LOS ANGELES — The giants of mobile sports betting entered California, the final conquest that would clinch an improbable national takeover, with a clear strategy: divide and outspend.
Inside the $400 million fight to control California sports betting
With the country’s largest market at stake, betting companies and native tribes have spent big to defeat dueling propositions. On Election Day, bettors may lose.
November 3, 2022 at 6:00 a.m. EDT
A grand salvo in California, which a DraftKings executive has called one of the industry’s “holy grails,” had long been expected. And it appeared possible earlier this year as the industry’s leaders pushed a proposition, to be voted on Tuesday, that would deliver them a market with 40 million potential customers and billions in expected revenue.
In a state notorious for tangled gaming interests and sometimes unpredictable voters, the companies built a war chest that dwarfed even their efforts in other key states, including New York, where they ultimately succeeded, and Florida, where they were gearing up for a fracas with the Seminole Tribe. DraftKings, FanDuel and BetMGM alone contributed $95 million toward supporting the California measure, and the industry ultimately spent $150 million on political ads, promising to help reduce homelessness and touting Native American support.
And then California’s most powerful tribes effectively countered them with a veritable flick of the wrist.
A single tribe, with roughly 200 members, outspent that trio of Wall Street-backed conglomerates, putting more than $100 million toward ads depicting the proposition as a misleading campaign run by out-of-state operators. The sports betting operators and their allies hit back, filling the airwaves with messages that the powerful tribes were themselves deceitful and that their proposition would only enrich the coffers of a few select tribes mostly exempt from taxes.
The expected result of financial juggernauts spending more than $400 million on clashing ads for and against dueling sports betting propositions: mutual defeat. Polls have suggested both propositions probably will lose, victims of widespread voter confusion and apathy. The campaigns have slowed spending, and sports betting executives have signaled they are now focused on trying again with California voters in 2024.
But those aligned with the state’s most powerful gaming tribes see the stalemate as a show of force, one that could embolden them to reject entreaties for compromise with the sports betting companies going forward.
In their march toward control over a national market that has at times seemed inevitable, the kings of sports betting may have underestimated the power of a nexus of small bands of Native Americans wielding fortunes they started by operating disputed bingo rooms on desolate inland reservations.
“They were warned,” said Victor Rocha, conference chairman of the National Indian Gaming Association and member of the Pechanga Band of Luiseño Indians. “It’s one of those things in gaming where it’s like, you know: Don’t stare into the sun, you look both ways before crossing the street, and you don’t f--- with the California tribes.”
Bingo roots
Decimated by genocide and disease, forced into conscripted labor by Spanish explorers and pushed onto discarded desert land by the American government, some of California’s dozens of bands of Mission Indians found a way to lift themselves out of poverty in the mid-1980s: high-stakes bingo.
They offered six-figure jackpots and boats and cars as prizes. The state took notice, sending in law enforcement spies who reported back that hundreds of non-Indians were filling reservation bingo halls each night to gamble on games banned by the surrounding county.
California sued two of the tribes for violating anti-gambling ordinances, and the case wound its way to the Supreme Court. The case was a bellwether for the unresolved legality of tribal gaming, with a potential multibillion-dollar industry hinging on the legality of bingo rooms operated by a couple of tribes, one of which had 25 members.
The Mission Indians prevailed. “Self-determination and economic development are not within reach if the Tribes cannot raise revenues and provide employment for their members,” the justices wrote in a decision that effectively legalized nationwide Native American gaming — now a $39 billion industry annually.
In California, the bingo rooms became gleaming resorts and casinos, cornerstones of a tribal gaming market that is the biggest in the country, with 75 tribes reaping an estimated $8 billion in annual revenue.
Those tribes have periodically had to defend that dominant position in statewide gaming from longtime enemies, such as California’s card rooms, or upstarts, such as quasi-legal poker sites. But the most existential threat has loomed since another industry-shifting Supreme Court decision in 2018.
When the court ruled that individual states were free to legalize sports betting, companies such as DraftKings and FanDuel were perfectly positioned to capitalize. Over the next couple of years, dozens of states moved to legalize some form of sports betting. In California, where doing so would require a statewide vote to amend the constitution, the state’s most powerful tribes attempted to beat the gaming companies to the punch.
Starting in 2019, those tribes collected signatures for a proposition that would allow sports betting in person at tribal casinos, as well as at privately owned horse tracks. That alliance with California’s politically powerful but embattled horse racing industry struck some in tribal gaming as a mistake.
