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CA
Prop 27
Online Sports Betting
Initiative Constitutional Amendment and Statute
Allows Online and Mobile Sports Wagering Outside Tribal Lands

Legalizes online sports betting in California and directs tax revenue earned to the California Solutions to Homelessness and Mental Health Support Account and the Tribal Economic Development Account.

Vote NO

Jump to SPUR’s Recommendation

What the Measure Would Do

Proposition 27 would legalize online sports betting and authorize three types of entities to offer this service:

  • Gaming tribes: federally recognized Indian tribes[1] that enter into a tribal-state compact giving the State of California regulatory authority over gaming services offered by the tribe.
  • Online sports betting platforms: companies that offer online gambling.
  • Gaming entities: companies that offer gambling through physical casinos and may also offer online gambling.

The measure would create a series of eligibility requirements for online sports betting platforms and for gaming entities. These companies would have to be:

  • Licensed to offer online sports betting in at least 10 U.S. states or territories; or
  • Licensed to offer online sports betting in at least five states or territories and operate at least 12 casinos in the United States.

Online sports betting platforms and gaming entities would also have to:

  • Pay a one-time application fee of $10 million (for online sports betting platforms) or $100 million (for gaming entities).
  • Enter into an agreement with a gaming tribe delineating the relationship between the tribe and the service provider.

The measure would also create rules of engagement for gaming tribes. Gaming tribes would have to:

  • Pay a one-time application fee of $10 million.
  • Cede some tribal sovereignty in the regulation of the agreements with qualified gaming entities or online platforms.
  • Use their tribe name as the name of their online sports betting platform if they create one.

The measure would establish the regulatory framework for online sports betting and create a new Division of Online Sports Betting Control within the California Department of Justice to administer the new service. It also would set up the process and timelines by which licenses are reviewed and approved, specifically granting temporary authority to applicants to proceed with providing online betting services if the division cannot adhere to the prescribed review timelines.

The measure would levy a 10% tax on winning sports bettors and a 10% tax on the gaming entities, tribes and gambling companies who offer sports betting online. Companies subject to the tax could deduct up to 20% of their application fees each year from their taxes for at least the first 10 years of operation.

The funds raised through these taxes would be reserved as a set-aside and used for the following purposes:

  • Administrative costs, including staffing the Division of Online Sports Betting Control.
  • Eighty-five percent to state housing and mental health programs, with no more than 40% to be spent on interim housing. These funds would primarily augment existing state housing and homelessness programs.
  • Fifteen percent to federally recognized tribes in California that do not offer online sports betting. This money could be used to support tribal governments, education, infrastructure, public health, economic development and employment opportunities.

The Backstory

In 2018, a Supreme Court ruling eliminated the federal prohibition on sports wagering. Each state now has the right to determine whether or not it will authorize betting on sports. Since the ruling, 24 states across the country and Washington, D.C., have legalized sports betting, resulting in over $1.5 billion in tax revenue.

In California, legal gambling is limited to certain places and types: cardrooms, racetracks, the state lottery and Indian casinos. Sports betting and online betting are not currently legal, and certain games, including slot machines, are allowed only at Indian casinos.

Indian casinos have been legal in California since 1988, when the federal Indian Gaming Regulatory Act allowed federally recognized tribes to operate gaming on tribal lands, subject to tribal-state compacts that specified state regulatory oversight of these activities. Today, 79 tribes (“gaming tribes”) operate gaming services on tribal lands. These operations generate about $8 billion in annual revenue, roughly equivalent to the gambling revenue generated in Nevada, where all forms of gambling are legal. Gaming tribes are also required to participate in a revenue-sharing program (the Revenue Sharing Trust Fund), which allocates some gambling revenues to non-gaming tribes.

Since 2018, negotiations in the California State Legislature have not resulted in a resolution among entities interested in providing sports wagering, including cardrooms, online sportsbooks and gaming tribes.[2] Unable to reach a negotiated — and legislated — agreement, competing parties have produced two separate ballot initiatives, each designed to give its respective party the right to offer sports betting.

Prop. 27 would authorize both qualified gaming tribes and a new entity in California — qualified gaming companies — to offer online sports betting. Prop. 26 would instead grant that right exclusively to gaming tribes and racetracks operating in four counties (Alameda, Los Angeles, Orange and San Diego) and would require that all sports betting be done in person. (See SPUR's recommendation on Prop. 26.)

At play in these measures are questions of both power and money. Sports betting could generate as much as $3.6 billion in revenues annually for the service providers.[3] And if Prop. 27 passes, it would introduce new players to California gambling, shifting the power that tribes currently hold to shape how gambling is allowed and regulated and to determine who benefits from its proceeds.[4]

Opponents of the measure argue that the extensive scope and scale of the eligibility requirements (outlined above) are designed to limit competition and benefit only those entities that are already well established in the gaming industry. Some of these well-established entities are also major funders of the measure, such as DraftKings, FanDuel and BetMGM.

Gambling activity can lead to addiction and other mental health concerns, and opponents of Prop. 27 argue that the risk of problem gambling would be exacerbated by online betting access.

