another.

Perhaps most interesting, or maybe refreshing, of all regarding Props 26 and 27, however, is that traditional battle lines between Democrats and Republicans have hardly been drawn. Indeed, neither has been particularly involved in what has instead turned into corporate and tribal infighting at the political level. For what it’s worth, the GOP is apparently supporting No on both measures; the Democrats reportedly are No on 27 and “neutral” on 26, but neither party has been expending resources supporting their positions on the measures, or involved in the campaigning. Though partisan party politics often steers clear of many ballot measures, these sports gaming props are about as absent GOP and Democrats influence as much as could be on any high-profile election matter.

The differences in the Prop measures effectively involve the use, or non-use, of mobile betting, so obviously a boon to sports gaming business, as illustrated first by Nevada’s embrace of the mobile component, and then, showing everybody how it should be done, by New Jersey, at the vanguard of sports gaming revolution after leading the fight to get PASPA repealed. (In the past, we have suggested that any state wishing to get into sports wagering should just look at New Jersey’s example and replicate it as much as possible...but, as we’ve seen in California and other states, it’s not always that easy.)

Simply, Prop 26, as supported by the bigger Native American tribes (specifically, those with existing casino gaming) and racetracks in Cali, would authorize sports betting at those venues, but doesn’t include a mobile component. In other words, the big tribes with the casinos and the racetracks want to monopolize sports betting in the state to be done only at their venues and will have no interest in mobile betting, unless perhaps done elsewhere on site at their own locales (the Mississippi example).

Consistent with some of the points we noted in our feature last week, the main tribal casinos and racetracks have added some “pork” to their Prop 26. Dice games and roulette, currently not permitted at any of these venues in the state, are included in 26, to the dismay of the card club industry that tried, but wasn’t able to get its own proprietary measure on the ballot (which would have looked much like the current Prop 27.). The card rooms in the state strongly oppose Prop 26, which would also expand the Private Attorneys General Act. That would let tribes hire private attorneys to sue card rooms in costly lawsuits that card rooms worry could put them out of business, beyond giving the tribal casinos another leg up on what they can offer gamblers.

Indeed, many industry insiders are suggesting that sports gaming is simply the Trojan Horse for the big tribal casinos and the racebooks. The former, in particular, figures to net a significant windfall from the introduction of dice and roulette games to their fare that currently includes only slots and select card games like blackjack and Pai Gow.

These sums are hardly insignificant, either; when neighboring Arizona granted tribal casinos the ability to expand their casino floors to include more slots and table games beyond just card games, plus sanctioning a new Phoenix-area tribal casino, the tribes forwarded a 192% increase in their contributions to state revenues in the first quarter of fiscal year 2021-22.

Prop 27 goes about it differently, enacting online/mobile sports betting throughout the state, ostensibly to be licensed by the tribes...including those not currently involved in the casino business on their lands, though only a handful of those are outwardly supporting 27. The measure creates some extremely high thresholds (as much as $100 million) for gaming companies to do business in California, making it all but impossible for smaller operators to compete and opening the door for FanDuel and DraftKings (both already involved in the legalized fantasy market), plus gaming heavyweights and other Yes on 27 supporters including BetMGM, FGB (Fanatics), WSI (formerly associated with Steve Wynn), Bally’s Interactive and Penn Interactive, to corner and operate the state’s mobile betting markets.

It’s the messaging, however, crafted by seasoned political operatives, that has the Golden State populace justifiably wondering what they’re actually going to be voting upon come November 8. Ad campaigns, especially for Prop 27, have hardly been mentioning betting, or  the mobile wagering component. Instead, Prop 27 is apparently about solving homelessness in the state. After all, it’s official name is the “Legalize Sports Betting and Revenues for Homelessness Prevention Fund Initiative.” In Prop 27, up to 85% of state revenues from sports wagering shall be earmarked to deal with homelessness in the state.

Republicans and Democrats might not be actively involved in the messaging for either Props 26 or 27, but the advertising sleight-of-hand by the Yes on 27 crowd rivals any dealings-from-the-bottom-of-the-deck we have seen in various political deceptions from the past.

Of course no one is for homelessness. But despite suggesting otherwise in many of its ads, Prop 27 is an online-gaming proposal, not a cure-for-homelessness proposal. Even Gov. Gavin Newsom isn’t fooled.

"I know initiatives and folks will say anything. Perhaps that initiative will provide a few dollars," Newsom recently told reporters while in Los Angeles. "I'm not supporting or opposing it, I haven't given it a lot of thought, but it is not a homeless initiative. I know Angelenos can read between the lines and they know better."

Although the state Legislative Analyst’s Office estimates that it could produce hundreds of millions of dollars a year in state revenue, that sum isn’t guaranteed. In any event, the measure would sequester most of it in a fund for homelessness projects and for... gambling addiction programs — thereby, effectively, claiming to address a problem partly of its own making.

LA Times columnist Michael Hiltzik isn’t being fooled by this bit of political advertising dipsy-do from the Yes on Prop 27 forces, either.

