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California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs

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Summary

California’s Proposition 27 on the November 2022 ballot would authorize online and mobile sports betting throughout the state operated by tribal authorities or non-tribal businesses that partner with tribes. Revenue generated from the taxes and fees related to online sports betting would primarily go to fund programs to address homelessness and mental health, with a smaller portion distributed to all tribes in the state.  

Fiscal Impact

Proposition 27 would tax sports betting revenue from online and mobile platforms at 10 percent, which the California Legislative Analyst’s Office (LAO) estimates would increase state tax revenue by up to $500 million annually.

After enforcement costs, which LAO estimates could reach up to “the mid-tens of millions of dollars a year,” 85 percent of the tax revenue generated under Prop. 27 would go to the newly-created California Solutions to Homelessness and Mental Health Support Account to create long-term housing for those in need. The remaining 15 percent of tax revenue from the proposition would go into a fund for distribution to tribes in the state that do not participate in gambling activities. 

Arguments in Favor

Proponents of Prop. 27 include three of the state’s smaller tribes, national gambling companies like DraftKings and BetMGM, homelessness groups, local elected officials, and community leaders. Their coalition in support of Prop. 27 asserts the measure would create a competitive and safe online sports betting market in California and provide significant funding to help address homelessness in the state. They argue Prop. 27 is the only measure on the ballot that would guarantee a large and stable source of funding, an estimated $300 million annually, for homelessness, mental health, and addiction services. They also say that Prop. 27 would benefit the state’s tribal population by allocating 15 percent of the tax revenue from sports betting to non-gaming tribes. 

Arguments Against

Opponents of Prop. 27 include some of the state’s tribes, faith-based groups, political organizations, including the California Democratic Party, several elected officials, and other groups. Some of the arguments are that online and mobile wagering would put the state’s youth at risk, exacerbate problem gambling, and threaten tribal economies. Additionally, some opponents say that Prop. 27 would give large, out-of-state online gambling businesses too much control over California’s sports betting market and would put those tribes who wish to offer online sports betting on their own at a competitive disadvantage against well-recognized national brands. 

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 Prop. 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 will 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 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 legal online 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 would exacerbate problem gambling or “gambling addiction.” 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 controversially 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 many 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.

The post California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs appeared first on Reason Foundation.



Source: https://reason.org/voters-guide/california-proposition-27-2022-legalizes-online-sports-betting-funds-homelessness-and-mental-health-programs-with-tax-revenue/


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