Deron Marquez, a former chairman of the San Manuel Band of Mission Indians who now directs a program in tribal administration certification at Claremont Graduate University, said he was surprised by any tribal initiative that would have carved out a stake for non-Native interests. Marquez said such an arrangement would have been more appropriate two decades ago, when the tribes were still consolidating power. “Today, you’re the Goliath, and the rules of conduct changed,” Marquez said. “The second you introduce a nontribal entity, the floodgates open.”
But the pandemic scuttled efforts to get the in-person sports-betting proposition on the ballot in 2020. Instead, the tribes aimed for this year’s election, and by May 2021 that measure — Proposition 26 — had officially qualified for the ballot.
If the proposition succeeded, tribal revenue from sports betting would be untaxed, as is the case in all Native American gaming, but the horse tracks would pay taxes. The proposition also included a civil enforcement provision in which individuals could file suit against potential violators of gaming law. That appeared to be a shot across the bow of card rooms, which had their own sports-betting initiative and whose legality the tribes have long disputed.
In mid-2022, the ballot initiative funded by gaming companies also officially garnered the signatures it needed. By the beginning of this year, 29 states, the District of Columbia and Puerto Rico had legalized some form of sports betting, and DraftKings operated in 15 of them. Proposition 27 was designed to legalize sports betting specifically in California to the benefit of the upstart giants of the industry and more venerable gaming conglomerates.
Licenses to operate sports betting in the state would cost $100 million each and only be available to those companies that were already licensed in 10 states — or five states if they owned a dozen casinos. Those license fees would then be put toward a newly created program to be focused on relieving homelessness.
The ballot measure’s corporate cheerleaders have included Major League Baseball, an early investor in DraftKings; MLB said in a statement that the proposition “has the safeguards to create a safe and responsible online sports betting market in California.”
FanDuel, DraftKings, MGM, Fanatics, Penn Entertainment, Wynn and Bally’s, or their subsidiaries, donated or loaned at least $12.5 million apiece to a committee supporting the proposition.
The name of that committee — Californians for Solutions to Homelessness and Mental Health Support, a Coalition of Housing and Mental Health Experts, Concerned Taxpayers and Digital Sports Entertainment and Gaming Companies — reflected a campaign that appeared to bury the proposition’s main cause, legalized mobile sports betting, under a mountain of civic sympathy.
Gaming executives initially pitched their proposition as “complementary” to the existing proposition led by dozens of tribes, though a court battle could be expected if both were approved by voters. Sponsors of Proposition 27 have said they attempted to collaborate rather than clash with tribes, which some leaders in tribal gaming have disputed.
“We shared drafts with a number of tribes, took input and made changes based off those suggestions,” said Nathan Click, a spokesperson for sponsors of Proposition 27.
This series will examine the impact of legalized gambling on sports, through news coverage, accountability journalism and advice for navigating this new landscape.
Read more.
“They never showed us anything,” said Dan Little, chief intergovernmental and tribal affairs officer to San Manuel, one of the most powerful tribes in California gaming.
James Siva, chairman of the California Nations Indian Gaming Association, said he didn’t believe that tribes were given any real input into the drafting of Proposition 27. Siva said the initiative’s framework — with the gaming companies in the driver’s seat — “was a non-starter from the beginning.”
“It’s eroding exclusivity; it’s limiting our sovereignty; it’s limiting all of the past 2½ decades of work that tribes have done in this state to create this industry,” Siva said.
Proposition 27 would require gaming companies to partner with a tribe to gain a license. That appealed to a handful of tribes with less lucrative gaming operations far from cities. The coalition behind the proposition has touted the support of three tribes — vs. the dozens of tribes against it.
Nonetheless, those supportive tribes were a cornerstone of a historic ad blitz. A campaign prominently featured Jose “Moke” Simon III, the chairman of the Middletown Rancheria of Pomo Indians, who said the proposition would support “financially disadvantaged tribes that don’t own big casinos.”
The result of the conflicting messages appeared to be confusion, even among the tiny number of everyday people who pledged their own cash in support of the gaming companies’ proposition. The committee supporting Proposition 27 received, nestled among the many eight-figure contributions from corporations, a total of 13 donations from individuals, ranging from a retired postal manager to a Lyft driver.
Those who explained their contributions to The Washington Post said they had no interest in sports betting.
“That’s crazy,” said retired Los Angeles-area construction consultant Robin Harrington when told that the $100 donation she made in August had to do with sports betting. Harrington recalled making the donation after chatting with a “really delightful" woman who solicited it via phone.
“I’m appalled that ‘digital sports entertainment and gaming’ is lumped in with human resource benefits such as homelessness and mental health in one proposition!?” Harrington told The Post via email after a reporter sent her information about the committee. “It feels like a scam.”
