Proposition 26 | Horse Racing Free Tips

After a months-long $400 million plus war of attrition between the two rival California sports wagering measures on this year's ballot, the endgame was a stalemate, both beat down into the muddy trenches–just as the polling had indicated.

The Associated Press made the call that both measures are sunk, though the official tally is far from in. With less than 50% of the ballots counted as of writing, roughly 70% voted against Proposition 26, and some 83% voted against Proposition 27.

“Ugly,” said Pat Cummings, executive director of the Thoroughbred Idea Foundation, calling the voters' rejection of sports wagering a “gag-reflex” to the incendiary nature of the attack-ads from the rival measures, which oftentimes left voters all at sea about exactly what each measure entailed.

Proposition 26 was an initiative called the Tribal Sports Wagering Act spearheaded by a band of extremely powerful Tribal gaming groups which, in short, would have allowed sports wagering at Tribal casinos and at approved racetracks in California. Most crucially, it would have prohibited mobile or on-line wagering on sports events.

Understandably, this Proposition garnered the public support of California racing industry heavy hitters like the Thoroughbred Owners of California (TOC), the Del Mar Thoroughbred Club and the 1/ST Racing and Gaming.

The second, Proposition 27, was the California Solutions to Homelessness and Mental Health Act led by online betting market outfits like FanDuel and Draftkings. This measure would have legalized online or mobile sports betting outside of Native American lands, though still leave legal avenues for Tribes to participate in the market.

As a selling point, the latter Proposition leaned heavily on the massive revenues it would have secured through license fees earmarked for homelessness initiatives, a hot-button topic for California voters. This included adds that often hid or obscured the sports betting component of the ballot measure, however.

Though the state's most powerful gaming Tribes lined up to support Proposition 26, a handful of less lucrative Tribal gaming groups threw their weight behind Proposition 27, including the Middletown Rancheria of Pomo Indians, who argued the FanDuel and Draftkings-backed measure would provide a financial life-line to struggling Tribes “that don't own big casinos.”

Proposition 26 proponents, on the other hand, spent more than $100 million on ads depicting the rival measure as an out-of-state incursion that would ultimately hurt California's Tribes. These conflicting Tribal allegiances only helped fuel voter bewilderment.

And what of the immediate future of sports wagering in California?

“The Tribes have asserted their power,” wrote TOC vice chairman, Bob Liewald, speaking independently of the organization, in an email. “I don't see a compromise that would make [sports wagering] possible without the Tribes having significant say [and] control.”

Liewald wrote it is “unlikely” that measures similar to Proposition 26 and 27 will be on the state-wide ballot in two years time.

Indeed, proponents of Proposition 27 have publicly hinted that the sheer scale of the spending behind both measures would make them think twice about endeavoring down the same path again.

Liewald also doubts state politicians will pass legislation in Sacramento legalizing sports wagering any time soon. “But if they did it would be crafted mainly by the Tribes for the Tribes,” he wrote. As such, he said it is “difficult” to see a viable path forward for sports wagering before 2025.

Scott Daruty, president of Monarch Content Management, the arm of The Stronach Group (TSG) tasked with distributing the company's signal, strikes a more ambivalent tone.

“I think it's too early to even assess that,” Daruty said, about the chances of one or both such measures returning to a state-wide ballot in 2024.

Sports wagering will eventually be legalized in California, he said. “How that happens, what the dynamic is that brings that about, I just think we need a bit more time to figure that out.”

If the Tribal groups behind Proposition 26 reintroduce it at some point, will California racetracks once again be part of the measure?

“I think it's too early to say,” Daruty said. “I think it'll take some time before that dialogue begins.”

As for why Proposition 26 was so comprehensively undone, Daruty points to the lack of resources invested in positive messaging.

“The Tribal interests that were the proponents of 26, I don't want to speak for them, but it appears they were much more worried about 27 passing than 26 failing,” he said. “There was never a positive message about 26 at all.”

A group of Tribes that includes the powerful San Manuel Band of Mission Indians are spearheading an online and in-person sports betting initiative restricted to servers on Tribal land that could run in 2024.

