Comparative Analysis of the Sport Wagering Ballot Measures to Amend the California Constitution in California
This report compares the two statewide sports wagering ballot measures:
1. The California Sports Wagering Regulation and Unlawful Gambling Enforcement Act (hereafter called the “Tribal Gaming Initiative”) that is advanced by the Tribal Chairmen of the Pechanga Indian Reservation Temecula Band of Luiseno Mission Indians, the Barona Band of Mission Indians, the Agua Caliente Band of Cahuilla Indians and the Yocha Dehe Wintun Nation, each of which operates one or more Nevada Style Casinos on its tribal land in California.
2. The California Solutions to Homelessness and Mental Health Act (hereafter called the DFS Gaming Initiative) that is advanced by Kurt Oneto and John Moffat. Kurt Onet is a partner in the Sacramento law firm of Nielsen Merksamer LLP who specializes in qualifying statewide ballot measures. John Moffat is a partner in the same law firm. However, Politico reports that the true backers include the Draft Kings and others who are partnering with Indian Tribes.1 These ballot measures propose to amend the California Constitution so as to permit sports wagering and other gambling games with fundamentally different outcomes to the people of the State of California. This report provides a side-by-side comparison of the fundamental elements of these three competing ballot measures.
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1 Politico “Sports Betting Giants Back Online Betting Initiative in California” (08/31/2021)
INTRODUCTION
Section 19 of Article IV of the State of California governs gambling in the state. In particular, subsection 19(a) prohibits lotteries and subsection 19(e) prohibits casinos in the entire State of California.
Subsection 19(e) provides as follows:
The Legislature has no power to authorize, and shall prohibit, casinos of the type currently operating in Nevada and New Jersey.
On March 7, 2000, a ballot measure known as Proposition 1A, adopted Section 19(f) to Article IV of the California Constitution. Section 19(f) relaxed the prohibition against Nevada style casinos by permitting only Indian Tribes to operate casinos on tribal lands that offer slot machines, lotteries and banking and percentage card games.
The Tribal Gaming Initiative propose further amendments to Section 19 of Article IV of the California Constitution. The DFS Gaming Initiative proposes the addition of a new Section 19.5 to Article IV of the California Constitution and a new chapter to the Business & Professions Code.
This comparison analyzes the ballot measures according to common topics in the form of questions germane to the ballot measures.
WILL THE PUBLIC BENEFIT FINANCIALLY FROM SPORTS WAGERING? Tribal Gaming Initiative
No. There is no public benefit. Only Indian Tribes with Casinos will benefit.
This ballot measure does not require Indian Tribes to pay taxes on their existing Casino revenues nor on their additional revenues from sports wagering. Proposed Section 19(f) to Article IV of the California Constitution.
Racetrack Operators will be permitted to offer sports wagering at the racing tracks they operate, but racing tracks operated by State Fairs are excluded. Thus, the Tribal Gaming Initiative only permits sports wagering at the following four (4) racing tracks in California: Santa Anita Park, Del Mar Racetrack, Los Alamitos Racecourse and Golden Gate Field. The Racetrack Operators will be required to pay a 10% tax on net revenues from sports wagering. This 10% tax will be distributed as follows: (a) 15% for problem
gambling prevention and mental health, (b) 15% to the Bureau of Gambling Control for the implementation and enforcement of sports wagering, (c) 70% to the state general fund.
Proposed Section 19(h) to Article IV of the California Constitution and Proposed Section 19670- 19674 to the Business & Professions Code.
DFS Gaming Initiative
Indian Tribes with Casinos and their appointed Operators will reap the entire benefit. They will acquire a monopoly over all online sports betting in the State of California.
No other persons or entities will be granted the right to operate online sports betting. The DFS Gaming Initiative excludes all licensed gaming establishments like cardrooms and racetracks. It also excludes all professional sports leagues and teams. These exclusions deprive the public of new tax revenues from online sports betting.
The public will receive the license fees paid to the State Treasury by the licensed operators. The public also may receive some undeterminable amounts from a proposed surcharge payable only by the operators appointed by the Indian Tribes with Casinos. Since it is unknown which Indian Tribes will appoint operators, the amount of license fees paid to the State Treasury cannot be ascertained correctly.
Neither the State of California nor any local governmental entity may impose a tax on Indian Tribes or their appointed operators on revenues they derive from online sports betting.
