Summary
California’s Proposition 26 would authorize Indian tribal casinos and four-horse racetracks in the state to offer in-person sports wagering on college sports, amateur athletics, and other competitions. Still, it would prohibit wagering on high school sports and events involving California-based college teams. The measure would also authorize gaming tribes in the states to offer roulette and dice games, like craps. Revenue generated from sports betting would go to the state’s general fund, enforcement costs, and programs aimed at addressing problem gambling.
Fiscal Impact
The measure would tax sports betting at racetracks at 10 percent. The state’s four licensed horse racetracks would be the only ones to pay that tax since tribes as sovereign entities are tax-exempt. But, gaming tribes contribute funds to the state in other ways, such as fees stipulated in tribal-state compacts that each tribe would strike with the state before offering sports betting. Altogether, Prop. 26 is expected to increase state revenue by tens of millions of dollars annually, according to the California Legislative Analyst’s Office (LAO), with 70 percent going into the general fund. The remaining 30 percent would be divided equally between paying for enforcement costs (LAO estimates in the low tens of millions of dollars annually) and programs that address problem gaming.
Argument in Favor
Proponents argue that giving California’s tribes and racetracks exclusive authority to offer sports betting would bolster tribal self-sufficiency, create jobs, and generate revenue for the state. They point out that sports gambling online is extensive and that Prop. 26 would keep much of that spending in California rather than going to out-of-state online gambling companies. They assert that limiting the activity to in-person betting operated by facilities with long track records of responsible gaming will prevent underage gambling and mitigate problem gambling.
Arguments Against
Opponents of Prop. 26 argue that the measure is anti-competitive, unfairly granting tribes a near-monopoly on sports betting and an actual monopoly on roulette and craps, in addition to their existing monopoly on slot machines. They allege that the measure benefits a handful of wealthy tribes with large casinos at the expense of smaller tribes, California’s non-tribal gaming industry, and other communities of color in the state, costing them thousands of jobs and millions in revenue. Some also oppose the measure for propping up the horse racing industry and promoting animal abuse. And, as with any measure to expand gambling, some oppose Prop. 26 for concerns that such expansions threaten the integrity of youth sports and could increase problem gambling.
Discussion
Since the U.S. Supreme Court overturned the federal prohibition on sports gambling in 2018, more than 30 states have legalized the activity in some form, generating more than $142 billion in wagers and over $1.5 billion in tax revenue. California, with its nearly 40 million residents, could be the largest and most lucrative sports betting market in the country, yielding operators between $350 million and $3 billion in profits and the state up to $300 million in new tax revenue, depending on the way it is regulated.
California’s gaming tribes currently enjoy a state-granted monopoly over slot machines and casino-style games, which nets them around $8 billion in revenue each year. That money is vital for tribal economic welfare as well as tribal political power. Tribes have used that power to deftly defend their control over gambling in the state, expanding the types of games tribes can offer while blocking attempts at encroachment by competitors. Legalizing sports betting represents a significant opportunity to increase foot traffic and revenue for tribal casinos. It is also a threat should the new market bolster its competitors’ profits and influence in state politics.
That is among the reasons many of California’s gaming tribes, 26 at last count, have thrown their support behind Proposition 26, which would restrict legal sports betting to in-person bets at tribal casinos and the state’s four licensed horse racetracks. Along with those tribes and racetracks, some chambers of commerce, faith-based organizations, and social justice-oriented groups have also backed Prop. 26. Some, but not all of these Prop. 26 supporters have also joined the ballot measure committee in opposition to Proposition 27, which would allow non-tribal entities to offer online and mobile sports betting if they strike a deal with one of the state’s gaming tribes.
Those supporting Prop. 26 argue that limiting sports betting to in-person bets at tribal casinos would mitigate the risks of underage and problem gambling, prevent profits from leaving the state, and bolster tribal sovereignty and self-sufficiency.