The Washington Post reports that at an October Global Gaming Expo, Tribal heavy hitters suggested that particular initiative could see collaboration with out-of-state entities as platform providers for Tribal mobile sports betting.

“There might be an opportunity for everyone, but they've got to be humble,” Dan Little, San Manuel's chief intergovernmental and tribal affairs officer, is reported to have said about gaming operations like FanDuel.

“That's not particularly favorable to the racing industry,” said Daruty, about the proposed initiative. “But it is something we're aware of.”

If sports wagering remains foreign to California's shores for the foreseeable future, the industry needs to ensure its wagering product is as “competitive as possible,” warned Cummings, pointing to things like eliminating jackpot bets, focused attention on lower takeout, and higher win-probability bets.

“We are already seeing the positive attention around Kentucky shifting to penny breakage. Give horseplayers the equivalent of a tax break and you give them an opportunity to invest that break back through the windows,” Cummings said.

The industry's continued focus on the “Pick X” and super exotic bets “is probably a mistake,” Cummings said. “It's great to have a low takeout pick five, but only if you hit all five winners. And the last I checked, it's still easier to pick one winner than five straight.”

With pari-mutuel betting California's only option, “the greater racing industry should want its customers to win and churn,” Cummings said. “Driving players to multi-race bets that are tough to win is leading them on a path to lower churn.”

As for the industry's long-term future within a sports wagering ecosystem in California, Daruty emphasized the importance of having a “seat at the table” as the lines are drawn.
“If you look at it today, racing is the only legal form of sports betting in California–it's also the only legal form of online betting in California,” he said. “So, we would just like to make sure we're part of whatever the sports betting future brings.”

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Like fast-falling dominoes, the 2018 Supreme Court decision flinging open the legal doors to sports betting has already led to 30 states allowing some form of this gambling, and now it's California's turn to potentially join the party, with two such initiatives on the state ballot this November.

The first is Proposition 26, an initiative called the Tribal Sports Wagering Act spearheaded by American Tribes which, in short, would allow sports wagering at Tribal casinos and at approved racetracks in California. Most crucially, it still prohibits mobile or on-line wagering on sports events.

The second, Proposition 27, is the California Solutions to Homelessness and Mental Health Act led by titans of the online betting market like FanDuel and Draftkings. In summary, this measure would legalize online or mobile sports betting outside of Native American lands, though still leave legal avenues for Tribes to participate in the market.

A side-by-side comparison of the two measures can be found at CalMatters.

Both are expected to generate mammoth revenues for the state. In the Tribal-led initiative, the sum is in the tens of millions. In the online initiative, that amount is expected to be in the mid-hundreds of millions.

But will they benefit California racing?

While the Tribal initiative holds obvious appeal for the sport, the other online measure has some key industry stakeholders divided.

According to Thoroughbred Owners of California (TOC) vice chairman, Bob Liewald–who explained he was speaking independently rather than for all TOC members–successful passage for either initiative would be of significant benefit to the industry, both financially and in terms of corralling new customers to the sport.

“It's hard to project but it's millions of dollars. Minimum $10 to $15 million in purse money each year,” said Liewald about the potential revenues that each initiative could generate for the sport annually.

These projections, Liewald said, are based on sports wagering revenues at other states like New Jersey, where Meadowlands has seen a 30% increase in per-card handle figures since the advent of sports wagering, along with a governmental program to subsidize the Thoroughbred and Standardbred industries.

In the online initiative, bettors must be in California but not on Tribal lands. The measure does, however, offer federally recognized Tribes and eligible businesses the opportunity to reach agreements with online sports wagering companies.

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This means that, should Prop. 27 succeed, then companies like FanDuel, Draftkings and BetMGM could contract with the racetracks directly, said Liewald.

“There are at least a dozen different companies out there that want to get a license and do this, and do it exclusively with one of the racetracks. So, all of the racetracks are going to benefit from this,” said Liewald.

Depending on negotiations, such agreements could include brick and mortar locations within or outside the track (but still on the racetrack property), potentially open throughout the year, with revenues shared between the operator and the track itself, he said.

