California sports betting committee
Legal Developments

California Sports Betting Passes First Test on Long Journey

California lawmakers advanced sports betting legislation out of committee Tuesday, the first – and easiest- step of a legislative journey that, at this point, still seems insurmountable.

SCA 6 would allow voters statewide to approve mobile and retail sports betting through more than 60 Native American casinos and horse tracks. If approved by two-thirds of the legislature and later a majority of voters during this fall’s election, eligible California sports bettors could wager from a mobile device anywhere within state lines as early as 2021.

Far and away the nation’s most populated state, California’s young, tech-savvy population and long history of athletics success could dramatically speed up America’s growing sports betting potential. But California’s complex gaming dynamics make that possibility more dream than reality.

Native American groups publicly opposed the amendment proposal before Tuesday’s vote, upset that it would also allow the state’s commercial cardrooms permission to continue offering certain types of card games the tribes have argued violate a 2000 constitutional amendment.

Without tribal support, the inherent difficulty of passing a constitutional amendment in California goes from difficult to nearly impossible.

Bill Details

From the perspective of industry operators and would-be legal sports bettors, the amendment would create a solid market opportunity for California.

The amendment opens the door for the most retail and online sportsbooks of any state outside Nevada. Bettors should expect most if not all leading U.S. (and many global) sports betting companies to enter the market.

Retail sportsbooks on sovereign tribal lands, horse tracks and one satellite racing facility per track would be taxed at 10% gross gaming revenue, a figure slightly below median industry average. Online sportsbooks, which would make up a far larger portion of gaming handle, would be taxed at 15%. Both retail and online books would pay an additional 1% of GGR to go to problem gaming programs, creating effective rates of 11% and 16%, respectively.

Initial licensing fees of $5 million with an annual $1 additional fee are steeper than national averages, but still far short of the $10 million rates charged in Pennsylvania and Illinois. Both those states have competitive marketplaces, and California should still see ample interest from gaming stakeholders.

Along with sports betting, the amendment further gives the tribes the right to offer dice and roulette games. Additionally, it would allow the cardrooms to continue offering proposition players for banked card games, which the tribes have for decades argue violates the previous constitutional amendment.

It’s those card game provisions – not the sports betting aspects – that the tribe opposes.

Next Steps

Assuming no further hiccups in the committee stage, the amendment would then need two-thirds support in the full California State Senate. If approved there, it would still need to pass through committee in the California State Assembly and another two-thirds vote on the full floor.

If it reaches that point, it would still need majority support of voters during the 2020 elections before tribal casinos and horse tracks could begin accepting bets.

That gauntlet is difficult for any legislation. It’s still challenging than the political opposition it already faces.

There’s seems little indication the tribes will back down from their opposition to SCA 6 as long as it allows cardrooms rights to offer the banked card games. Conversely, the cardrooms would likely pull their support if they don’t get access to the games, which would almost assuredly be more lucrative than retail or even mobile sports betting.

The amendment does little to solve the loggerheads that have pitted the state’s two most powerful gaming interests. Both have contributed billions of dollars in economic impact and state taxes – and both have influential supporters in the legislature.

Sports betting backers now hope the state’s $50 billion (and growing) estimated budget deficit will be enough to push the bill through. But even in a best-case scenario, this bill would not take effect for at least a year, and then would contribute “only” a few hundred million dollars in new taxes annually, a minuscule portion of the nation’s largest statue budget.

In the meantime, the tribes still seem interested in pushing for a separate constitutional amendment that would simply allow them to take bets on their federally recognized sovereign lands. That would speak loudly about their views on the legislator-backed amendment advancing in the capital.

Tuesday was a necessary step forward in that legislative journey, but it does little to overcome the looming obstacles that may very well be politically impossible to overcome.

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