Prop 27 Includes Massive Penalties To Californians Betting On Offshore Sites

Written By Matthew Kredell on November 4, 2022
Penalties for offshore sports betting

Californians currently betting online through offshore sports betting sites make up the minority who probably will vote for Prop 27 on Tuesday.

But little-known language in Prop 27 inflicting substantial penalties on offshore betting might make them take pause.

An Orwellian clause in Prop 27 attempts to get Californians betting offshore to self-report their activities, sets an exorbitant tax on the wagers and excessively penalizes not paying those taxes.

Moving black-market betting onto regulated sites is the goal of legalization. But none of the other 36 US states to legalize sports betting have included such penalties on their citizens.

A good, regulated Califonia sports betting market should naturally attract most of the previous black market, making such penalties unnecessary.

Nathan Click, spokesperson for the Yes on 27 campaign, defended the offshore betting penalties to PlayCA:

“Our measure replaces the current illegal offshore betting market with a safe and responsible online sports betting marketplace — one that requires age verification, provides consumer and sports integrity protections, and will fund hundreds of millions of dollars each year to fight homelessness. Tackling the current illegal offshore market — that provides none of those protections and benefits — is an important part of our measure. Driving participation away from the illegal market and toward the safe and responsible online sports betting marketplace will also ensure the state can maximize the homelessness funding provided by our measure.”

Prop 27’s offshore sports betting surcharge

Here’s the official language of Prop 27 as submitted to the CA Attorney General’s Office.

The clause comes in Section 19776 titled Surcharge on Bets Made Through Illegal or Tax-Exempt Online Sports Betting Platforms.

It starts by imposing a 15% tax rate on the dollar amount bet through an illegal sports betting platform. Typically, gaming taxes are on winning wagers, not the amount wagered.

To enforce this tax, Prop 27 creates the Division of Online Sports Betting Control within the CA Department of Justice.

It provides the following suggestions to the Division on ways to control the illegal market:

  • Require individuals placing a bet on an illegal online sports betting platform to register with the Division.
  • Require operators of illegal online sports betting platforms to disclose the names of people in the state placing bets.
  • Take action against sites refusing to disclose names, including blocking access to the site or mobile application in CA.
  • Establish a civil penalty of $1,000 per day on taxes owed for betting on an illegal online sports betting site.

In opposing Prop 27, the Orange County Register called out the penalties:

“Prop 27 also gives a state bureau the power to collect the names of people betting on unlicensed sites, which is intrusive and creepy.”

Penalties on offshore betting likely unenforceable

Some states include language encouraging authorities to crack down on offshore betting sites operating illegally in the state. But none have gone to these lengths to attack the offshore bettor.

It’s a weird premise that California could have the reach to impact the black market. But instead of shutting down the sites, the state would exorbitantly tax bettors.

It’s unlikely the Division would be able to compel California citizens to disclose their offshore wagers or betting sites operating illegally to provide information on their customers in the state. The California Attorney General press office responded to PlayCA that it wouldn’t discuss hypotheticals of a ballot measure that hasn’t passed.

Barry Fadem, a California-based attorney, wrote one of the state’s key gambling laws in The California State Lottery Initiative. It passed as Prop 37 in 1984 to establish the lottery that Californians play today.

Fadem told PlayCA that the offshore bettor penalties struck him as a “squeaky clean” section. He explained that meant the section wasn’t meant to be enforceable. Instead, it “did nothing but looked good and was something the campaign could point to.”

The biggest offshore betting sites operating illegally in California, Bovada and MyBookie, voluntarily left New York after the state legalized and regulated sports betting last year. Bovada also doesn’t operate in Delaware, Maryland, Nevada and New Jersey. MyBookie also doesn’t accept bettors from Nevada, New Jersey and Pennsylvania.

The language could dissuade those sites from operating in California.

Bettor reaction to Prop 27 penalties

California has a population of nearly 40 million. Without a legal alternative, it’s safe to say that millions currently wager on illegal offshore betting sites.

Todd Fuhrman, co-founder of the Bet the Board podcast, says that Californians are strongly represented in the podcast demographics. He doesn’t think Prop 27, with its penalty language, is the best option for California sports bettors and encourages a legislative compromise in the future.

“People are going to seek avenues to bet games the same way drinkers found alcohol during prohibition. While it’s not imperative for the state to provide legal and regulated avenues for their residents to bet, this new language creates an even bigger can of worms than continued collaboration among disparate factions working towards a state-sponsored solution. In my opinion, it’s actually a step backwards in the push for legalized sports betting.”

It’s problematic that Prop 27 would go into effect Jan. 1, 2023. However, legal sports betting options wouldn’t launch until 240 days after the law goes into effect.

Without these legal sports betting options, Californians surely would continue to bet on offshore sites for the Super Bowl and March Madness, the NBA Finals and the beginning of baseball season.

Once the Division of Online Sports Betting Control is up and running, it would be instructed to find a way to tax those bets at 15%. Those bettors could find themselves piling up $1,000/day fines for not paying taxes on a $20 wager on the Philadelphia Eagles to win the Super Bowl.

Click said it would be up to the DOJ to determine when the penalties would start being enforced.

With Prop 27 failing miserably at the polls, it doesn’t appear this will matter. But it’s worth noting this language ahead of the next wave of sports betting initiatives in 2024.

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