Legalized Online Gambling in California Next Year?

Anybody who has followed California’s futile efforts more than the years to legalize online poker knows to not get their hopes up. It only ever leads to disappointment.

But whilst on-line poker has turned into a busted flush (more on that later), perhaps regulated sports betting stands a better chance of becoming a reality.

If the Golden State did give the green light to sports wagering, it could be the greatest domino to fall since PASPA’s repeal last year.

In addition to boasting a population of almost 40 million, California can also be the country’s wealthiest state. Actually, if it were a country in its personal right, its $3 trillion economy would be the fifth-largest in the globe.

Moreover, sports-loving California is house to 19 significant expert sports teams, effortlessly eclipsing any other state.

Jennifer Roberts, associate director of the International Center for Gaming Regulation in the University of Nevada at Las Vegas, stated, “California is definitely an appealing state for regulated sports betting because of the size of the population and the quantity of college and expert sports teams.”

These elements alone clearly indicate California could be a mammoth marketplace if state-sanctioned sports betting was permitted.

Boutique analyst firm Eilers & Krejcik Gaming forecasts that California could generate as much as $2.1 billion in annual taxable revenue from legal sports betting. That’s when the legislation includes mobile wagering.

By comparison, New Jersey generated $200 million in revenue from nearly $3 billion in bets in the 12 months following sports betting’s launch in June 2018.

There are much more than 60 tribal casinos throughout California. The dominant tribes are controlling gaming within the state, an industry worth around $8 billion in revenue a year.

When it comes to sports betting, the tribes are opposed to having to reopen their agreements with the state. They are also against splitting the gambling marketplace with the likes from the tracks and the card rooms.

As well as casinos, much more than 70 legal card rooms of varying sizes are in California. However, individual rooms offer player-banked versions of casino games, like blackjack and baccarat.

This means players take turns to assume the role of the house, and also the card room takes a cut from the action. This shrewd workaround of the law led to tensions with the tribes for years and was the subject of a recent lawsuit.

However, a trio of tribes lost the case in federal court within the summer.

While the resolution to this dispute gives the prospect of sports betting and on-line poker a slight boost, we are still a long way off the main stakeholders seeing eye to eye.

Richard Schuetz, who spent four years as commissioner for the California Gambling Control Commission, said, “The three industrial actors (tribal casinos, card rooms and tracks) basically treat any expansion of wagering as a zero-sum game.

“That is, if one benefits, it hurts the others. And then there is always a challenge as to what the constitution and the tribal compacts allow, and that often becomes confused by the different actors.”

Meanwhile, Roberts stated, “The addition of a new form of gambling raises complicated questions, such as who will be allowed to offer it: state lottery, card rooms or tribes. And whether it impacts any exclusivity, compacts or authorized forms of gambling.

“I don’t see (legislation) going anywhere until these key stakeholders can come to an agreement.”

For sports betting to become a reality, California needs to pass a constitutional amendment.

The first step to kickstart that process began in June. For the second year running, Assemblyman Adam Gray and state Sen. Bill Dodd introduced an amendment in their respective chambers.

Legislative rules mean bills with tax implications need a two-thirds majority to pass in both the Assembly and also the Senate. California voters also have to give the green light to the amendment by a straightforward majority.

The earliest an amendment could be put on the ballot could be in November 2020. Issues relating to the cost of licenses, tax rates and who could offer sports betting could be decided later.

That means we would likely be looking at sports betting launching in California in late 2021 at the earliest.

That would be three-and-a-half years after PASPA’s repeal. And even then, it would also probably be restricted to land-based venues, at least at first.

However, Jim Ryan, CEO of the online arm of California’s Pala Band of Mission Indians, which is behind in New Jersey, remains skeptical.

“There needs to be a constitutional amendment, which the residents of California need to vote on in a ballot. I just don’t see the will to do that at this point in time based on the discussions we have had with the various tribes within the state.”

Schuetz is equally pessimistic about progress in 2020. “My guess is you will see some lobbyists, lawyers and legislators make money by making some noise about sports wagering, but in the end from the day, nothing will pass. It will mainly just be a dance that seems to happen year after year after year.”

Efforts to legalize on-line poker in California have been going on for much more than a decade.

Alas, lawmakers have failed to pass a bill in all those years, whilst key stakeholders struggled to agree on the framework for online poker.

Although no constitutional amendment is required, there still needs to be a two-thirds majority for it to be given the go-ahead. However, hopes are fading for Californians ever being able to play regulated online poker.

“I would make on-line poker a huge underdog for legalization in 2020,” Schuetz said. “It is an election year, and also the conventional wisdom is that this is never a good time to make an effort to pass gambling-related legislation.

“Moreover, there just isn’t much energy behind poker anymore, partially simply because it has been upstaged by sports wagering. And, secondly, simply because it has been something of a non-event where it is legal.”

That non-event he referred to is poker’s struggling fortunes in other states. Within the only meaningful US marketplace where regulated online poker exists, New Jersey, revenues continue to disappoint.

The Garden State’s poker sites generated revenue of $1.7 million in August, which was down 9.5% on a year earlier. Poker was dwarfed by on-line casino’s revenue of $39.4 million for the same month, meaning poker accounted for a paltry 4.1% of total gaming revenue.

What California isn’t lacking is liquidity to make a success of on-line poker. To illustrate this point, the state’s population is more than four times greater than New Jersey’s.

There is also a real appetite for the game, backed up by the vibrant land-based poker scene. California was even thought to be one from the world’s biggest on-line poker markets before Black Friday in 2011.

California’s population likely has an appetite to sustain three or four large poker sites. And that’s even without compacting with other states to increase player pools.

But despite all this, Ryan said the wrangling and subsequent impasse has all but killed poker’s chances.

“I think everybody got exhausted by it, and I just don’t think anybody has the will to try to make poker happen. Right now, if anything is going to happen, people will be focused on sports betting.

“I think it is a larger marketplace opportunity and is a product that doesn’t exist. Many of the tribal casinos would welcome that in their properties, whereas poker does exist in a land-based environment today.”

Regulated on-line operators in markets like New Jersey and also the UK use poker as a low-cost customer acquisition tool and cross-sell players into casino and sports betting.

But there won’t be on-line casinos, and possibly not on-line sportsbooks, in California. Without these other products, online poker loses much of its appeal from a revenue generation standpoint.

Summing up on-line poker’s chances, Schuetz sounds even much more downbeat than Ryan.

“From all of my experience in California, I would be startled if on-line poker ever became a reality within the state.

“Back when I was in the middle of this debate, the operators would say there are millions and millions of dollars to be made. But in a state the size of California, it was basically budget dust. It is just too contentious between the different industrial actors and not enough money in it for the state to take much of an interest.”

In conclusion, things don’t look too good for the prospect of sports betting, and especially online poker.

Whilst sports betting does appear to have the greatest chance of being legalized, much rests with the politically influential tribes. They hold all the aces.

So, it’s a frustrating wait if you’re a Californian who is itching to play regulated on-line poker or place a legal sports wager in a regulated environment.

H2 Gambling Capital estimates that Californians gamble around $200 million a year on offshore casino and poker sites. The research firm suggests another $200 million is bet annually with offshore sportsbooks.

That’s hundreds of millions of dollars bettors are wagering via unregulated channels and the state is missing out on taxes.

Ryan said, “If the government is unwilling to present them with a regulated product, they are simply betting with offshore books. All you need to do is go to a sporting event in California and you will see a quantity of people around you betting on their mobile devices.

“The horse has already left the barn, but the question is, do you want to regulate it, tax it, create jobs and protect the consumers? That is what state governors need to wrap their heads around.”

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