Transcript: Props. 26 and 27 Offer Different Ways California Could Allow Sports Betting

This is a transcript of the Prop Fest episode explaining Propositions 26 and 27 on the 2022 California ballot. Check out KQED’s Voter Guide for more information on local and state races.

Olivia Allen-Price [00:00:01] I’m Olivia Allen-Price. You’re listening to Prop Fest, a collaborative series from Bay Curious and The Bay. Today, we’re talking Propositions 26 and 27, which affect sports betting at tribal casinos and online. They’re among the most expensive ballot measures in California history. Even more has been spent on Prop 27 than that uber expensive Uber prop from back in 2020. Big money shows up in California elections when there is big money on the line. Here’s how 26 and 27 will read in part on your ballot.

Voice reading ballot [00:00:38] Prop 26 allows federally recognized Native American tribes to operate roulette, dice games and sports wagering on tribal lands.

Different voice reading ballot [00:00:46] Proposition 27 proposes a constitutional amendment and statute to authorize a gaming tribe to operate online sports betting for individuals 21 years of age or older in the state, but outside of Indian lands.

Olivia Allen-Price [00:00:59] It’s a two for one Prop Fest episode all about changing the state’s gambling laws. We’ll begin just ahead on Prop Fest. I’m Olivia Allen-Price.

Olivia Allen-Price [00:01:12] So Propositions 26 and 27 will affect the way sports betting and some other forms of gambling are handled in the state of California. Here to help us make sense of it all is KQED political reporter Guy Marzorati. Hey, Guy.

Guy Marzorati [00:01:25] Hey, Olivia.

Olivia Allen-Price [00:01:26] So kick us off with where things are with gambling in California today. What’s allowed and what’s not.

Guy Marzorati [00:01:31] So right now, sports betting is illegal in California. That doesn’t mean it doesn’t happen. There’s a huge black market of sports gambling. But right now, you can’t use an app legally to bet on sports. You can’t go to a casino and place a bet on a game. You can do other things at tribal casinos in California, like playing a slot machine or playing blackjack.

Olivia Allen-Price [00:01:52] Now, you mentioned tribal casinos, and I think to give this conversation a good foundation, we should learn why tribes and gambling are linked in California. So, could you walk us through that history a little bit?

Guy Marzorati [00:02:04] Tribal governments, through the long kind of genocidal history of federal policy, state policy, in a lot of cases were pushed to parts of the state where there weren’t tons of economic opportunities like large scale agricultural, for example. And so starting in the eighties, a lot of tribal governments started pushing for more gaming opportunities, and they were aided by two big events. One was the Supreme Court ruling in 1987 that said California cannot block tribes from offering gaming. And a law that was passed the next year in Congress that kind of set the ground rules nationally. So that set up this decade of the nineties where California tribes were supposed to come to compact agreements with the state government. Those kind of set the rules of the road for gaming, how much revenue get shared with the state, how much get shared with tribes that don’t run casinos because state tax rules don’t apply to these tribes, they’re sovereign. But during the nineties, the tribes, former Governor Pete Wilson, they couldn’t agree on compacts. So, tribes basically continued to offer games kind of at the legal margins. And then ultimately the breakthrough came when tribes went to the voters passing perhaps in 1998 and 2000 to basically secure their position as the state’s top gaming operator. For reference, today there are around 110 federally recognized tribes in California. Sixty-four of them operate casinos.

Olivia Allen-Price [00:03:25] We’re talking about these props together because on the surface, they seem to essentially cover two different ways that people can bet on sports. One of them in a casino and the other online. But let’s talk about what’s distinct in each one. Let’s start with Prop 26. What would that do?

Guy Marzorati [00:03:41] So Prop 26 really does three key things. The first is legalize sports betting in California, but only in tribal casinos and the four horse horseracing tracks around the state. The second thing is allowing roulette and craps at tribal casinos. These are games that if you went to Las Vegas, you’d be able to play there. But you can’t right now in California. Tribes have wanted to do that for a long time. They would get those games legalized if Prop 26 passes. And then the third thing is probably the most complex. It would let an individual file a lawsuit to enforce gambling laws in California instead of leaving that just to the attorney general.