Another donor to the committee, Joseph Strain, is a truck driver from New York. He said that after his 18-wheeler broke down in California, he spent time in Stockton and Sacramento, where he encountered people living on the streets. He then saw ads for the proposition, pledging to help solve homelessness, on his motel televisions.
“I believed what I contributed to had something to do with the Native Americans there in California,” said Strain, who in July gave the committee $100. “From the little that I read, I liked very much what I was seeing.”
A vision in the valley
Few tribes have gained as much from gaming exclusivity — or have as much to lose if it is eroded — as the San Manuel Band of Mission Indians.
Exiled to a craggy desert reservation 70 miles east of Los Angeles, the tribe once relied on doctors visiting on horseback for medical care. Tribal chairman Lynn Valbuena often recalls that as a child she waited for welfare trucks delivering cans of food.
Then, in 1986, the tribe opened a bingo hall. By 2021, that enterprise had morphed into a 17-floor resort and casino, including a steakhouse serving $500 Kobe strip loin. And this year, San Manuel expanded operations to Las Vegas by reopening the $650 million Palms Casino Resort. The tribe’s philanthropic gifts have included a $9 million endowment toward a tribal gaming and law program at the University of Nevada Las Vegas and a $25 million surprise donation toward the university hospital that used to send the horseback doctors. Valbuena’s personal holdings have included a custom-built hilltop home in Orange County.
The tribe contributed $103 million to a committee devoted to defeating Proposition 27. “This was viewed as a major threat to tribal government gaming operations,” said Frank Sizemore, San Manuel’s chief of staff. “We didn’t really pick the fight.”
Siva, the California Nations Indian Gaming Association chairman, said that while tribes were torn on whether to support Proposition 26, which would allow in-person sports betting, there was more unity against the gaming companies’ proposition. Two committees aligned against Proposition 27 raised a total of nearly $250 million.
Attack ads those committees helped fund claimed that the out-of-state gaming corporations wanted to turn “every cellphone into a gambling device,” leading to addiction and more homelessness of the sort that Proposition 27 was supposedly designed to combat.
Recent polls have shown that the circus of negative ads — bankrolled by the gaming companies, the tribes and card rooms — are likely to doom both propositions for sports betting Tuesday. At the Global Gaming Expo in Las Vegas last month, chief executives signaled that they were no longer holding out much hope to succeed in California this year.
“If an opposition side is willing to spend over a hundred million dollars,” said DraftKings co-founder and CEO Jason Robins, “that’s just tough to beat.”
“We absolutely live to fight another day,” said FanDuel CEO Amy Howe, adding that it’s “hard to imagine” that the legal sports betting market won’t eventually include California.
“We believe there is a path to get there,” Howe said.
Losing in California coincided with another setback at the hands of a powerful tribe in Florida. Gaming companies last year committed more than $37 million in an effort to get a sports betting deal approved by voters that would cut into the Seminole Tribe’s compact with the state.
But following an ugly campaign that included that tribe allegedly paying petition gatherers not to work, DraftKings and FanDuel couldn’t get their measure on the ballot.
At least in California, the loss may lead to a more conciliatory approach in 2024. Howe suggested as much during her remarks last month, saying the industry will refocus on finding a “solution that aligns the stakeholders.”
If that is corporate-speak for a compromise with California’s powerful tribes, however, the gaming companies may find themselves having to accept a more subservient role than they have in other states.
Several tribes, including San Manuel, have collaborated on an online and in-person sports betting initiative that would restrict the action to servers on tribal land. At the Global Gaming Expo, Pechanga Band Chairman Mark Macarro said the tribes might consider the out-of-state corporations only as platform providers for tribal mobile sports betting operations. Macarro made those remarks while wearing a T-shirt reading: “Not Today, Colonizers.”
“I think they came into this very arrogant, thinking that they could just roll into California, the largest market, and get what they want,” Little, San Manuel’s chief intergovernmental and tribal affairs officer, said of the gaming corporations. “There might be an opportunity for everyone, but they’ve got to be humble.”
Rocha, conference chair of the National Indian Gaming Association, warned that there were “half a dozen more” tribes that would be willing to drop $100 million-plus if tested again in future election years by DraftKings, FanDuel and the like.
Rocha said there wasn’t much trust to build on for any future compromise between the California tribes and the gaming companies. “These are the same people that got between us and our land, between us and our sacred sites, between us and our hunting grounds, between us and our rivers,” Rocha said. “And now they’re trying us again.”
Alice Crites contributed to this report.