“Solving homelessness and those other pathologies is a pretty tall order, and if Proposition 27 were the solution, it would deserve overwhelming support, “  said Hiltzik in a recent August 31 editorial. “But it’s not; more on that in a moment.

“I’m sure the gambling firms are all public-spirited in their way, but do you really think they care about the crisis of homelessness in California as opposed to drinking deeply of the potential profits from online gambling in the vast California market? Me neither.

“The non-gaming tribes supporting the initiative also mention homelessness funding, but their stance is entirely consistent with a desire to get in on the lucrative casino gambling market that the richer tribes have monopolized.
 
“There shouldn’t be any mystery to why the gaming companies are so interested in California, specifically through Proposition 27. California is the biggest potential gambling market in the nation. Perhaps more important, online gambling is the holy grail in the sports betting industry.”

Hiltzik also raised questions about Prop 27's singular address of homelessness concerns at the expense of a myriad of other issues in the state. Though Prop 26 wouldn’t generate nearly the revenue to the state as would Prop 27, whatever it generated would be diverted to the state’s general fund, to be spent as Sacramento saw fit (which might or might not be a good thing, but we digress), theoretically able to address various other areas of need.

“Of the revenues flowing to the state,” added Hiltzik, “85% would have to be used for homelessness programs and mental health programs, and 15% would go to a fund for the non-gaming tribes. (Those tribes already split about $67 million a year from the gaming tribes. Click says the additional funding from the initiative could equal that amount.) The money, however, would also be used to pay for the new state regulatory agency created to oversee the online sports gambling industry.

“What it can’t be used for is any other state purpose. This is one of the principal flaws in the measure, because it hamstrings the ability of the Legislature and governor to address any other state priorities.”

The homelessness angle might be a dubious one, too, as Hiltzik also noted.

“Will Proposition 27 funding really make a difference for the homeless?,” continued Hiltzik. “That’s questionable. The Newsom administration has budgeted a record $12 billion over two years for homelessness programs. The funding from the ballot initiative would add about 4% to that sum.

“Solving the homelessness crisis isn’t a matter of an incremental addition to the funding; if money were the main issue, the problem would be closer to a solution. Homelessness persists because there’s little agreement on how the money can be best spent.

”Homelessness results from a spectrum of causes, not all of which manifest themselves on the streets — drug abuse, psychopathologies, poverty, inaccessible healthcare, not to mention a shortage of affordable living units.

“The potential solutions are every bit as variegated and are all the subjects of vigorous professional debate. Proposition 27 contributes nothing to the roster of solutions, beyond a prohibition on using more than 40% of the homelessness fund on temporary housing.

“Whatever your moral stance is on gambling generally, you should be thinking about whether we already have enough to sate even the most voracious appetite. The homelessness crisis, which happens to be top of mind among voters at the moment, is merely the glittering object the gambling industry is using to distract from its true goal.

“If it were really solvable by an infusion of cash, think about how much good could be done with the $360 million the gambling industry has raised so far to get its hands deeper into your pockets.”

(Here-here on the latter! Though we have no idea what Fan Duel, Draft Kings, and other Prop 27 supporters might have spent on the problem of homelessness in California in the past, if that was indeed the issue, imagine if all of these hundreds of millions of ad dollars were directed to those already-existing help programs instead?)

For reference, perhaps it would be worthwhile recalling back to 1984 and the California Lottery with its underlying “for education” messaging. While the Lottery has delivered significant sums to the state's school systems, it has only been an incremental amount of the annual budgets and has been subject to controversies and adjustments in the four decades since. It hasn't quite worked as originally intended.  (For a more-recent example, note the Covid money handed to schools in Cali, and nationwide, much of which apparently disappearing into the ether.) Handing government bureaucrats at any level such extra sums of cash always comes with its own issues; after all, politicians do not have an especially good track record with spending their dollars wisely.

As for Props 26 and 27, the most interesting dilemma might be what happens if both measures pass? As they are in fundamental conflict, they both couldn’t be implemented, so, apparently, if each measure passes its referendums, the ultimate winner will be the one that receives the most yes votes on the November ballot. Which will inevitably invite lawsuits from the losing side and potentially tie up the introduction of sports wagering in Cali in the courts for an unspecified period of time. Or, though unlikely, both measures could also lose. Whatever, we wouldn’t hold our breath for sports betting to become legal in California by Christmas, as some gaming proponents are hoping.

By us, we’re not about to endorse one side over the other, and for the moment won’t get into to any of the potential downsides of unrestrained expansion of the sports betting market and its related drawbacks. We’ll save that for a future issue. What we can say, however, is that Prop 26 is blatantly self-serving for the tribal casinos and racetracks. For the sports bettors in California, Prop 27, with its mobile component and related conveniences, is the superior deal, and it’s not even close.

But if misinformation and deception as forwarded by self-interested promoters causes enough distaste among the California electorate, Yes on 27 could be dangerously close to falling into the political abyss. 

(TGS will continue addressing developments of Props 26 and 27 in coming weeks.)


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