With Election Day less than two weeks away, the fate of California sports betting will soon be decided.
Throughout the election season, major California newspapers published editorials bashing the pair of ballot initiatives that would legalize sports betting in California.
Unfortunately, most of these opinion pieces were riddled with misleading statements or downright falsities. Based on the content, most writers didn’t even read the proposals. It’s one of the myriad of reasons it appears that both Proposition 26 and Proposition 27 likely fail.
However, one publication made measured and truthful arguments in their recommendations against the two initiatives.
Orange County Register’s arguments against Prop 26
In a previous “Well, actually…” column, I highlighted the Orange County Register editorial board’s arguments against the tribal initiative.
Prop 26 would allow in-person betting at tribal casinos. It would also allow for expanded gambling options at those properties. But those new games were unrelated to the objections.
They claimed that the tribes didn’t deserve to have a monopoly over the potential market. Additionally, they didn’t like a clause in the proposal that would give tribes the ability to sue local cardrooms.
Both were well-reasoned arguments based in facts. Just a couple weeks later at the end of September, they released a piece advocating for voters to torpedo the competing initiative.
The OC Register is against Prop 27 as well
Unlike the tribal initiative, Prop 27 would legalize online sports betting in California. It was backed by major online sports betting operators and marketed as a new revenue stream to help solve homelessness.
The Register’s editorial board made three main arguments against the proposal’s passage.
Small gaming companies would be shut out of the market
The Register argues that only the largest gaming companies in the country would have access to the market. They cite two caveats in the proposal to make their case.
The writers argue that the licensing expenses are too cumbersome to allow meaningful competition.
“Most other states that allow online sports betting impose relatively modest licensing fees, whereas this measure requires a whopping $100 million fee for a license – plus $10 million each time it is renewed.”
Furthermore, they claim the requirement that licensees already operate in 10 other states is a hindrance to smaller operations.
“The initiative also requires online operators to be active in 10 states and partner with a local tribe. Voters might say, ‘That means gaming companies are willing to pay to fund state programs.’ In reality, these are anti-competitive measures that would cut out upstarts and allow big firms to gain a virtual monopoly in the nation’s largest gaming market.”
Well, actually…
Are they going to make me argue against competition? I can’t. Most of this is a pretty accurate criticism.
The licensing expenses are ridiculous.
New York implemented a $25 million licensing fee when it launched its online sports betting industry at the start of the year. There is also a $1 million renewal fee every four years. And those are by far the largest figures in the country. California’s fees dwarf New York’s.
By comparison, New Jersey’s fee is $100,000 and Colorado’s is $75,000. New Jersey is already considered the gold standard of online betting. Just follow in their footsteps.
It’s also true that the 10-state minimum requirement would limit the number of options available for California bettors. If Prop 27 were to pass, here’s what companies are eligible for a license:
- DraftKings
- FanDuel
- WynnBET
- PointsBet
- Barstool
- Caesars
- BetMGM
- SugarHouse/BetRivers
But it’s even unlikely that all those operators would enter the market with current licensing fees. DraftKings and FanDuel will have no problem. DraftKings has annual revenue of around $2 billion and FanDuel is closer to $3 billion.
On the other hand, PointsBet barely generated enough revenue in its other markets to afford entry to California. They serve bettors in Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, New Jersey, New York, Pennsylvania, Virginia and West Virginia.
But despite its wide-reaching footprint, data from the Financial Times shows the company only generated $296.48 million in revenue. Those same figures show the company is losing money to the tune of $267.7 million at those revenue levels.
I don’t see how PointsBet executives could justify spending on a California license with its current market share.
Are there any “small” online sportsbooks?
I’m going to concede that the criticisms are completely just. But I do take issue with characterizing online sports betting companies as “small.”
For example, SI Sportsbook is one of the smaller operators in the country. At the moment, it’s only operating in Colorado.
But it’s owned by online betting giant 888 holdings. The Gibraltar-based company posted gross revenues of $980.1 million in 2021.
It wouldn’t take much effort to consolidate and expand efforts to get an 888-owned sportsbook into California.
Lastly, an unfortunate truth about gambling is that money tends to gravitate to bigger operations. The larger companies have an established track record that will generate most of the revenue.
This is especially true in a market like California where bettors were previously forced to bet with unregulated offshore sportsbooks. There is at least some doubt that funds aren’t safe in those situations.
It’s nearly impossible to disagree with the premise that these caveats will decrease competition. However, it’s unlikely that these caveats will have a significant negative impact on the market.
The player penalty for offshore betting is government overreach
One of the weirder parts of the initiative is that it would penalize Californians who continue to bet with offshore books.
Firstly, I don’t understand who would still give their business to these sportsbooks. But regardless, it’s just a strange regulation to implement.
“Prop 27 also gives a state bureau the power to collect the names of people betting on unlicensed sites, which is intrusive and creepy.”
Well, actually… they’re right
A lot of the rhetoric in these types of pieces is entirely misleading. But “intrusive and creepy” seems spot on.
It’s also an easily-hated requirement from both sides of the political spectrum. The possible civil liberties infringements from a personal information database is why the left could dislike it. On the other hand, allocating tax funds to stop a very small subset of the population would upset some of the fiscally responsible right.
Online sports betting revenue won’t fix the homeless problem
This argument is common among major newspapers in California. But the problem is how they frame the argument to mislead the voters.
Most publications argue the new industry won’t bring in much revenue. The verbiage makes it seem like the tax revenue is insignificant.
It isn’t.
Depending on the estimates, there could be anywhere between $170 million and $400 million in new funding for the homeless.
Here’s how the Register framed it:
“We’re also put off by the less-than-forthright manner in which supporters are pitching this initiative. ‘Proposition 27 is the ONLY permanent funding solution for California’s homelessness and mental health crises,’ explains the Yes on 27 site. Yet the homeless component is a side issue, and the revenues are unlikely to make a dent in the broader problem.”
Well, actually… they make another well-reasoned critique
Ignoring the advertising from Yes on 27 for the moment, saying it wouldn’t “make a dent” in the problem is completely fair.
According to a report from ABC News, California plans to spend $12 billion on homelessness over the next two years. The additional funding may not make much of a difference in the efforts.
Despite what online operators want you to believe, sports betting won’t solve California’s problems. But like it or not, sports betting will eventually come to California.
It’s unlikely to come this year, but it will at some point. And when it does, wouldn’t you like the tax revenue to go towards a problem as important as that?
