Sports Wagering Sunk in California: What's Next?

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After a months-long $400 million plus war of attrition between the two rival California sports wagering measures on this year's ballot, the endgame was a stalemate, both beat down into the muddy trenches–just as the polling had indicated.

The Associated Press made the call that both measures are sunk, though the official tally is far from in. With less than 50% of the ballots counted as of writing, roughly 70% voted against Proposition 26, and some 83% voted against Proposition 27.

“Ugly,” said Pat Cummings, executive director of the Thoroughbred Idea Foundation, calling the voters' rejection of sports wagering a “gag-reflex” to the incendiary nature of the attack-ads from the rival measures, which oftentimes left voters all at sea about exactly what each measure entailed.

Proposition 26 was an initiative called the Tribal Sports Wagering Act spearheaded by a band of extremely powerful Tribal gaming groups which, in short, would have allowed sports wagering at Tribal casinos and at approved racetracks in California. Most crucially, it would have prohibited mobile or on-line wagering on sports events.

Understandably, this Proposition garnered the public support of California racing industry heavy hitters like the Thoroughbred Owners of California (TOC), the Del Mar Thoroughbred Club and the 1/ST Racing and Gaming.

The second, Proposition 27, was the California Solutions to Homelessness and Mental Health Act led by online betting market outfits like FanDuel and Draftkings. This measure would have legalized online or mobile sports betting outside of Native American lands, though still leave legal avenues for Tribes to participate in the market.

As a selling point, the latter Proposition leaned heavily on the massive revenues it would have secured through license fees earmarked for homelessness initiatives, a hot-button topic for California voters. This included adds that often hid or obscured the sports betting component of the ballot measure, however.

Though the state's most powerful gaming Tribes lined up to support Proposition 26, a handful of less lucrative Tribal gaming groups threw their weight behind Proposition 27, including the Middletown Rancheria of Pomo Indians, who argued the FanDuel and Draftkings-backed measure would provide a financial life-line to struggling Tribes “that don't own big casinos.”

Proposition 26 proponents, on the other hand, spent more than $100 million on ads depicting the rival measure as an out-of-state incursion that would ultimately hurt California's Tribes. These conflicting Tribal allegiances only helped fuel voter bewilderment.

And what of the immediate future of sports wagering in California?

“The Tribes have asserted their power,” wrote TOC vice chairman, Bob Liewald, speaking independently of the organization, in an email. “I don't see a compromise that would make [sports wagering] possible without the Tribes having significant say [and] control.”

Liewald wrote it is “unlikely” that measures similar to Proposition 26 and 27 will be on the state-wide ballot in two years time.

Indeed, proponents of Proposition 27 have publicly hinted that the sheer scale of the spending behind both measures would make them think twice about endeavoring down the same path again.

Liewald also doubts state politicians will pass legislation in Sacramento legalizing sports wagering any time soon. “But if they did it would be crafted mainly by the Tribes for the Tribes,” he wrote. As such, he said it is “difficult” to see a viable path forward for sports wagering before 2025.

Scott Daruty, president of Monarch Content Management, the arm of The Stronach Group (TSG) tasked with distributing the company's signal, strikes a more ambivalent tone.

“I think it's too early to even assess that,” Daruty said, about the chances of one or both such measures returning to a state-wide ballot in 2024.

Sports wagering will eventually be legalized in California, he said. “How that happens, what the dynamic is that brings that about, I just think we need a bit more time to figure that out.”

If the Tribal groups behind Proposition 26 reintroduce it at some point, will California racetracks once again be part of the measure?

“I think it's too early to say,” Daruty said. “I think it'll take some time before that dialogue begins.”

As for why Proposition 26 was so comprehensively undone, Daruty points to the lack of resources invested in positive messaging.

“The Tribal interests that were the proponents of 26, I don't want to speak for them, but it appears they were much more worried about 27 passing than 26 failing,” he said. “There was never a positive message about 26 at all.”

A group of Tribes that includes the powerful San Manuel Band of Mission Indians are spearheading an online and in-person sports betting initiative restricted to servers on Tribal land that could run in 2024.

The Washington Post reports that at an October Global Gaming Expo, Tribal heavy hitters suggested that particular initiative could see collaboration with out-of-state entities as platform providers for Tribal mobile sports betting.

“There might be an opportunity for everyone, but they've got to be humble,” Dan Little, San Manuel's chief intergovernmental and tribal affairs officer, is reported to have said about gaming operations like FanDuel.

“That's not particularly favorable to the racing industry,” said Daruty, about the proposed initiative. “But it is something we're aware of.”

If sports wagering remains foreign to California's shores for the foreseeable future, the industry needs to ensure its wagering product is as “competitive as possible,” warned Cummings, pointing to things like eliminating jackpot bets, focused attention on lower takeout, and higher win-probability bets.

“We are already seeing the positive attention around Kentucky shifting to penny breakage. Give horseplayers the equivalent of a tax break and you give them an opportunity to invest that break back through the windows,” Cummings said.

The industry's continued focus on the “Pick X” and super exotic bets “is probably a mistake,” Cummings said. “It's great to have a low takeout pick five, but only if you hit all five winners. And the last I checked, it's still easier to pick one winner than five straight.”

With pari-mutuel betting California's only option, “the greater racing industry should want its customers to win and churn,” Cummings said. “Driving players to multi-race bets that are tough to win is leading them on a path to lower churn.”

As for the industry's long-term future within a sports wagering ecosystem in California, Daruty emphasized the importance of having a “seat at the table” as the lines are drawn.
“If you look at it today, racing is the only legal form of sports betting in California–it's also the only legal form of online betting in California,” he said. “So, we would just like to make sure we're part of whatever the sports betting future brings.”

 

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