It’s a question that often springs up during heated ballot initiative debates: Where does the money go?
Propositions 26 and 27 could legalize sports betting in California if passed next month. The competing initiatives do so in different ways, with tax revenue going to different destinations.
Prop 26 targets a new fund
Prop 26 legalizes in-person sports betting at California tribal casinos and select California horse racing venues. It bans wagering on college sports teams and allows tribes to spread craps and roulette at their properties.
Under Prop 26, the tax rate at horse racing venues is 10% of sports betting activity. That revenue would be sent to the new California Sports Wagering Fund.
The CSWF would then send the money to three different endpoints. 70 percent would go to the state General Fund. The other 30 percent would be divided equally between gambling addiction and mental health programs and addressing regulatory costs.
Prop 27 revenue to address California homeless crisis
The destination of Prop 27 tax revenue is no secret. It’s in the proposition’s name.
The Legalize Sports Betting and Revenue for Homelessness Prevention Fund Initiative taxes operators at a 10% rate. Of that revenue, 85% is earmarked for homeless and mental health programs and services. Tribes not involved in sports betting receive the other 15%.
PlayCA estimates the total tax revenue from online sports betting at approximately $200 million. This would send $170 million to homeless and mental health causes, and $30 million to non-gambling tribes.
How do other states tax sports betting?
Each state handles sports betting taxes differently. After the repeal of PASPA, states set up individual frameworks that vary (and, in some cases, are wildly different).
Two of California’s neighbors offer operators some of the lowest taxes in the country. Nevada boasts a flat 6.75% tax rate for both retail and online sports betting businesses. Arizona, meanwhile, taxes retail operators at an 8% clip and online operators at a 10% rate.
This is in stark contrast to many eastern states, which tax sports betting at much higher rates. Delaware, New Hampshire and Rhode Island tax retail and online operators at rates of 50% or higher.
Most notably, though, New York is much more friendly to retail operators than those in the online space. The Empire State taxes in-person sports betting at just 10%, compared to the 51% online rate that ties for the highest such figure in the country.
Could California tax rates change in new ballot initiatives?
Props 26 and 27 look unlikely to pass. Recent polling has both measures facing double-digit deficits with just a few weeks until Election Day.
If that happens, the stakeholders must go back to the drawing board. Compromises and political maneuvering could see future initiatives with new tax rates and structures.
After all, California could see as much as $40 billion in legal sports bets during the first full year of operations. It only makes sense that everyone involved would want significant pieces of that action.