All license fees and possible surcharges are to be paid into the Online Sports Betting Fund. The money in the Fund is to be appropriated by the legislature as follows: (a) 85% to counties and cities for homelessness and mental health programs and the cost to administer online sports betting and (b) 15% for Indian tribes that do not participate in online sports betting.
WHAT ENTITIES WILL BE PERMITTED TO OPERATE SPORTS WAGERING? Tribal Gaming Initiative
The only entities that can offer sports wagering in California are Indian Tribes and Approved Racetrack Operators. The privilege is not extended to licensed gambling establishments or Professional sports teams. Proposed Sections 19(f) and 19(h) to Article IV of the California Constitution.
In addition, this Initiative will permit Indian Tribes to offer gambling games not permitted currently.
Indians Tribes will be permitted to conduct and operate “roulette and games played with dice.” Proposed Section 19(f) to Article IV of the California Constitution. The existing Section 19(f) of Article IV does not permit Indian Tribes to conduct and operate roulette or craps, but some Tribal Casinos offer such games anyway.
The Tribal Gaming Initiative is a plan by Indian Tribes with Las Vegas Casinos to own gambling in the State of California – not just sports wagering. The plan consists of two foundational elements embedded in the Initiative that grant a monopoly to Indian Tribes over all gambling in the State of California without any obligation to pay taxes on their gambling revenues.
The first element is the power to conduct three types of gambling that are currently prohibited in California. The initiative would permit Indian Tribes with Las Vegas Casinos to conduct “roulette, games played with dice and sports-wagering.” Section 19(f).
The second element is the exemption from taxation on all revenues derived from these three new types of gambling. The exemption is a continuation of the existing language of Section 19(f) of Article IV of the California Constitution that is devoid of any obligation to pay taxes from gambling revenues to the State of California or any other governmental entity.
Such powers far exceed what Indian Tribes with Las Vegas Casinos need to survive – a goal that was accomplished by the passage of Proposition 1A on March7, 2000.
In contrast, Cities may only license and regulate licensed gambling establishments to play nonbanked card games, which means that cardrooms, unlike Indian Tribes, cannot be the dealer or a player in any card game. Cities derive tax revenues from licensed gambling establishments to fund public services such senior and youth services and events, as well as traditional police and fire services. Cities derive these revenues by imposing taxes ranging from 10% to 15% of a licensed gambling establishment’s gross revenue.
The Tribal Gaming Initiative gives Indian Tribes powers sufficient to drive licensed gambling establishments out of business. They cannot compete with Indian Casinos that offer sports wagering, slot machines, craps, roulette, banked card games such as Blackjack and lotteries.
When licensed gambling establishments go out of business, cities will not be able to replace lost gaming revenues, and city services to residents will be cancelled or reduced drastically.
DFS Gaming Initiative
Indian Tribes that currently operate Nevada-style casinos in California are the only entities that will be permitted to operate online sports betting over the internet and on mobile devices to persons in California.
In addition, any such Indian Tribe may appoint a gaming entity to conduct online sports betting on behalf of the Indian Tribe.
Furthermore, the right to conduct online sports betting is made a constitutional right and granted to such Indian Tribes exclusively. Proposed Section 19.5 to Article IV of the California Constitution.
The privilege to conduct online sports betting is not extended to other licensed gaming entities such as licensed gambling establishments or Racing Tracks or to any Professional sports leagues or teams. The DFS Gaming Initiative also grants confidentiality to Indian Tribes and their appointed operators, and it requires the State of California to finance the implementation of online sports betting.
All license applications of Indian Tribes and their appointed operators including all attached documents, reports and data containing financial information or personal information will be exempt from disclosure to the public under the Public Records Act.
In order to implement sports betting under this Initiative, the State will be required to loan $30 Million to fund the commencement and regulation of online sporting betting, but no Indian Tribe or appointed operator will be required to repay any part of the loan. Instead, it will be repaid from license fees paid by the operators.
WILL INDIAN TRIBES OR THE STATE REGULATE SPORTS WAGERING? Tribal Gaming Initiative
The Tribal Gaming Initiative grants to Indian Tribes the right to conduct “sports wagering” at Tribal Casinos and on Indian Lands without the need to obtain any license from the State of California or to comply with any state regulation on sports wagering. Proposed Section 19(f) to Article IV of the California Constitution.
This Initiative provides for amendments to existing tribal-state compacts to add sports wagering.
Proposed Section 12012.101 to the Government Code.
