Managing Editor
After considerable investment of time and money by all parties, the situation for California cardrooms and the gaming tribes who oppose them is right back where it started. Last month, the cardrooms won the preliminary injunction they were seeking to allow them to continue operating as usual in face of new rules from Bureau of Gambling Control.
That win for the cardrooms comes on the heels of a separate effort by the tribes to sue them in state court. Having already tried and failed on the federal stage, the tribes persuaded lawmakers to give them one-time access to the state justice system — an option they ordinarily lack due to sovereign status. However, that case was promptly thrown out by the judge, who affirmed it to be a federal matter.
Thus, the status quo endures, which seems to be a running theme for California. And, according to some, that’s the way the political establishment likes it.
In a recent article, local news site Cal Matters quoted former Los Angeles Democrat Mike Gatto, who seemed to imply that the never-ending battle over cardroom blackjack is important to campaign financing:
“It keeps the two very powerful interests caring about what goes on at the Legislature, and therefore it keeps the campaign contributions moving as well.”
Gambling money in politics is not unique to California. A coalition led by FanDuel and DraftKings is spending tens of millions on federal primaries this year through a complicated network of PACs. Smaller amounts get thrown around at the state level on a regular basis.
Nor is California alone in failing to get anything done on the issue. After a wave of very rapid progress from 2018 to 2021, the picture for online gambling, at least, has been quite static across the country.
The California Quagmire
And yet, although status quo bias exists throughout the political system, it’s arguably worse in California than anywhere else.
Part of that is the state’s NIMBYish political culture and approach to direct democracy. Some laws require referendums to pass, while even those that don’t can be vetoed by the populace through an optional referendum.
When it comes to gambling in particular, there is the additional problem of too many competing interests.
California poker players experienced that firsthand during the state’s push for online poker over a decade ago. Cardrooms and tribes could not agree on who should have access to the market, while racetrack owners wanted to see something included for their benefit. Las Vegas casino interests also weighed in against the possibility. Although there was considerable desire for some form of online poker in the state, every specific proposal met resistance from one direction or another.
Years later, it was the same story with sports betting, when a business coalition led by FanDuel and DraftKings naively thought it could push through a referendum against the tribes’ wishes. The end result of that was $450 million in spending to no effect.
That trend is not going to change any time soon, and it affects even those who sometimes use it to their advantage. The tribes’ failure to get the needle moved on cardrooms illustrates that quite clearly.
No Conspiracy, Just Bad Incentives
It’s possible to read Gatto’s comment and assume a concerted effort by lawmakers to keep battles going while reaping the benefits. However, the incentives for lobbyists and politicians alike don’t require conspiracy or planning to produce these results, only for everyone to follow their own incentives.
Those incentives come from the voters. There is a natural human tendency to assign blame for change, and not for lack of change. Politicians may be blamed for inaction when circumstances are changing for the worse and they’re not doing anything to stop it. In most cases, however, a politician’s track record will be defined primarily by the policies they voted for, especially those they actively promoted to their peers.
That makes it easier to lobby against bills than for them. The bicameral legislature compounds the issue by allowing each competing group to target a separate body. It’s quite common to see a bill narrowly pushed through one chamber only to be resoundingly defeated in the other, where the other camp has focused its attention.
To some extent, political inertia is a positive. As frustrating as it can be, it is better to have stable but slowly-changing policies than a system that careens wildly from one extreme to another with every new crisis. Unfortunately, when paired with competing lobby groups it advantages mostly the political system itself, creating an entity that turns money into power only to recuperate that money by withholding that power.
Parallels in Pennsylvania and Beyond
A similar situation is playing out on the other side of the country. There, skill game manufacturers and casinos are throwing money at Pennsylvania politicians to resolve the gray market situation in one way or another. Of course, this has been going on for years without any resolution having been reached.
There, the skill game lobby would like to see its products formally legalized and regulated, while existing gambling interests would like to see them banned. Attempts by the authorities to crack down on the games have been nixed by the courts, which agree with the manufacturers that state’s legal definition of gambling doesn’t apply to them.
A compromise could be possible, in that the casinos have refrained from criticizing regulatory proposals that tax the machines at the same rate as slots. However, the manufacturers say their business model is different and could not be viable at that rate.
The latest push for regulation got underway in the House on Monday. In an attempt to circumvent the impasse, it has left the tax rate to be established by a future bill. However, it imposes a number of hefty restrictions on the games, including:
- $5 maximum bet and $1,000 maximum payout
- No more than five machines per location
- Cash only
- Responsible gambling time-out period every 15 minutes of play
Meanwhile, a higher-stakes version of the same phenomenon is playing out on the national scale with prediction markets. That industry also shows why slowness can be more of a feature than a bug. It’s a sector plagued by what feels like a never-ending series of insider trading scandals, operating with the blessing of a regulator that has all-but-admitted that it doesn’t know what the rules should be.
A bit of legislative gridlock might not have been a bad thing with the prediction markets before they went mainstream. Unfortunately, that genie is now out of the bottle and it will only now interfere with attempts to get it under control.
