What the Measure Would Do:
Proposition 26, the California Sports Wagering Regulation and Unlawful Gambling Enforcement Act, would do three things:
- Allow the operation of roulette, dice games and sports wagering on tribal lands for people over 21.[1] Any winnings would be subject to various rates of income tax.
- Allow on-site sports wagering at privately operated horse-racing tracks in four counties (Alameda, Los Angeles, Orange and San Diego) for people over 21.
- Impose a 10% tax on sports bets made at horse-racing tracks and create the California Sports Wagering Fund, where those funds would be deposited.
Expanding the types of gambling allowed on tribal lands would be permitted if tribes enter into a state-tribal compact to give the state regulatory authority over the additional types of gambling.
The 10% tax would generate money for the California Sports Wagering Fund, a fund established within the state’s General Fund and managed by the State Treasury. The measure specifies that a certain percentage of the funds would be allocated to K-12 and community college education. However, the exact amount would depend on the amount of tax revenues each year.[2] Once this threshold is met, funds would be used to cover the state’s costs to collect and administer the tax. Any remaining tax funds would then be allocated in the following ways:
- Fifteen percent to the California Department of Health for problem gambling prevention and mental health services.
- Fifteen percent to the Bureau of Gambling Control within the Department of Justice to implement and enforce laws regarding sports wagering and all other legalized gambling within California (spending on administrative costs could not exceed 5%).
- Seventy percent to the General Fund of the state budget for general use.
The measure would require the state legislature to develop the statutes needed to implement these provisions and to oversee consumer protections, anti-corruption measures and the integrity of gambling services.
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.[3] 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.[4] 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. 26 would 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. Prop. 27, also on the November ballot and relating to sports wagering, would instead authorize both gaming tribes and a new entity in California — qualified gaming companies — to offer online sports betting. (See SPUR's recommendation on Prop. 27.)
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.[5]
According to the California Constitution, when two measures are considered competing, the ballot measure receiving the highest percentage of votes goes into effect. In the case of Prop. 26 and Prop. 27, our analysis did not find that there would be any direct conflicts if both propositions pass.
As a constitutional amendment, Prop. 26 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.[6] Existing gaming rights have benefitted California’s Indian tribes, both financially and in health outcomes.[7] Revenue-sharing agreements, which only exist in California, ensure that non-gaming tribes also benefit from gaming operations, although to a lesser extent than the gaming tribes. Expanding gaming options to include sports betting, roulette and dice games is anticipated to generate significant additional revenue, which could further improve the quality of life for California’s tribes.
The legalization of new games on tribal lands could increase the likelihood that people will develop gambling addictions, which disproportionately impact low-income communities. Research has shown that Black and Latinx people are more likely to develop problem gambling than white populations.[8]
Pros
- Prop. 26 builds on California’s existing approach to gambling, which restricts most gaming services to the jurisdiction of gaming tribes and has been developed over the course of many decades.
- Gaming operations provide significant resources to California’s Native American communities, improving health outcomes.
- The measure would fund programs to address problem gambling.
Cons
- Prop. 26 does not need to be on the ballot, as sports wagering rules could be made legislatively.
- This measure would require future changes to be made by voters. Gaming rights are complex, and making changes through the legislative process would allow for more flexibility as circumstances change.
- The measure would create a set-aside with its new tax revenues, requiring that 30% of funds be spent on specific services. This may be designed to make the measure more politically palatable, but Prop. 26 would better meet funding needs if it allowed tax revenues to be allocated by the state to address its top priorities as they evolve over time.
- By expanding legal gambling to racetracks and allowing more types of betting, the measure would increase access to gambling, which is associated with a higher likelihood of gambling addiction.
- The measure would increase state regulatory costs.