The Tribal Gaming Initiative does not prohibit persons under 21 years of age from engaging in sports wagering at Indian Casinos or on Indian Lands. Persons under 21 years are prohibited from sports wagering at Racing Tracks. Proposed Section 19674 to the Business & Professions Code.
This Initiative authorizes the State Legislature to enact statutes that establish the events on which “sports wagering” is permitted and statutes that provide consumer protections and anticorruption measures. Presumably, such statutes would be applicable to sports wagering at Tribal Casinos and on Indian Lands. Proposed Section 19(i) to Article IV of the California Constitution.
DFS Gaming Initiative
Under the DFS Gaming Initiative, online sports betting will be largely unregulated by the State of California. Indian Tribes or their operators are required to apply for and obtain a license from the state which entities them to operate an online sports betting platform and to act as a sports betting supplier. Licenses are valid for five (5) years.
This Initiative grants virtual control over all online sports betting to the operators, whether the operators are Indian Tribes or their appointed gaming entities. The following elements of control are explicitly granted to the operators:
1. The adoption of rules for game play governing online sports betting transactions with its customers that include elements 2 - 6 below.
2. The method for calculating and paying winning bets.
3. The effect on bets, if any, of sports event schedule changes.
4. The method of notifying consumers of odds changes.
5. The method of funding an online sports betting account.
6. The circumstances under which an operator may void a bet and notifying the consumer thereof.
7. The determination and display of applicable lines, point spreads, odds, or other information pertaining to online sports betting; and the Department of Justice is explicitly prohibited from specifying such elements of sports betting and from requiring operators to disclose such information to the public.
8. Operators cannot be required to obtain prior Department of Justice review or approval of any advertisement or promotion; but operators are required to avoid targeting minors, persons ineligible to place bets or who have self-excluded.
9. Operators cannot be limited on the type or amount of free bets or promotional credits they may offer or issue.
10. Operators have the right to pool liquidity from other states in which they are licensed to conduct sports betting.
11. Operators have the right to maintain information about all bets placed including the identity of the bettor, the dollar amount and type of bet, the location from which the bet was placed and the outcome of each bet. However, the operators are required to provide such information to the Department of Justice upon request.
Proposed Sections 19755, 19756 and 19760 of the Business & Professions Code.
The DFS Gaming Initiative contains provisions that would allow it to coexist with the Tribal Gaming Initiative in the event both initiatives receive voter approval at the November 2022 election regardless of which initiatives receives the most votes.
In addition, this initiative prevents the legislature from amending any statutory provision of this initiative except upon a five-sixth vote of both houses of the legislature but may amend the percentage allocation of moneys in section 19750 of the Business & Professions Code upon a two-thirds vote of both houses of the legislature.
ARE TAXES PAYABLE BY OPERATORS OF SPORTS WAGERING?
Tribal Gaming Initiative
No. Indian Tribes will pay no taxes.
Indian Tribes are not now required to pay taxes to the State of California on their Casino gaming revenues.
Although the Tribal Gaming Initiative authorizes Indian Tribes to conduct the games of “roulette, games played with dice and sports wagering,” it imposes no obligation on Indian Tribes to pay taxes on revenues they derive from such new games and from sports wagering. Proposed Section 19(f) to Article IV of the California Constitution.
While the Tribal Gaming Initiative places no tax on Indian Tribes, it will impose a “sports wagering tax” of 10% on net revenue of the four (4) racing tracks authorized to conduct sports wagering.
Such tax revenues shall be paid to the State Treasury and expended as follows: (i) 15% for problem gambling prevention and mental health, (ii) 15% to the Bureau of Gambling Control for the cost of enforcement and implementation of sports wagering and (iii) 70% to the general fund.
Proposed Sections 19671, 19672 and 19673 to the Business & Professions Code.
DFS Gaming Initiative
No. Indian Tribes will not pay any taxes.
Indian Tribes are not required to pay taxes to the State of California on their Casino gaming revenues.
Similarly, the DFS Gaming Initiative will not require Indian Tribes or their designated operators to pay taxes to the State of California or to any local governmental entity on revenues they derive from online sports betting. In fact, all revenues the Indian Tribes, or their designated operators, derive from online sports betting are explicitly exempt from all forms of State and local taxation.
Proposed Section 19.5(d) to Article IV of the California Constitution.
