As the California Senate advanced a measure this week to curtail online sweepstakes operators and Attorney General Rob Bonta issued an opinion calling daily fantasy sports (DFS) illegal, tribal leaders and representatives praised their efforts. They also maintained that they now have the upper hand in fighting out-of-state third parties they say are encroaching on tribal sovereignty.
The issue was addressed Wednesday in the latest webinar hosted by the Indian Gaming Association. This session, “Closing the Loopholes in California: Tribal-Led Efforts to Rein in Fantasy Sports and Sweepstakes Sites,” discussed California’s tribal governments drawing what they call “a firm line in the sand,” as unregulated daily fantasy sports and dual-currency sweepstakes casinos continue to operate in legal gray areas.
In the episode, the panel broke down Bonta’s opinion, issued last week, declaring DFS illegal under state law and examined Assembly Bill 831, a proposal backed by tribes to shut down online sweepstakes gambling. Tribes are now demanding immediate enforcement from Bonta and for California lawmakers to pass the bill.
The session featured IGA Conference Chair Victor Rocha and IGA CEO Brian Giles. Guests were tribal attorney Scott Crowell and tribal gaming attorney Joe Webster, managing partner of Hobbs, Straus, Dean & Walker.
Crowell took issue with sweepstake operators and their affiliates, arguing that it’s not illegal gaming and that social media sites operated by the tribes are doing the same thing. The sweepstakes companies have argued more study needs to be done on the California bill and that its passage should not be rushed.
“An avalanche is already happening against these (operators),” Webster said. “You’re seeing state-by-state legislation, AG opinions and enforcement action, and a lot of lawsuits being filed. A whole range of gaming that tribes are supposed to have exclusivity for is being run over by these operators.”
Rocha said what he predicted 10 months ago is coming to fruition, adding he knew the operators would run until they came to California and would make their final stand.
“After California, they’re not going to have much oxygen left,” Rocha said. “I think Texas is coming right behind us, especially when it’s this egregious exploitation.”
Webster said the lack of enforcement by California has enabled these operators to continue, and with such a large market and not a legal competitive product since online wagering is illegal, they can fill the market with their offers. “We all think it’s illegal, but there’s not a lot of challenge and not much competition.”
Rocha said the sweepstakes operators have launched a social media campaign to criticize what’s happening in California and how it’s unfair to them. “The screaming feels fake and insincere.”
Crowell said even without the bill, sweepstakes are illegal in California and should have been enforced. He worries that even with the law enacted in the future, it doesn’t mean it will be enforced.
“Attorney General Bonta will say the legislature is dealing with this, so in the meantime I’ll do nothing, which is what he’s been doing since he’s been in office,” Crowell said. “A number of the states have enacted these sweepstakes provisions over the last few years and a huge uptick in state regulatory agencies issuing cease and desist letters are effective in getting the companies out of state.”
Webster said the key is enforcement. The laws are clear that sweepstakes are illegal across the country. He also worries that companies will continue to operate despite laws passed if AGs don’t act.
Webster said the concern on enforcement is over how these companies aren’t regulated and are based offshore. Regulators don’t know who is involved and where the money is coming from, but they should still act.
“This shouldn’t be a hard sell to state regulators and enforcement authorities to shut it down,” Webster said. “The statutory language is abundantly clear.”
Webster maintains tribes can draft their own regulatory language or issue or enforcement action, including filing a lawsuit in federal court. “Tribes have an opportunity if state enforcement isn’t forthcoming.”
Crowell responded that as much as believes tribes have jurisdiction to issue cease-and-desist letters for activities on tribal lands, the operators will simply geofence their product off tribal lands. “The problem remains and cannibalization remains.”
What’s happening shows there’s huge demand for online gaming in California and Crowell said if players don’t have a legal and regulated environment, they’ll seize on the illegal market.
“That’s what we’re looking at in California, whereas in a state like Michigan, you shut down illegal operations and the players can still play their games in a legal and regulated environment,” Crowell said. “You don’t have anywhere to turn in California. This folds into our larger discussion on how and when the California tribes put an initiative in front of voters to allow a legal platform to play these games.”
Rocha said technology is moving faster than tribes are prepared for at this time. He said it’s important to go after these companies’ profits and challenge legitimate companies that assist the illegal operators, like payment processors, and violate tribal sovereignty. “California is the place where this all ends.”
Giles brought up how FanDuel and DraftKings flooded states with DFS several years ago and didn’t get punished and worries they may operate sports wagering in markets where it’s not legal.
Underdog Sports tried to sue Bonta to stop the opinion from being issued last week. DraftKings and FanDuel have said they’ll continue DFS offerings in California as the largest operators in the state, Crowell said. He called it frustrating that nothing has been done against DFS operators. “We would expect an announcement of enforcement action against all these illegal DFS operators, but we’re not hearing any of that.”
The key is for tribes to continue to put pressure on the AG to enforce the law, Webster said, adding that it’s disappointing that a statement from Gov. Gavin Newsom’s office said that he disagreed with the opinion. “Those are the types of things that aren’t helpful in terms of trying to get enforcement.”
Crowell, however, noted that it’s a “question of time” before sweepstakes operators are buried, but it may take longer for DFS. Another concern that also hasn’t been addressed that the state may have no control over is prediction-market operators like Kalshi using the Commodities Futures Trading Commission to circumvent enforcement.
“It’s an existential threat and the two court decisions that have come out so far in Kalshi’s favor are a threat,” Crowell said. “It could make the state regulated and tribal regulated sports betting industries irrelevant. Of all the threats we’ve talked about, the CFTC prediction market and Kalshi product are the most worrisome.”