Olivia Allen-Price [00:04:16] We’re going to dig in a lot more on that in just a minute. But first, let’s get to know the broad strokes of Prop 27 and how is it different from Prop 26.

Guy Marzorati [00:04:24] So the main difference between Prop 27 and Prop 26 is Prop 27 would legalize online sports betting. So, you wouldn’t have to go to any physical location to, say, place a bet on the Warriors beating the Lakers. You could do that on your phone. You could do that on your computer, on an app and place a bet that way.

Olivia Allen-Price [00:04:41] So when I first read these props, I figured it would kind of break down into two groups like people who want sports betting would vote, you know. Yes, on both because they want sports betting, however they can get it. And people who don’t want sports betting would vote another way. And for some voters, it might be that simple. But this one gets a lot more complicated when you take a closer look at where the money goes. That’s kind of the crux of these two props, Guy. Can you walk us through that?

Guy Marzorati [00:05:06] Yeah. So, it kind of breaks down beyond what you say, what you might see it at first glance, which is how do you want to legalize sports gambling? Do you want to legalize sports gambling? And it gets into a lot of the issues at play between the groups backing these initiatives. So, I’ll start out with Proposition 26. Who would really benefit from this are California’s Native American Indian tribes. They put Proposition 26 on the ballot, and they argue that by getting revenue from sports betting, by getting revenue from craps roulette, this would continue to provide an economic uplift to tribes. Jacob Mejia is vice president of public affairs for the Pechanga Tribe in Southern California. He kind of gave an overview of the benefits currently brought to tribes in the state by virtue of having those casinos.

Jacob Mejia [00:05:47] 150,000 jobs are created by tribal gaming, tens of billions of dollars in overall economic activity, hundreds of millions of dollars in terms of taxes that are generated, not to mention revenue sharing or sharing agreements between tribes and local governments.

Guy Marzorati [00:06:01] So if Proposition 26 were to pass, it would require each tribe to go and renegotiate their compact with the state to incorporate sports betting. The state has these agreements with around 75 tribal governments that lay out the rules for gaming as it currently exists in California. Those would have to be amended to figure out, you know, how much money is going to be shared with the state, with local governments, kind of lay out the rules of the road for sports gambling at tribal casinos.

Olivia Allen-Price [00:06:27] Got it. So, for Prop 26, the lion’s share of money goes to California’s tribes. Who benefits financially from Proposition 27?

Guy Marzorati [00:06:36] So Proposition 27 was put on the ballot by gambling companies that operate nationally. You might have heard of them FanDuel, DraftKings, MGM, they’re putting this measure forward to legalize this online marketplace in California, and that could bring in billions and billions of dollars for these companies. This is a huge economic opportunity for them, but it’s also an economic opportunity for some tribes because under Proposition 27, every gambling company that launches an app in California needs to partner with the tribe here. So, you could see some tribes really, really benefiting if Proposition 27 passes.

Olivia Allen-Price [00:07:10] We’re hearing a lot of ads that mention homelessness with Prop 27. What’s the connection there?

Guy Marzorati [00:07:15] If Proposition 27 passes, these betting platforms would be taxed. Ten percent of their gambling revenue would go to the state, with most of that earmarked for a problem that Californians care a lot about, which is homelessness. That 10% tax is kind of in line with a lot of the other states that have already legalized sports betting, like Arizona and Colorado, though we have seen states like Nevada have gone lower with their tax rate. And New York set their tax at a whopping 51% of gross spending revenue. So, under Proposition 27, the tax would be at 10%. Eighty-five percent of that tax money would go to local governments to fund housing, homeless services, mental health services. And then 15% of the money would go to tribes that are not participating in this brand new online gambling market. And it’s the homelessness funding in Prop 27 that’s really drawn the support of mayors like Libby Schaaf in Oakland, Darrell Steinberg in Sacramento. They’ve gotten behind the Yes on 27 campaign, along with some homeless advocates, though it’s worth noting other homeless service providers have kind of stayed away from this. They’ve said they don’t want to wade into this debate about sports betting and take a yes or no position on Prop 27. But when we’re comparing these two props, Prop 26, Prop 27, the key thing with 27 is that it would bring in a lot more money because online betting is just a lot more popular than folks driving to a casino, placing a bet there. The Legislative Analyst’s Office says Prop 27 would bring in hundreds of millions of dollars for the state a year. And as Prop 27 spokesman Nathan Klick says finally create a dedicated stream of funding to tackle homelessness.