“It's going to be very powerful” for the racing industry, Liewald added. “Horse racing is never going to get monies from the state or from the casinos. This is our last lifeline, and it's extremely important to us.”

But Scott Daruty, president of Monarch Content Management, the arm of The Stronach Group (TSG) tasked with distributing the company's signal, argues that the online measure wouldn't offer the industry any meaningful financial boost.

“What it's going to do is take all of the revenue generated by sports wagering by the state of California and it's going to send it to out-of-state casino interests,” said Daruty, of Prop. 27.

Indeed, the initiative is written so that, in order to operate sports wagering in the state, the entity must either be licensed to operate betting in at least 10 different states, or licensed in at least five states just so long as the company also operates at least 12 casinos nationally.

“There's nothing in Prop. 27 that would help generate any money for the racing industry, for purses, for all the employees at the racetracks or the racetrack facilities themselves,” said Daruty.

On the other hand, TSG is “very supportive” of Prop. 26, said Daruty. “We think it'll be very beneficial for the industry, and also for the Tribal proponents for whom we're partners,” he said, adding that it's too soon to make any potential revenue projections should it pass.

“That would all depend on commercial arrangements that are negotiated after the passage,” he said. “But we can say that it'll be good for live racing, it'll help support all the employees we have at our tracks, it'll help support racing overall. And we're very hopeful it passes.”

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When asked about the financial benefit sports wagering has had for the racing industries in other jurisdictions, Daruty responded that, in those instances, the sport had a “seat” at the table.

“That seat has either been through receiving a license to operate sports wagering, or in the form of subsidies paid either to the racetracks or to the purse account–those subsidies being generated by the sports wagering,” said Daruty. “Prop. 27 does none of that.”

These two initiatives are expected to generate a big-spending sibling rivalry, potentially the largest the state and nation has witnessed.

“We will run a vigorous campaign against this measure and are confident the voters will see through the deceptive promises being made by these out-of-state gambling corporations,” Cody Martinez, chairman of the Sycuan Band of the Kumeyaay Nation, said about Prop. 27.

And Tribal groups have already made good on that promise, kickstarting a campaign against the rival ballot measure months in advance of the actual vote.

“It will be the biggest campaign spend in the history of United States ballot initiatives, not just California,” said Daniel Wallach, a Florida-based attorney and expert in sports wagering. “The largest was last year, on Proposition 22, which sought to classify Uber, Lyft and these ride-share drivers as employees instead of contractors.”

The online initiative has a potentially appealing selling hook to the voting public of a state gripped by a housing crisis: the bulk of the monies generated though a 10% tax will go toward tackling homelessness, including the creation of interim and permanent housing.

This partly explains why Wallach believes the online initiative stands the greatest chance of polling highest. “At least at this stage,” he said. “We're still early in the game.”

There's also the prospect both initiatives will garner enough votes in November to succeed.

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“It's likely both could be enacted into law,” said Wallach, who added that in which case, there's no ostensible conflicts of interest between the two measures precluding them from co-existing.

“Neither initiative in the sports betting realm speaks to the other or negates the other,” he said. “They were proposed more than a year apart from one another, and they're not being presented as an either/or initiative, unlike past cases which have been litigated.”

Nevertheless, in the event both measures succeed, if Prop. 26 polls higher, Tribal organizations might still employ legal means to prevent the rival online initiative from going into effect.

“I still think they could co-exist, but the Tribes are probably going to take a different position,” Wallach said. In this event, “no one could say with any certainty how this would play out.”

Another possibility is that the voting public, faced with two competing initiatives on the same ballot, might throw their hands up in confusion and vote both of them down.

“Conventional wisdom is that when you have two or more initiatives around similar subject matter, it presents confusion to the voters. But what could be confusing about online and retail? They're different distribution channels for wagering,” said Wallach.

That said, “everything about this is so speculative,” he added. “We're still about four months out. We can hypothesize different scenarios, but it's still too early in the process to forecast or predict which one's going to come in first or second, or whether they both pass or they both fail.”

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