Industry strategic consultancy Regulus Partners examines a week of tribal movements on Californian wagering legislations, and potential impacts on how the US’ biggest and richest state will move to implement its sports betting frameworks…
Last week a group of 18 Indian tribes in California, including some of the most powerful, moved to put sports betting on the ballot of the 2020 election (3 November). Given the state of Californian politics, we believe that the ballot is likely to go ahead and is likely to be voted positively. Sportsbetting could, therefore, be live in California – the US’s biggest state by far and the holy grail of mass-market liquidity – in under two years. Some see this as a major step forward. We see it as the biggest setback for all the toppy US sports betting revenue forecasts there could possibly be …
The group of Californian tribes has proposed that betting should only take place on tribal land (there are 109 federally recognised tribes, 59 of which operate casinos) or on California’s racetracks (4, including the beleaguered Santa Anita, who’s woes have done nothing for racing’s political or social standing). The cardrooms (86 venues, which can be powerful on a municipal level but struggle to cut through at state level) have also been left out. This rather neatly describes the gambling power-politics of the state: the c. US$9bn GGR tribal casino market calls the shots, the c. US$660m GGR (50% in-state) horseracing betting industry can come along for the ride and the tribal casino sector’s cardroom bete noir (c. US$850m GGR) is left out in the cold.
The tribes not only have a strongly entrenched moral position (the right to run gambling is after all something of an apology for being driven off ancient lands, severely depopulated by imported disease as well as the cavalry, to be finally enclosed in parts of the US that white developers didn’t want), they are also slick lobbyists. Further, after a favourable federal court ruling on compact settlements, the treasury contribution from tribal casinos was only US$3.6m last year, down from US$330m in 2016-17 (the latter roughly what the card rooms pay in state taxes – but without the broader muscle or political clout). Consequently, offering a 10% tax equivalent to the state on sports betting is quite attractive: it’s a lot better than next to nothing. The ballot will also be put to a fairly liberal electorate, while the key sensitivity of powerful state colleges speaking against betting has likely been swerved with a ban on college sports and betting under 21. The tribes are therefore probably pushing on an open door.
But there are two issues with this. First, in our view the Wire Act would likely apply to tribes offering online wagers across tribal borders (the catch is that tribal land is sovereign, recognised as “domestic dependent nations”) – granting state-wide online to the tribes without creating a wider state online licensing regime would be complicated to impossible on legislative grounds. Second, the tribal casinos want this to drive footfall: to offer online would undermine this footfall and therefore the wider economics of the casino tribes; to allow non-tribal interests to offer online would not only accelerate this economic problem but also cut against strongly held tribal views on exclusivity. Just as we are optimistic that the tribes will gain and win the ballot, we are pretty sure that they will be able to see off any threats of online or commercial competition – at least for a long time.
The biggest, wealthiest and most digitally savvy state in the US is therefore likely to get 63 retail sportsbooks to serve its 40m people. California sportsbook revenue might conceivably get to US$500m on this basis – not a small sum, but leading to a supplier market of c. U$75m (at best), with likely volatile earnings. The tribes get the rest, and the benefit of the footfall (meaning a few losing weeks on the book will bother them a lot less than the supplier, depending upon the commercial terms).
There might be some tentative hopes that California might be opening soon. This does not look like the sort of opening that will allow commercial operators or suppliers to make any strategically meaningful revenue, however.
UK: Out of Parliament – Labour and LibDems take gambling onto the hustings
The publication this week of the Labour and Liberal Democrat General Election manifestos confirmed that Britain’s gambling industry (in particular but not exclusively its remote sector) is in a spot of bother.
For more than a year now, the Labour Party has been spearheading the move for new primary legislation to replace (or possibly supplement) the Gambling Act 2005. Its manifesto, published on Thursday reiterated this objective as the centre-piece of its plan to address “the adverse impacts of gambling”.
While the party is sensibly (for now) keeping its powder dry on legislative detail – stipulating outcomes in advance of proper review tends to be a sign of poor policy – the manifesto has confirmed a number of ‘red-line’ policies. These are the curtailment of gambling advertising in sports, the institution of a problem gambling levy, the establishment of greater “gambling limits” and “mechanisms for consumer compensations”.
Indeed, one might have expected more flesh on the bone – particularly in relation to proposals for root and branch relicensing of remote operators (a policy supported by many within the industry as well as by licensing lawyers everywhere). However, given the withdrawal from political life of Tom Watson who led the Labour charge on gambling re-regulation, this reticence is not surprising. Indeed, licensees should be pleased that Watson’s resignation has not (yet) triggered the radicalisation of his relatively moderate programme by party ideologues.
Labour’s desire to introduce a new Gambling Act “fit for the Digital Age” indicates that the introduction of structural limits online may be some years off (assuming a Corbyn-McDonnell government). However, politics is an uncertain business and it is not inconceivable that legislation more limited in scope (similar to the 2014 Act that established Point of Consumption licensing for remote operators) could be implemented more quickly (and not necessarily requiring a Labour win) if the pressure continues to grow.
The Liberal Democrat manifesto – published a day in advance of Labour’s – resembled a cover band version of Tom Watson’s greatest gambling hits: a problem gambling levy; advertising restrictions; a ban on gambling by credit card; and the creation of a consumer ombudsman. That the Liberal Party policies appear highly derivative should offer little comfort to an industry that ought to fear knee-jerk re-regulation and embrace instead a process of structured, scientific review.
Gambling ought not to feature as prominently (if at all) in the Conservative manifesto – the party has been in government for the last nine years (and indeed has instituted some fairly major reforms in that time) and it seems barely relevant to the Tory war-cry of “getting Brexit done”. However, some of the gambling industry’s fiercest (and most ideologically antagonistic) critics are amongst those sporting blue rosettes this winter; and there may also be a desire to simply head off a number of issues at the pass (or even to ante up). The Department for Culture, Media and Sport has attempted a lonely defence of the current voluntary arrangements for research, education and treatment for gambling disorder. It has been right to do so (in our view a thorough assessment of the problem should precede the solution) but given that Opposition parties, the Gambling Commission and many of Britain’s largest licensees have made public statements in support of a levy, this may be a fairly simple position for the Conservatives to abandon.
The Scottish Nationalist Party’s manifesto seems destined to repeat calls for devolution of gambling laws and may adopt the LibDem ‘cut and paste from Labour’ approach on matters of detail (particularly if the firebrand Member for Inverclyde and member of the Gambling-related Harm APPG, Ronnie Cowan has any say in the matter). There is also an outside chance that the Democratic Unionists will pick up on calls for modernisation of Northern Ireland’s gambling laws (although this is a matter that divides rather than unites the party).
Over and above matters of regulatory policy, substantial spending pledges from all parties raises the spectre (never too far distant in gambling) of duty raids. Licensees should give thought to how they might play a positive role in building a thriving British economy (within or without the EU) that does not simply involve them being cast as a perennial piggy bank or pinata. As we have observed in previous pieces, the politicisation of gambling policy at a time of political intensity (and relative extremism) heightens the risk for the industry