Instead, the DFS Gaming Initiative requires operators to pay license fees in order to obtain a license to operate an online sports betting platform. In addition, this Initiative will impose a “surcharge” on each online sports betting operator payable to the State Treasury; but Indian Tribes will not be required to pay any surcharge amount. Due to the Initiative’s exclusions, any revenue to the State Treasury from the proposed surcharge is largely illusory. Proposed Section 19775(a) to the Business & Professions Code.
The DFS Gaming Initiative states that the amount of the surcharge will be equal to 10% of each operator’s adjusted gross online betting receipts. In computing its adjusted gross online betting receipts, operators are permitted to deduct the amount of all winnings and prizes paid out. The Initiative contemplates that an operator’s adjusted gross online betting receipts will be a negative amount, in which case the operator would pay no surcharge amount to the State Treasury. Proposed Sections 19775 and 19794(a) to the Business & Professions Code.
In addition, the Indian Tribes appointed operators are entitled to deduct the entire amount of their initial license fee of one hundred million dollars ($100,000,000) from any surcharge amount they would be obligated to pay to the State Treasury. Such operators may take the deduction in five annual increments of twenty million dollars ($20,000,000), or in subsequent years if the operators renew their licenses. In addition, such operators are entitled to deduct the entire amount of their renewal license fees of ten million dollars ($10,000,000) from any surcharge amount they would be obligated to pay to the State Treasury. Proposed Section 19775(d) to the Business & Professions Code.
Furthermore, the DFS Gaming Initiative fails to empower the California Department of Justice or any other state regulatory agency to review and correct the amount of an operator’s adjusted gross online betting receipts or the surcharge amount an operator may pay to the State Treasury.
Thus, operators are granted complete discretion to calculate the amount of their gaming revenues and the amount of any surcharge they are obligated to pay the State Treasury. The Department of Justice is only authorized to request an operator to hire a private firm to perform an audit, which may have the effect of determining conclusively that the operator accurately calculated and paid the surcharge amount. The Department is not granted authority to override the audit findings; and it is unclear whether the Department has the authority to challenge them.
The Department has the authority to adopt regulations to carry out the provisions of the Initiative, but it is not granted explicit authority to adopt regulations pertaining to the surcharge. Proposed Section 19775(f) and 19778 to the Business & Professions Code.
WILL CITIES BENEFIT?
Tribal Gaming Initiative
No.
The Tribal Gaming Initiative does not provide cities the opportunity to receive new tax revenues from licensed gambling establishments.
Furthermore, the Tribal Gaming Initiative grants new powers to Indian Tribes sufficient to drive licensed gambling establishments out of business. Licensed gambling establishments cannot compete with Indian Casinos that offer sports wagering, slot machines, craps, roulette, nonbanked card games such as Blackjack and lotteries.
Finally, the Tribal Gaming Initiative authorizes any person or entity to act as a private attorney general by bringing lawsuits against licensed gambling establishments for any alleged violation of a penal code section that defines the card games permitted to be played and the card games prohibited from being played despite the fact that licensed gambling establishments play card games expressly approved for play under the penal code by the Bureau of Gambling Control in the Office of the Attorney General. Any person or entity bringing such a lawsuit may seek civil penalties of $10,000 per violation and injunctions to close licensed gambling establishments.
These provisions shall be called the “private attorney general act” or “PAGA”.
Therefore, the Tribal Gaming Initiative contains the ability to devastate licensed gambling establishments by igniting an avalanche of frivolous lawsuits against them. It is expected that a multiplicity of such lawsuits will burry most, if not all, licensed gambling establishments and thereby end tax revenues that gaming cities have relied on to provide municipal services to their residents.
The Tribal Gaming Initiative does not contain a similar authorization to bring lawsuits against tribal casinos for any alleged violations of the California Constitution that authorizes and limits tribal gaming.
In the event that this Tribal Gaming Initiative and the DFS Gaming Initiative both receive voter approval, the provisions of private attorney general act (PAGA) will remain in effect – even if the DFS Gaming Initiative receives more votes.
DFS Gaming Initiative
No.
This Initiative does not grant authority to cities or licensed gambling establishments to conduct online sports betting. Thus, the DFS Gaming Initiative does not provide cities the opportunity to receive new tax revenues from online sports betting.
WILL THE PUBLIC BE PROTECTED?
Tribal Gaming Initiative
No.