Prop. 26 supporters point to the 20-year history of responsible gaming operated by tribal casinos, arguing that they are better equipped to prevent underage bets than online or mobile businesses, while Prop. 27 offers no such protections. Using the rhetoric long-used employed by land-based casinos opposed to online gambling, Prop. 27 opponents argue it would turn “every cellphone, laptop, tablet, and even video game console into a gambling device, opening up online gambling to anyone, anywhere, anytime.” However, it is worth noting that at least some of the tribes opposed to Prop. 27 are open to authorizing online and mobile sports betting so long as the tribes control it, with some already lending support to a 2024 ballot initiative that would do just that.
Supporters of Prop. 27 claim allegations about online gaming spurring youth betting are little more than fear-mongering and highlight the successful prevention of youth online betting in other countries that have legalized online gambling, as well as the seven U.S. states with legal online poker, the 20 states with online legal sports betting, and the 45 states with legal daily fantasy sports betting online.
In the near-decade since legal online gambling has been authorized, dire prophecies about online youth gambling have failed to materialize, with online operators rarely receiving fines for underage gambling. Furthermore, technology makes it possible for online platforms to be at least as capable of verifying their customers’ age, identity, and location as land-based casinos, which rely almost exclusively on a visual scan of identification cards. In addition to scanning IDs, online gambling platforms typically ask for additional details, which, depending on state regulations, may include social security numbers and answering questions about personal history, such as previous addresses at which they lived. Those details are then checked against government databases to verify customer identity. They are also stored so that, if there are doubts about an operator’s compliance with state laws, regulators can follow a digital trail of evidence to prove such violations occurred, fine operators, or shut them down.
Another fear raised by the ‘yes on Prop. 26’ and ‘no on Prop. 27’ campaigns are that online sports betting will exacerbate problem gambling or “gambling addictions.” Such concerns are an inevitable part of any debate over expanding access to gambling but based on data and real-world experience, these fears are largely unjustified. Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown.
As with age and identity verification, online platforms can employ technological solutions that can address problem gambling, such as pattern-recognition software, responsible gaming “speedbumps,” which force players to set limits on their spending, and the ability to self-exclude themselves from access to gambling websites. Moreover, whether land-based or online, the risks of problem gambling are better addressed when the gambling occurs in a legal, regulated market, as opposed to illicit markets. And on that note, it is worth pointing out that the absence of legal sports betting has not stopped the activity, with experts estimating that Californians already place an estimated $15 billion in illegal sports bets each year. Most of that money is sent to overseas illicit operators, and those operators do little, if anything, to stop underage or problem gambling.
Another central argument made by supporters of Prop. 26 is that restricting sports betting to tribal casinos would be more beneficial for tribal economies and welfare. Indeed, a near-monopoly on sports betting would be in gaming tribes’ financial interest. But, supporters of Prop. 27 have argued that Prop. 26 mainly benefits the wealthiest tribes with large casinos while Prop. 27 would spread the wealth more evenly, earmarking 15 percent of the tax revenue it would generate (an estimated $45 million annually) to be split among the state’s non-gaming tribes.
Prop. 26 and Prop. 27 also impact other industries and communities. Cardrooms in the state, along with a number of workers’ unions, local elected officials, social justice organizations, and animal welfare groups, have joined a coalition against Prop. 26 because they say it would create an unfair advantage for tribal casinos, siphoning customers away from other gambling businesses in the state and putting at risk the entire cardroom industry, along with the 32,000 jobs it supports and the $5.5 billion in economic activity it generates, which could”devastate other communities of color in California.”
Another argument made by Prop. 27 proponents is that their measure would provide significant funding to address the state’s homelessness problem, earmarking 85 percent of the tax revenue—potentially $250 million annually—to programs aimed at creating long-term housing for those in need, a figure that could total more than
Proponents of Prop. 26 concede that Prop. 27 would generate far more revenue by allowing large national brands, like DraftKings and BetMGM, to participate in California’s market. Those operators would be subject to taxes, unlike tribal casinos. However, Prop. 27 opponents argue that this would be bad for California and tribal casinos because it would primarily benefit out-of-state businesses and” wall street investors funding Prop 27″ While Prop. 26 would generate less revenue, supporters argue it would keep all that money in the state.
Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes.
Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market. Proposition 26 would benefit the state’s gaming tribes and block out-of-state gambling companies from California’s market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.
Voters’ guides for other propositions on California’s 2022 ballot.