With No Sports Betting, California Loses Out On $2 Million In Super Bowl Tax Revenue

Written By Steven Schult on January 31, 2023
California Super Bowl bets

According to PlayCA projections, Californians could bet more on the Super Bowl this year than bettors in any other state. Golden State sports bettors could wager $276.8 million on this year’s big game. The state of California could bring in millions of new tax dollars.

Except those bets won’t happen.

Those numbers reflect what could’ve been wagered if the state had a legal sports betting industry. But the pair of ballot initiatives that would’ve legalized California sports betting failed last November.

California government leaves $2 million on the table

Sports bettors in California who want to bet on the game were affected by last November’s results. However, the state government is missing out on much-needed tax revenue.

According to these numbers, California coffers could’ve received an extra $2 million from the Super Bowl alone.

Initiatives set different tax rates

The two competing initiatives would’ve brought very different market structures to California sports betting. As a result, the tax impact of what Super Bowl betting could have brought to the state varies a bit.

Proposition 26 allowed in-person betting at tribal casinos and four California horse racing venues. On the other hand, Proposition 27 tried to legalize online sports betting.

Since California tribes are considered sovereign nations, the state can’t tax them directly. Thus, there was no specific tax rate specified outside of a 10% tax from the horse tracks’ revenue. The tribes would negotiate a revenue-sharing system with the local governments.

Consequently, calculating tax revenue from a Prop 26 sports betting model is a complete guess. Conversely, Prop 27 included a 10% tax on revenue generated by online operators.

Average hold equates to massive profit for California operators

Hold percentage is a fancy term that represents what percentage of the total amount wagered, known as the handle, is won by the sportsbook. The average hold percentage for sportsbooks is about 7.25%.

When it comes to the outcome of a single game, this number could vary wildly. Especially when a local team is in the game and the betting public piles on one side of the bet.

But assuming an average hold, California sportsbooks could have profited just north of $20 million from the Super Bowl alone. Under Prop 27, the state would get 10% of that to help fight the homelessness crisis.

In that scenario, the Super Bowl would’ve sent $2 million to help some of the state’s most vulnerable citizens.

Some California money heads offshore

Instead of having the ability to bet with legal and regulated sportsbooks, California bettors will take a portion of the $276 million elsewhere. They will generate tax revenue for neighboring states or encounter the murky environment that comes with unregulated offshore sportsbooks.

Offshore sportsbooks present a variety of problems for gamblers. The environment generates a ton of uncertainty for bettors without the legal assurances of a regulated market.

For example, one of the largest offshore sportsbooks went offline for more than two days in April 2022. The site said it was down for planned maintenance, but it never gave advanced notice to its customers. Some bettors posted on Reddit about five-figure sums currently stuck on the site and their fears about getting it back from the operator.

To be clear, most of the $276 million won’t head offshore. There is a large portion of the California population that would wager on the game if there was an option. But otherwise, they’ll abstain.

California would’ve topped Nevada by nine figures

Not only do these projections have California with the largest Super Bowl handle. It’s by a landslide reminiscent of the 49ers’ 55-10 drubbing of the Denver Broncos in the 1990 Super Bowl.

Of the legal markets, it’s no surprise Nevada is expected to lead the pack with a projected Super Bowl handle of $176.2 million. The Silver State has always been a leader in the gambling world given the state’s history with the industry.

But based on our projections, California bettors would outpace the leading market by more than $100 million.

“There’s little doubt California would immediately take the top spot on the Super Bowl betting leaderboard, perhaps even knocking Nevada down an extra peg by virtue of its proximity,” said Eric Ramsey, market analyst for Catena Media. “As it stands today, though, and largely thanks to California’s inaction, Nevada is still the king of Super Bowl betting. The perpetual lack of local progress on the issue is especially unfortunate during what is the biggest single event for betting on the sports calendar.”

california super bowl betting projections 2023 infographic

Unregulated markets are among the largest potential betting markets

Given the 39.2 million California residents, it’s not a huge surprise the state would be one of the largest markets. It’s the largest state in America and is more populated than some nations.

Unfortunately, it highlights the problem with legal sports betting in the country’s largest states. California, Texas and Florida are the three largest states in America by population. None of the three has regulated sports betting markets.

Texas is projected to be the second-largest Super Bowl betting market with a handle just north of $204 million.

Florida’s projections are slightly more complicated because of the legal issues surrounding the 2021 gaming compact.

But an open and competitive Florida sports betting industry with more than just the Seminole Tribe taking bets would expect to handle $150.76 million in Super Bowl Wagers. It would make the Sunshine State the fourth-largest market on the list.

Large populations inevitably come with large economic upside for sports betting operators. Therefore, these states all have large corporate interests lobbying for lawmakers to craft favorable legislation.

These situations result in political gridlock and make it impossible to pass reasonable sports betting legislation.

What happened to the California initiatives?

In California, there are three major groups in the gaming industry. Cardrooms, horse tracks, and Native American Tribes.

California cardrooms are mostly just large poker rooms regulated by local governments. Most also use a legal loophole to spread house-backed card games like blackjack, which the tribes believe infringes on their exclusivity over traditional casino gaming on tribal land.

Horse tracks and off-track betting locations are the only retail locations for California bettors to wager on horse racing.

These entities are located throughout the state and typically donate to their local politician. Any proposed sports betting legislation would have fragmented support.

DraftKings and FanDuel took it upon themselves to bring sports betting to California. The two online sportsbooks funded most of the operations for Prop 27.

But the tribes believed their casino exclusivity gave them exclusivity over sports betting. This led to tribes funding Prop 26. More importantly, it led to a tribal mindset that was just as much about killing Prop 27 as it was about passing Prop 26.

DraftKings, FanDuel and the tribes combined to spend more than $458 million on media campaigns. The tribes focused on negative attack ads aimed at killing Prop 27 more than ads aimed at convincing voters in favor of their proposal.

Both initiatives were crushed at the ballot box last November.

What are the prospects for California sports betting?

A ballot initiative appears to be the most likely avenue for a regulated California sports betting market. While the outcome could change, a rematch between the tribes and major online sportsbooks is likely coming in the 2024 election cycle.

A compromise between the tribes and online sportsbooks seems necessary if voters are going to pass a proposal.

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Steven Schult

Steve serves as managing editor for PlayCA and a handful of other sites across Catena Media. The New York native is a veteran of the gambling world. He started covering high-stakes tournaments in 2009 for some of poker's most prominent media outlets before adding the broader US gaming market to his beat in 2018.

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