Nathan Click [00:08:47] Right now, the state is using one time money for that. This the homelessness advocates who are supporting our measure will attest, will help create permanent solutions to homelessness, help build more housing, help finance more housing, help create mental health services that help get folks off the streets and into housing.

Olivia Allen-Price [00:09:11] That was a lot. So here’s a quick recap. Prop 26 is backed by California tribal governments. The money made from expanded gambling would benefit tribes that operate casinos. They pay into a fund that gives money to non-gaming tribes as well. Some money will go to the state and local governments, but the details of that will get worked out in compact agreements that haven’t been made yet. Prop 27 is backed by national gambling companies. They pay a 10% tax on everything they make. 85% of that tax is earmarked for homeless services, and 15% will go into a bucket of money that is shared among California’s tribes that don’t participate in sports betting. Does that make sense? I really hope so. Okay. Back to the conversation, Guy. The campaign ads that I’m seeing kind of makes it seem like it’s smaller tribes being pitted against larger tribes in this debate.

Guy Marzorati [00:10:08] Yeah. So that’s something that you could easily get confused about seeing all of these ads on TV messaging around these two props. The vast majority of California tribes who have weighed in are on the side of Prop 26, and the props do different things as far as promising tribes money. Obviously, Prop 26 would focus sports gambling in tribal casinos. So through that, those casinos would get money for tribes and also more money would go through to this trust fund. That money gets allocated for tribes that don’t have big gaming operations. There are a few tribes that are backing Prop 27, most notably the Middletown Rancheria Pomo Indians of California. Their tribal chairman is actually appeared in a lot of the ads for Prop 27. But if 27 were to pass, every company that comes into California to participate in the sports betting market would have to partner with a tribe. So, you might see, you know, three, four or five different tribes participate out of the roughly 75 right now that have gambling operations in compacts with the state. Everyone else would have to draw out of that pool of money set aside for tribes that don’t have a sports betting app.

Olivia Allen-Price [00:11:12] There’s also one smaller but important group that has a stake in this — local cardrooms. That’s places like Artichoke Joe’s in San Bruno or Casino M8trix in San Jose. These are businesses where you can play games like poker. There are 84 of these cardrooms around the state. And they’re worried about Proposition 26. Guy, can you explain why?

Guy Marzorati [00:11:34] So this is where things get a little complicated. The opposition of cardrooms to Prop 26 is based on a provision in the measure that would let individuals bring civil lawsuits to enforce state gaming law. So, the backdrop to this is a longstanding disagreement between tribes and cardrooms over a state rule that says only tribal casinos can offer games in which the house serves as the bank, meaning it has a stake against the players like blackjack. Tribes say cardrooms use different tactics to get around this and offer blackjack. They filed lawsuits, but in some cases, the tribes have lacked standing to actually bring the suit. So, if Prop 26 passes, any individual could hypothetically take these cardrooms to court. Where this gets beyond just a struggle between different gambling operators is that some cities in California really rely heavily on tax revenue from cardrooms. The most well-known example is in Hawaiian Gardens in L.A. County, that small city gets like 70% of its tax revenue from the local cardroom. But we see that even in San Jose, it gets $15 million a year from local cardroom revenue. So that’s why those cities and then some of the municipal employee unions in the cities have come out against Prop 26. They’re afraid of the long-term economic impact if cardrooms start getting sued left and right.

Olivia Allen-Price [00:12:50] We’re not the first state in the country to be considering sports betting. All of our neighboring states have allowed it sort of writ large. Where are the rest of the states at on it?