The Tribal Gaming Initiative does not prohibit persons under 21 years of age from engaging in sports wagering at Indian Casinos or on Indian Lands. Persons under 21 years are prohibited from sports wagering at Racing Tracks. Only the following events are excluded from sports wagering at Tribal Casinos, Indian Lands and Racing Tracks:
High school sport or athletic event.
A sport or athletic event in which any California college team participates.
Any sport or athletic event or horse race that has been completed; and Horse races and horse race meetings authorized by Subsection 19(b).
Subsection 19(i) to Article IV of the California Constitution.
DFS Gaming Initiative
Minimal.
While persons under age 21 are prohibited from participating in online sports betting, violations by operators may be subjected to fines, probation or license revocation, but such violations are not deemed criminal. Proposed Section 19752 & 19781 of the Business & Professions Code.
Operators also are required to permit individuals to remove themselves from online sports betting. Proposed Section 19754 of the Business & Professions Code.
However, the public is granted no right to obtain information about the identity or finances of the persons who operate online sports betting in California.
The DFS Gaming Initiative contains provisions that would allow it to coexist with the Tribal Gaming Initiative in the event both initiatives receive voter approval at the November 2022 election regardless of which initiatives receives the most votes.
LOCAL GOVERNMENT AUTHORITY ON BALLOT MEASURES
Local governmental entities may expend public resources to provide factual information and analysis about the purpose, provisions, or estimated impact of bond issues or ballot measures in some circumstances. Stanson v. Mott (1976) 17 C.3d. 206; Keller v. State Bar (1989) 47 C.3d 1152; Vargas v. City of Salinas (2009) 46 Cal 4th 1.
“in Stanson we explicitly recognized that a governmental agency “pursues a proper informational role when it ... authorizes an agency employee to present the department's view of a ballot proposal at a meeting of [a private or public] organization” (Stanson, supra, 17 Cal.3d at p. 221, 130 Cal.Rptr. 697, 551 P.2d 1), thus making it clear that it is permissible for a public entity to evaluate the merits of a proposed ballot measure and to make its views known to the public. Accordingly, we agree with those Court of Appeal decisions rendered after Stanson that explicitly have held that Stanson does not preclude a governmental entity from publicly expressing an opinion with regard to the merits of a proposed ballot measure, so long as it does not expend public funds to mount a campaign on the measure.” Vargas v. City of Salinas (2009) 46 Cal 4th 1, 36.
Further, the Supreme Court’s statement, in Stanson, that a government “may not ‘take sides’ in election contests” means that a public entity’s use of the public treasury to mount an election campaign is the potentially suspect conduct rather than precluding a public entity’s analytically evaluating a proposed ballot measure and publicly expressing an opinion on its merits. Vargas v. City of Salinas (2009) 46 Cal 4th 1, 36.
CONCLUSIONS AND RECOMMENDATIONS
This comparative analysis of the competing gaming initiatives described herein as the Tribal Gaming Initiative and DFS Gaming Initiative demonstrate a profound disparity in the existence of benefits to the public versus the private benefits to gambling enterprises from these initiatives.
The Tribal Gaming Initiative benefits Indian Tribes over all other entities engaged in gaming like licensed gambling establishments and all other entities seeking to offer sports wagering like professional sport teams from major league baseball, basketball and football, etc.
Moreover, the Tribal Gaming Initiative exempts all Indian Tribal gaming revenues from state or location taxation including revenues from sports wagering.
The DFS Gaming Initiative benefits Indian Tribes with Casinos by granting them a constitutional right to conduct online sports betting exclusively over all other entities engaged in gaming like licensed gambling establishments, racing tracks and all other entities that may seek to offer online sports betting like professional sports teams from major league baseball, basketball, and football, etc.
In addition, the DFS Gaming Initiative exempts all Indian Tribes with Casinos from State or location taxation on all revenues from online sports betting. Instead, the state would receive the license fees paid by operators and there is a possibility of further revenue from a proposed 10% surcharge on operators appointed by the Tribes with Casinos. However, operators are permitted to deduct the amount of all promotions, winnings and prizes paid out and licensing fee from any surcharge amount they would be obligated to pay to the State Treasury. The Initiative contemplates that an operator’s adjusted gross online betting receipts will be a negative amount, in which case the operator would pay no surcharge amount to the State Treasury. Resulting in no revenue for counties and cities for homelessness and mental health programs as advertised.
Given the diverse outcomes of these initiatives on Californians as whole and on California cities, the California Cities Gaming Authority recommend cities take a public NO position on both these sports wagering initiatives.