Opinion: California Prop 26, 27 Sports Betting Measures More Than Meet The Eye

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Prop 27

Voters in California are weeks away from deciding if the state will have sports betting via Prop 26 and Prop 27 and, if they do, just what the model might look like.

It might appear that the difference between the two initiatives effectively comes down to in-person at tribal properties versus online CA sports betting, but there is much more behind these two initiatives.

Both initiatives are lengthy. The entirety of Proposition 26 comes in at 15 pages, whereas Proposition 27’s submission is a whopping 65 pages. It is obviously not possible for those touting ballot initiatives to convey the entirety of a proposition in small sound bites or commercials, but both of these initiatives represent significant modifications to the gaming landscape in California.

What to make of Prop 26 and 27

Neither one of these propositions appear to have a very good chance of becoming law. While many voters have likely not read through the entirety of the proposals, it appears as though the advertising blitzes are resulting in the likely defeat of both propositions.

It is unclear which of these measures would be best for the people of California, though neither proposal would come close to generating the type of revenue that New York is seeing, which is likely to remain a point of comparison for big states like California.

With neither measure looking like it will pass, it will be interesting to see what the next round of ballot measures will look like and if there will be a coming together of the two sides or an additional push to bring sports betting to California with a state revenue maximization model.

Prop 26 meat and potatoes

Proposition 26 has been a long time coming, with the tribe-powered initiative dating back to 2019. The Proposition notes that sports gambling is happening across the country, yet it is also happening within California. Unlike in states that have allowed and regulated sports betting, it is going untaxed in California. The Proposition suggests that economic experts project legal sports betting could be worth upward of tens of millions of dollars annually in tax revenue for the state.

The measure would also set the legal betting age at 21, and ban wagering on in-state college teams and high school sports.

If the government can’t, can the people?

The measure also calls for reforms to the enforcement mechanisms behind gambling laws. The measure calls current gambling enforcement “inadequate” and notes:

Californians should be able to report and enforce violations of California law against illegal gambling activities.

This provision appears targeted toward cardrooms, with whom tribes have a long-standing battle over banked games.

But who gets to enforce this?

This aspect of Prop 26 has caused some controversy. It would allow citizens to police the state for illegal gambling by reporting suspected illegal gambling activities to the attorney general. If no action was taken within 90 days, the reporting person (or company) could file a civil action themselves.

Is private enforcement a good thing?

You may recall that the Professional and Amateur Sports Protection Act (PASPA) gave the sports leagues the power to enforce the law. While PASPA granted private enforcement power to a specific group, it is not uncommon for governments to allow private parties to notify the government of actions that allegedly violate the law, and if the government chooses not to prosecute, individuals can move forward with the action.

However, in those cases, the private party is typically allowed to keep a portion of the recovery; in this case, all the money appears to go to the sports wagering fund, which will probably limit the incentives of private enforcement. While there are concerns that private enforcement may result in the targeting of certain gaming operators in the state, it is unlikely the California courts would allow an abusive use of the provision.

Roulette and craps too

The proposition would not just add sports betting to California’s tribal casinos; it would also enable those properties to offer roulette and dice games.

Horse racing tracks in the state would be able to offer sports wagering with  state approval, but would be subject to a 10% tax. The proposition further calls for the establishment of a fund to hold tax revenues generated by the horse tracks’ sports betting operations.

Fifteen percent of the money deposited would be used for gambling-related research and problem gambling programs, and another 15% of the money would go towards enforcement within the Bureau of Gambling Control. The remainder would be directed to the state’s general fund.

Behind the scenes of Prop 27

Prop 27 is most frequently associated with online sports betting, or the measure’s plan to use revenue from sports betting to alleviate some of California’s issues with homelessness.

At nearly four times the length of Proposition 26, it provides significant detail of what sports betting would look like in California if it should pass. It also provides a very pro-industry regulatory scheme.

Like Prop 26, Prop 27 acknowledges that unregulated betting is taking place and going untaxed in California. The measure proposes to allow tribes in the state to offer online wagering to patrons off tribal land through partnerships with platform providers and gaming entities that have a market-access agreement.

Prop 27 money goes where?

While 85% of the money generated by Prop 27 is slated to go to a fund to help alleviate homelessness and mental health issues, the remaining funds go to a Tribal Economic Development Account intended for non-gaming tribes.

Favorable terms?

The measure would set some advertising standards, which seem to correspond with the American Gaming Association‘s responsible advertising guidelines

However, the measure notes that pre-approval of advertisements would not be required for any advertisement or promotion and that operators could offer unlimited free bets.

Fees, fees, fees

The measure includes a $250,000 application fee, along with a $10 million fee for a tribal operator license and a $100 million fee for a gaming entity operator license. A renewal application would cost $50,000 and then $1 million for a tribal operator and $10 million for a gaming entity operator license that would last five years.

Tribal sovereignty waiver

As part of the measure, a tribe seeking to participate would need to provide:

An express limited waiver of sovereign immunity, and any right to assert sovereign immunity against this State of the Division.

A moneymaker for the State?

The measure calls for a 10% tax on the adjusted gross sports betting receipts. Calculating adjusted gross receipts includes deducting all voided bets, federal excise taxes, and “the value of all merchandise or property awarded as a prize to bettors.”

Months where operators see a negative adjusted gross revenue figure can be carried forward for up to 12 months. Operators can also “take a credit against the surcharge” of 10%, up to 20% of the initial license fee per year for the first five years.

Taxing illegal bets via Prop 27?

The measure also calls for a tax of 15% on illegal wagers.

Like the federal excise tax on illegal wagers, it is unclear if that is a viable provision for generating more than nominal revenue for the state.