As the largest state in the country, California is a lucrative potential market for the gambling industry. However, gambling in California is still curtailed due to the structure of the state's laws. The state trails behind other states with respect to legalizing various forms of gambling. While debate continues, few concrete steps have been taken towards permitting the types of wagering that are currently being legalized in other states.
Legislative Vehicles for Wagering in California
California was a former mecca of gambling during the Gold Rush era. Today, however, there are no traditional casinos in the state. Nonetheless, the California Code largely defers to local governments in setting laws for gambling. Further, there are relatively light punishments in the California Penal Code for those convicted of gambling-related offenses.
Gambling in California has largely been approved through several legislative vehicles. First, card rooms are legal under California law. Card rooms may offer card games, but not banked card games which includes baccarat and blackjack. Second, the Indian Gaming Regulatory Act, a federal law, permits Indian tribes to operate casinos. This law was passed in part due to the successful legal challenge of federal law brought by a California tribe. The Indian casinos offer a wider variety of games than do card rooms. This is because in 2000, California voters approved a referendum that permitted Indian casinos to offer table games and slots on their lands. The state is authorized to negotiate compacts with individual tribes that dictate the taxes that must be paid and the revenue sharing required with tribe members.
Other legislative vehicles for wagering in California are the horse racing venues, the state lottery and daily fantasy sports. Horse racing was legalized in California in 1933. California has a large pari mutual industry, with six physical tracks and 30 off-track betting facilities. Additionally, the state lottery was legalized in 1984, and the California Lottery has been very successful. In 2016, California took steps toward legalizing daily fantasy sports. While online sports betting and poker playing are still illegal in California, the state has not taken action against offshore entities that accept California players.
Current Challenges Faced
There is currently a fierce dispute between the Indian casinos and the card rooms as to which games the card rooms may offer and what constitutes a banked table game. The Indian casinos have been fiercely protective of their "turf" despite numerous challenges to their special status in California. For example, in 2002, Larry Flynt sued the California Gambling Control Commission, seeking to overturn the special status enjoyed by Indian casinos, whereby they can offer card games that non-Indian casinos cannot. The California Court of Appeal concluded that it was not unconstitutional for Indian casinos to have different rights. The Indian tribes have plenty of political influence and use that power to attempt to slow down any development that would threaten their hegemony in the marketplace. Since non-Indian casino operators are locked out of the California market, the fiercest competition is among the Indian casinos. The lack of a presence among the traditional casino operators lessens the competition that usually results in increased player benefits.
One of the bigger challenges that is faced is the vagueness of California gaming laws. These laws do not make it illegal for players to wager in the state. There is a gray area in California law regarding whether it is permitted to operate online casinos in the state. This impedes some operators from moving into the California market. Some online casinos do accept California residents, but there is no mechanism to regulate online gambling in California.
Another challenge is the restrictions placed on those wishing to operate card rooms. Interests from outside California are prohibited from purchasing stakes in card rooms. Additionally, publicly traded companies may not own card rooms. Finally, California's notoriously fractious politics and referendum system make getting anything done politically a steep challenge. It is thought that allowing commercial casino operators into California will require an amendment to the California Constitution. California voters are notoriously difficult to predict and it is often difficult to achieve any kind of consensus in the state.
Metrics of the California Gaming Market
As the largest state in the country, the size of the California gambling market is huge. There is tremendous potential for casino operators given the sheer number of California residents and their relative wealth.
Tribal casinos dominate the state's gambling landscape. Currently, there are 69 Indian casinos in California. There are 66 card rooms operating in the state. As of 2015, the combined revenues of the tribal casinos was over $7 billion. The card rooms produce over $2 billion in economic activity annually and contribute $300 million in tax revenues.
The daily fantasy market is difficult to gauge, but it is estimated that Californians provide the DFS operators with a large fraction of their revenues. As of 2016, it was estimated that revenues from California DFS players totalled $20 million. California made up over 10 percent of all DFS entries in the United States.
The horse racing wagering market in California is large to say the least, even with the decline in the sport's popularity across the United States. In 2017, total handle between on-track and telephonic wagers totaled close $1 billion. A total of $3 billion was wagered on the state's races from all sources in California.
Future of Betting in California
The future landscape of gambling in California is difficult to predict. This is because of the litigious nature of market participants and California's notoriously difficult politics. Large changes to the existing system must be placed in front of the voters in referendums, which are notoriously unpredictable. Given the atmosphere in California, it is anybody's guess what shape the wagering market may take in the years to come.
For instance, in the wake of the Supreme Court's decision in Murphy that struck down the federal law banning sports wagering as unconstitutional, states have moved with lighting speed to legalize sports betting. That does not apply to California. Despite attempts to place legalization on the ballot in 2018, efforts stalled. It is likely that legalization of sports betting will now have to wait until the next election in 2020.
Further complicating any firm idea of the state's betting future is the fact that any move to expand offerings invariably leads to a lawsuit from a competitor or another interested party. This places the state's gambling future in the hands of individual judges whose decisions are often difficult to predict. For example, the Iipay Nation of Santa Ysabel tribe attempted to start online bingo games, only to have the decision challenged in court. An appeals court ruled that it was a violation of the UIGEA and ordered the tribe to cease the operation.
It is difficult to predict how the tug-of-war between Indian tribes and the card rooms will unfold. It is also tough to foresee how the intra-tribal rivalries will play out with regards to gambling. Finally, it is challenging to gain any visibility as to how judges will rule with regard to the invariable further challenges to expansion of online gaming in California. Therefore, the only certainty with regard to the California market is that it will continue to grow.