How the Prop 26 and Prop 27 Campaigns Failed So Badly in California

The proverbial blood was in the proverbial waters off Laguna Beach when Gov. Gavin Newsom finally took a side.

Sure, the incumbent Democrat has previously expressed skepticism about the amount Prop 27 — a bill to legalize online sports betting in California and welcome in large national gambling companies — would actually help the homeless, no matter what the ads or the language of the proposal said.

But last week, following numerous polls showing just how popular Prop 27 isn’t, Newsom formally came out against it in what felt like a very safe and calculated political move.

“Proposition 27 is bad for California,” Newsom said in a statement. “It would hurt California’s Indian Tribes, increase the risks of underage gambling, and push billions of dollars out of California and into the pockets of out-of-state corporations. Vote No on 27.”

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In the process, Newsom expressed tacit support for competing Prop 26, which would legalize retail sports betting at the 66 tribal casinos and four licensed horse racetracks in the state.

Former California Gambling Control Commission member Richard Schuetz characterized Newsom’s move via tweet as:

“Newsom storms onto the battlefield after the battle and shoots the mortally wounded.”

There appears to be nothing left but the counting now, of votes and the hundreds of millions of dollars spent by both sides in what was the most expensive lobbying effort in California history. Both sides lost but won by not letting the other side win either.

Is this progress? It might be the starting point.

But for now, what went wrong? Why won’t California soon reap as much as $3 billion in annual revenue from something residents are already doing illegally, untaxed, and unregulated? Why won’t eager bettors get to be able to reap the benefits of California sportsbook welcome promos?

California Casinos polled a group of industry stakeholders, analysts, and observers on why Prop 26 and Prop 27 are expected to fail so convincingly.

Prop 26 vs. Prop 27 Was a ‘Fool’s Errand From the Start’

“This is no surprise to me. I’ve been saying it all along from the beginning, from when both ballot initiatives were certified: The industry needed to come together in collaboration with the tribal community,” gambling industry lobbyist Bill Pascrell III said. “I think many underestimated the political power of the tribes. They’re locals.”

The tribes made that clear in their Prop 26 and anti-Prop 27 media blitz. Although patronizing a retail sportsbook would have been a chore under Prop 26 and outside gaming companies like FanDuel and DraftKings could have facilitated mobile and online sports betting with passage of Prop 27, the locals apparently won.

Prop 26 and 27 will both fail because Californians are sick of their advertising

— Peter W Stocking (@peterstocking) September 9, 2022

But it’s no win for would-be California bettors. And maybe Prop 26 wouldn’t have been, either.

“Sitting here in LA an hour and a half away from the nearest tribal casino, I can tell you with pretty sure confidence that no one’s going to be driving to Morongo (Casino Resort & Spa) to place their bets when they could still just bet on their bookie’s sites from their couch,” Zach Doctor, co-founder of Los Angeles-based WagerWire, said.

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So the tribes will lose, too. But not as much as national operators and those among nearly 40 million residents who wanted to bet online. And not by as much, if polls hold. A recent SurveyUSA poll attested that 43% of likely California voters support Prop 26. The same poll showed 37% support for Prop 27.

“I think that it’s a hold harmless for the tribes,” Pascrell III said. “I think it’s a bit of a setback for the industry. But we’ll regroup. And I am hopeful we’ll come together in a collaborative effort to try to work out a resolution that everybody can be comfortable with.

“And that means building consensus. It means compromise. … This was a fool’s errand from the start.”

Chris Grove, a partner at Acies Investments, predicts defeat for both measures. He thinks the status quo of competing agendas between tribes and national gaming companies will set the tone for whatever breakthrough there is.

And whenever that breakthrough happens.

“The relationships between out-of-state online operators and California tribes has always been and likely will always be complex,” he told California Casinos in an email. “I don’t know that this battle will make it any more complex or tougher to navigate. In some ways, both referendums failing might be a necessary precursor to broader cooperation.”

LAUNCH TIMELINE: If Prop 26 Passes, Horse Racetracks Could Launch Sportsbooks Before Tribes

Three things I never want to hear about again:
1. Prop 26 — still no idea what it is
2. Prop 27 — nope, no idea
3. The dirty water at Camp Legeune in 1954.

— Tod Goldberg (@todgoldberg) October 25, 2022

The Election Margin of Defeat Will Be Significant

Also deeply troubling, Pascrell III said, is the momentum. Or, really, the lack thereof.

Although the SurveyUSA poll showed voters softening slightly on Prop 26, public support continues to worsen for Prop 27. Fatigue on the issue is real for Californians, spurred on by the volume of the ad blitz. And the bigger the spread, Pascrell III said, the bigger the task in starting over. Especially since the next referendums would, by law, need to be markedly different than the current ones up for vote.

That pushes the potential launch of sports betting in California years away. Maybe even as much as a decade away in the estimation of Paul Martino, managing partner of Bullpen Capital and a former Silicon Valley tech and gambling investor.

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“The more of a blowout it is, the more difficult it is,” Pascrell III said. “But I believe this is going to be an opportunity. And I am trying to advocate to seize the opportunity for all of us to come to the table, check the egos at the door, go in and try to negotiate a reasonable settlement that respects tribal interests and concerns while also trying to move forward the industry’s commercial objectives.

“I think that’s achievable, but I don’t think it’s easily achievable. And the more the losing margin, the more challenging that will be.”

Newsom’s Announcement Could Be Ambivalence or Political Calculation

Martino noted that Newsom had been “largely uninvolved and somewhat out to lunch on this issue the whole time” before running on the battlefield Schuetz envisioned.

The expansion of gambling hasn’t been strictly the province of either political party in the 37 jurisdictions that are in some phase of legalizing sports betting. But Democratic gubernatorial candidates in historically Republican states like Georgia (Stacey Abrams), South Carolina (Joe Cunningham), and Texas (Beto O’Rourke) have used it as a differentiator against Republican incumbents.

.@GavinNewsom had telegraphed his Prop 27 opposition — now he makes it official.

A lesson here: existing political relationships matter. California Native American tribes with ties to various electeds marshaled enormous opposition to FanDuel et al’s initiative https://t.co/xOO13nfCS5

— Jeremy B. White (@JeremyBWhite) October 26, 2022

Newsom, meanwhile, is coasting to re-election against Brian Dahle in a deep-blue state and fending off queries about presidential aspirations.

Even if it was a “pet issue,” Martino said, Newsom did not show his cards until the results seemed clear.

“He could have had key people and constituents that he was working with, or (said), ‘You just decide. This is just not where I’m going to use my political capital. This isn’t my fight,’” Martino said.

Standing next to a tribal gambling juggernaut that racked up a win even as it lost on Prop 26 was the safe play. Because that’s where a win apparently lies in legalizing sports betting in California right now.

Welcome to purgatory.

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