California casino
A tribal casino in California. File photo

In the wake of one of the worst California ballot initiative failures in the past century — that of Proposition 27, which would have allowed online sports betting in the state — Victor Rocha, conference chairperson for the national Indian Gaming Association, didn’t mince words.

“Everybody knows this,” he told CalMatters. “You don’t come and try to screw the tribes.”

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He’s right. Without tribal support, more than 80% of voters rejected Prop 27 — despite the $169 million spent by large sports betting companies supporting it, the potential for up to $500 million in annual state tax revenue, and early indications of support from Californians.

With marquee events like the Super Bowl on the horizon and states like New York reaping billions, the stakes for making a deal with the tribes around online sports betting couldn’t be higher.

Yet California’s tribes are more powerful than in any other state, with Indian gaming casinos generating nearly $9 billion in revenue each year. Without their backing, the initiative lost the support of the state’s major political players, including the California Democratic Party and Gov. Gavin Newsom, who told the public to vote “no” on Prop 27 because it would hurt the tribes.

In contrast, the California Democratic Party remained neutral and the governor silent on the tribes-backed Prop 26, which would have legalized in-person sports betting at tribal casinos and four private horse race tracks. For the tribes, the defeat of Prop 27, which they feared would significantly dilute their power and revenue, was far more important. In fact, as they surely knew, having two similar initiatives on the ballot tends to spell failure for both.

Fortunately, lessons from other states and previous California ballot initiatives can serve as a guide for bringing these two powerful interests — tribal casino operators and sports betting operators — together to make online sports betting in California a reality.

Take Connecticut, where tribes own the immensely popular Mohegan Sun and Foxwoods resort casinos. Recognizing the opportunity in online sports betting, the tribes collaborated with the governor’s office to pass legislation creating three online “skins” (i.e., the number of unique brands allowed under each individual gaming license): one for FanDuel, which partnered with the Mohegan Tribe; one for DraftKings, which partnered with the Mashantucket Pequot Tribal Nation (who run Foxwoods); and one for the Connecticut Lottery.

New Jersey has adopted a similar skins model and this structure has paid off: a recent report estimates a 50% boost in the online market’s revenue and nearly 90,000 additional unique customers as a result.

Though Connecticut and New Jersey provide useful models, it won’t be as simple to adopt in California, where tribes are not only more numerous and powerful, but have significant leverage following Prop 27’s defeat. In Arizona, for instance, a lingering problem is the fact that there are more eligible tribes than available sports betting licenses, leading some excluded tribes to seek legal action.

Any deal in California would inherently be more complex, but the “skins” model might work in a state where the sheer number of casinos make simpler, one-to-one partnerships less plausible — and where competition and support from experienced industry players is necessary to ensure online sports betting thrives.

Giving the tribes this option — as well as certain revenue splits, profit sharing, and gains from other dollars flowing into gambling through sponsorships — could be part of the solution. It might even be enough to allow for compromises with the state’s cardrooms, which generate over $500 million in tax revenue and have been at odds for decades with tribal casino operators, who maintain the cardrooms are violating state law by offering house-banked games.

A 2020 bill introduced in the state legislature, which would have allowed on-site and online sports betting for tribal casinos and horse tracks, failed in large part because it would have allowed cardrooms to maintain their current gaming operations — a concession tribes weren’t willing to make.

This alone should tell us something about the power of the tribes in California. As Rocha said, “The tribes can wait forever. They don’t need sports betting.” To advance the ball, be it by ballot initiative or legislation, key political and industry stakeholders will not only need to explore proven licensing and profit-sharing models, but make the case that tribes do need it.

They can start by pointing to the tens of millions of dollars in tax revenue from sports betting reaped by other states and the booming popularity of online sports betting. Or the rising use of illegal, offshore mobile betting services that will soon eat away at tribal casinos’ profits.

Not to mention a looming economic downturn that could further exacerbate poverty in indigenous communities, heightening the need for additional revenue. They can and should make the case that if the tribes don’t adopt online sports betting in California, their businesses and communities will miss the boat on one of the most important gaming-related developments in history. 

With the tribes on board, powerful politicians (namely Democrats) and news organizations can make the case to voters. That’s what helped California’s Proposition 64, which legalized recreational marijuana, pass where previous efforts fell short.

These players can also help communicate how the state could benefit from additional revenue generated by online sports betting, as well as how, akin to Prop 64, new standards and regulations could restrict underage, illegal, and predatory practices. Without the backing of the tribes and the Democratic party, the notion that Prop 27 would help with education and homelessness rates rang inauthentic, in no small part because those issues are more prominent among indigenous populations. Any communication would therefore have to demonstrate clear support for (and from) those communities, not unlike how Prop 64’s decriminalization message disproportionately impacted minority groups.

Another lesson from Prop 64? No transformative initiative is perfect. But as government catches up with public opinion and other states take notice, the legalization of online sports betting — not simply sports betting limited to tribal casinos and racetracks — feels similarly inevitable, and there’s enough potential revenue out there for everyone to take a piece. The work will be in tweaking and improving the system over time.

For now, though, it’s about time players in California come together to make a deal. By working with the tribes and heeding lessons from past successes, they can make it happen.

Baird Fogel is a partner at Eversheds Sutherland in San Francisco. He regularly advises professional and collegiate athletes and sports franchises on sports betting and related commercial matters. Kristi Thielen is an associate at Eversheds Sutherland with experience in sports betting and fantasy sports issues.