By Ryan Sabalow | CalMatters
For the second straight year, casino-owning tribes persuaded lawmakers to pass legislation that directly attacks the tribes’ business competitors.
Earlier this month, the California Legislature approved Assembly Bill 831, which bans companies from offering certain types of online sweepstakes that the tribes see as a threat to their exclusive rights to gambling in California.
In an example of how much political clout the tribes have — thanks in part to the millions of dollars they have donated to legislators’ reelection campaigns — the measure easily passed both legislative chambers without any of California’s 120 lawmakers voting against it.
In total, the groups for and against the bill have spent at least $1.7 million lobbying the Legislature so far this year, according to filings with the California secretary of state.
Gov. Gavin Newsom hasn’t indicated whether he’ll sign Anaheim Democratic Assemblymember Avelino Valencia’s bill. It follows a bill Newsom signed into law last year that allowed tribes to sue their rivals, privately owned gambling halls called card rooms, to try to stop them from offering table games such as blackjack.
The tribes immediately sued card rooms after they won one of the most expensive political fights of the last two-year legislative session. The feuding gambling factions each spent millions on lobbying and on lawmakers’ campaigns.
The tribes’ case against card rooms is pending.
How the sweepstakes games work
This year’s measure attacks companies offering a style of gaming that’s exclusively online — and already offered in California.
Players typically download an app to play a game of chance such as slots or cards.
Each day, they are given a limited number of free virtual gold coins to play. When the players run out of free coins, they can purchase more from the company to keep playing.
Even with a virtual coin purchase, there’s no cash payout for winning one of the games of chance.
But to lure in customers — and keep the ones they have playing — the companies also give out tokens called “sweepstakes coins” that can be used to participate in sweepstakes that are separate from the card or slot games.
Sweepstakes coins are provided to players as a “bonus” with the purchase of gold coins, through promotions or as complimentary rewards. Those coins are potentially redeemable for real-world prizes or cash, unlike the game-play coins, according to the bill’s analysis.
At least one of the gaming companies has offered a $1 million sweepstakes payout.
The companies argue that because the game-play coins have no cash value and sweepstake coins are not available for direct purchase, their business model isn’t gambling and their sweepstakes aren’t illegal lotteries since there’s no monetary risk for a player.
The virtual sweepstakes games are exploding in popularity. The so-called “sweepstakes casino” companies raised an estimated $3.1 billion in 2022, and were projected to surpass $8 billion by the end of last year, according to the bill analysis.
The tribes told lawmakers the business model is a dangerous form of unregulated gambling that needs to be banned in California.
They argue the virtual companies offering the “dual-currency” games are cutting into the exclusive rights California voters in 1998 and 2000 gave tribes to offer gambling at their casinos, which have provided an economic lifeline to disenfranchised Native American communities.
“Unregulated online sweepstakes threaten this voter-approved system by imitating casino gaming without oversight, accountability or community investment,” Isaiah Vivanco, chairman of the Soboba Band of Luiseño Indians, told a Senate committee this summer. “These illegal platforms erase all benefits of regulated gaming while exposing consumers to serious risk.”
Vivanco, whose tribe has a casino in San Jacinto in Riverside County, told lawmakers that allowing virtual sweepstakes casinos to continue to operate in California will “destabilize the entire legal gaming ecosystem,” causing economic harm to communities across the state.
In total, the various casino-owning tribes that supported the measure to kill the sweepstakes casinos have given at least $7.6 million to California’s legislators since 2015, according to CalMatters’ Digital Democracy database.
Card rooms and small tribes opposed
By contrast, the companies that have formally opposed AB 831 haven’t given any money to California lawmakers, according to Digital Democracy.
The online gaming companies argue that their games are safe to play.
“The industry on its own has adopted responsible gaming measures, play limits, has user verification, has age verification,” Bill Gantz, a lawyer representing the Social Gaming Leadership Alliance, told lawmakers this summer.
Plus, the gaming companies ask: If their business model is illegal, as the tribes claim, why does the state need a law that explicitly makes it so?
“It doesn’t pass the smell test,” said Derek Brinkman, the executive product advisor at Virtual Gaming World, one of the companies fighting AB 831.
If Newsom signs the measure, it would create new criminal penalties for companies offering the disputed sweepstakes, as well as “any entity, financial institution, payment processor, geolocation provider, gaming content supplier, platform provider or media affiliate” that supports a sweepstakes casino, according to the bill analysis. Violators would face up to a year in jail and fines of up to $25,000.
The threat of new criminal penalties, potentially even for players, is why the American Civil Liberties Union opposed the measure.
Card rooms and the association of cities reliant on the revenue they receive from the gambling halls also initially opposed it. The bill didn’t specifically target card rooms, but the tribes’ rival gambling establishments, still smarting from last year’s legislative defeat, worried their competitors would find a way to use the pending law against them. The bill was later modified to address the card rooms’ concerns.
A handful of small California tribes that don’t have large casinos also opposed the measure and hope Newsom vetoes it. He has until Oct. 12 to make a decision.
Since Newsom first ran for governor in 2017, the state’s tribes have contributed more than $7 million to him through his ballot measures, his anti-recall campaign and his various candidate committees.
Eric Wright of the Klestsel Dehe Wintun Nation headquartered in Williams in the Sacramento Valley said some small tribes like his hope to team up with virtual gaming companies to try to generate revenue for their impoverished isolated communities using the sweepstakes games.
The income would be a pittance compared to what the tribes with “brick and mortar” casinos pull in, he said.
“This is about fairness,” Wright told CalMatters. “In California gaming, the framework has worked for some tribes because of geography. But whole tribes were left out. We didn’t even get a seat on that boat.”
CalMatters data journalist Jeremia Kimelman contributed to this story.