Prop. 27 provides that if both Prop. 26 and Prop. 27 are approved by voters, both will take effect.

As a constitutional amendment, Prop. 27 requires a simple majority (50% plus one vote) to pass.

Equity Impacts

Nearly one-third of people residing in tribal areas live below the poverty line.[5] Existing gaming rights have benefitted California’s Indian tribes, both financially and in health outcomes.[6] Revenue-sharing agreements ensure that non-gaming tribes also benefit from these gambling operations. Expanding gaming options to include online sports betting could generate additional revenue, which could further improve the quality of life for California’s tribes. Similarly, revenue-sharing through the proposed Tribal Economic Development Account could result in additional money directed to tribal areas.

However, introducing new players to California gambling could have the long-term effect of diluting the power of gaming tribes and their ability to influence how gambling revenues are generated and allocated, which in turn could impact tribal communities negatively.

The legalization of online betting could increase the likelihood that people will develop gambling addictions, which disproportionately impact low-income communities. Research has shown that Black and Latinx groups are more likely to develop problem gambling than white populations.[7]

To the extent that significant new revenue would be generated for housing and homelessness prevention, these programs would likely benefit people of color in California, particularly Black, Asian American, Pacific Islander and American Indian residents, who are disproportionately unsheltered and/or housing-insecure.[8]

Pros

  • Prop. 27 would provide additional funding to support unhoused populations in California.
  • The measure would offer financial support to non-gaming tribal governments.
  • The measure would enable gaming tribes to expand their gaming operations, which could lead to increased economic activity, additional resources and improved health outcomes.

Cons

  • Prop. 27 would set specific rules for how sports wagering operates in the state without input from the legislature and without the ability to amend the rules legislatively.
  • The measure would determine who gets to participate in the online gambling market without the benefit of a negotiated decision and would lock in this set of participants without the ability to make changes legislatively.
  • The electorate would have to vote again to raise or lower the tax rate for online sports betting.
  • Prop. 27 would create set-asides that dictate how tax revenue is spent, with no flexibility to meet the state’s expenditure priorities, which evolve over time.
  • The measure would likely reduce competition among market participants by limiting the pool to well-established gambling operators.
  • The highly favorable access rules for market participants would give the state little time to set up its regulatory structure. Instead, gambling operators would decide when the market would begin.
  • Prop. 27 would require specific naming protocols for gaming tribes, limiting tribal sovereignty and market competitiveness.
  • Making online wagering legal could lead to increased mental health issues, such as problem gambling.
SPUR's Recommendation

Sports betting is a lucrative industry, and since California has yet to lay down any regulatory rules, it’s no surprise that interested parties are taking measures directly to the voters. But given the complexity of this field, the competing interests among potential participants and the intended or unintended consequences on tribal well-being, these decisions should not be made at the ballot box. The only responsible approach is for the State of California to legislate the rules surrounding who can operate these services, how the services fit into the landscape of existing gaming rules and tribal-state compacts, and whether sports betting should be made legal in California at all, given its potential risks to individual gamblers. The state should also decide how any new revenue from these services will be spent since spending priorities shift over time.

Vote NO on Prop 27 - Online Sports Betting
Footnotes

[1]  SPUR acknowledges that there are many different terms to describe indigenous peoples of North America. For the purpose of this analysis, we used the terms that appear in the official ballot measure language.

[2] Alexander Nieves et al., “California Ballot Measures 2022: Interest Groups Prepare for Expensive 2022 Fights,” Politico, https://politico.com/interactives/2022/california-ballot-measures-propositions-guide-2022.

[3] Grace Gedye, “California Sports Betting Initiative Backed by FanDuel, DraftKings Would Block Small Competitors,” CalMatters, April 27, 2022, https://calmatters.org/economy/2022/04/california-sports-betting-initiative-backed-by-fanduel-draft-kings-would-block-small-competitors/.

[4] Dan Walters, “California’s Tribal Casinos Now Want Sports Betting,” CalMatters, June 2, 2021, https://calmatters.org/commentary/2021/06/california-tribal-casinos-sports-betting-gambling/

[5] California Coalition for Rural Housing; Rural Community Assistance Corporation, California Tribal Housing Needs and Opportunities: A Vision Forward, August 2019, https://www.calruralhousing.org/_files/ugd/8d7a46_e7569ba74f5648ba9bc8d73931ebd85d.pdf.

[6] Oddo, Vanessa M. “Casino Ownership and Health-Related Community Resources Among Native American Tribes in California.” Preventing Chronic Disease 16 (2019). https://doi.org/10.5888/pcd16.180252.

[7] Timothy W. Fong, “The Vulnerable Faces of Pathological Gambling,” Psychiatry (Edgmont) 2, no. 4, April 2005, 34–42, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3004737/.

[8] Ian Gabriel and Victoria Ciudad-Real, “State of Homelessness in California Fact Sheet,” Homelessness Policy Research Institute, 2020, https://socialinnovation.usc.edu/wp-content/uploads/2020/02/Homelessness-in-CA-Fact-Sheet-v3.pdf.