Guy Marzorati [00:13:00] Yeah, there’s been an explosion of states doing this. Ever since 2018, the Supreme Court ended the federal ban on sports betting. We’ve seen 33 states now offer some form of legalized sports gambling, and we’ve seen that in many cases take the form of online mobile betting. And honestly, as a sports fan, you can’t watch a game these days without seeing either an ad for these gambling companies, even like features, segments within sports shows often integrate gambling and sports betting. So, it’s really just in a matter of a few years, totally reshaped in some ways the industry.

Olivia Allen-Price [00:13:36] And I think that’s the perfect segue way to talk about the money flying around on both of these props, because there’s a lot of money at stake here. We’re having this conversation in mid-September. And so even though a ton of spending has already happened, we know more is coming down the pike. Who is spending to help these props pass?

Guy Marzorati [00:13:54] On the Proposition 26 side, we have the tribal governments who are really bankrolling the campaign. So far, over 120 million has been contributed in support of Prop 26. 43 million raised against it. Really, the bigger money at this point is coming with Proposition 27. There you have these gambling companies pitching in roughly $170 million so far in support. And many of the same tribal governments that are pushing Prop 26, they’re opposing Prop 27. They’ve shelled out over $90 million so far against that measure. So just by itself, Prop 27 is the most expensive ballot measure campaign in California history and in American history. And if you put both of these campaigns together, we’re talking over $420 million raised. It’s like nothing the state has ever seen before.

Olivia Allen-Price [00:14:41] Now, one question I know you’ve gotten and I had myself had is, you know, are voters going to vote typically, yes for both of these or no for both of these, will people be split? How are we expecting this to shake out with two props that in some ways overlap?

Guy Marzorati [00:14:56] Yeah, that’s a great question and something I’m really curious to see how it plays out. Do people take different approaches on the two, reject them altogether? And then there’s the legal question of what happens if voters approve both of these propositions. In all likelihood, that would end up in the courts. And figuring out which initiative can actually take place, can they both go into effect? It may end up which one gets more votes takes precedent. That all could be sorted out in the weeks after Election Day.

Olivia Allen-Price [00:15:23] Wow. Well, this one is gnarly, guy. Thank you for taking the time to chat with me today.

Guy Marzorati [00:15:29] My pleasure.

Olivia Allen-Price [00:15:34] All right, let me see if I can put a cap on this one. A vote yes on Prop 26 says you think that sports betting, roulette and dice games should be legal at American Indian gaming casinos in California; sports betting should be allowed at racetracks; and individuals should be able to bring lawsuits against gaming operators if they’re breaking state law. Money made from this expanded gambling would mostly go to tribal governments.

A vote yes on Prop 27 means you support legalizing online and mobile sports betting for people 21 and older. Money made from the passage of this prop would largely go to gambling companies and the tribes they partner with. The tax money they pay would be earmarked for homelessness services and tribes that don’t have an online app.

A vote no on both props means you think things should stay the way they are now. And if you mix it up a vote yes on one and no on the other. You’d like to see sports betting allowed in some ways, but not all the ways. Or maybe you want to see funding go to one group and not the other. I really hope we helped all that make sense. It has been a doozy.

If you’re a new listener, just tuning in for our Prop Fest series, be sure to subscribe to the Bay Curious podcast. Every Thursday, we drop episodes that explore listener questions about the San Francisco Bay Area. It’s a lot of fun and we always learn so much. So, if you’re digging Prop Fest, I think you’ll enjoy our other work too.

Prop Fest is produced by Katrina Schwartz, Christopher Beale, Brendan Willard, Amanda Font, Darren Tu and me Olivia Allen-Price in partnership with the team behind The Bay – Alan Montecillo, Ericka Cruz Guevarra and Maria Equinca. You can find audio and transcripts for the series at Baycurious.org/PropFest. Our show is made in San Francisco at member supported KQED. Set your alarms because we’ll be back on Monday with an episode on Prop 28, the education funding Prop. I’ll see you then.