California Sports Betting: Are the Tribes Turning the Tide Against Sportsbooks?

The tide may be turning against the major sportsbooks and their joint effort to pass Proposition 27, the legislative initiative that would legalize online sports betting in California.

Last Updated: Sep 6, 2022 1:24 PM ET Read Time: 4 min
Shohei Ohtani Los Angeles Angels MLB
Photo By - USA TODAY Sports

The tide may be turning against the major online sportsbooks and their joint effort to pass Proposition 27, a legislative initiative that would legalize online sports betting in California.

With barely two months remaining before voters go to the polls on Nov. 8 to decide the issue, the state's native tribes have gained a valuable ally in their effort to defeat the bill backed by seven of the leading U.S. legal sport betting operators.

Last Friday, the California State Association of Counties (CSAC), which represents all 58 counties in the state, voted to oppose Proposition 27, thereby joining the broad-based NO on 27 coalition that includes the California League of Cities, both state Democratic and Republican parties, top legislative leaders, major teachers’ unions, and the 50+ native tribes funding the NO campaign.

"California’s counties are on the front lines of the homelessness and mental health crisis, providing safety-net programs and services for unhoused residents. We carefully reviewed Prop 27 and concluded it’s a bad deal for counties and for California," said Graham Knaus, Executive Director of the California State Association of Counties. "Make no mistake, Prop 27 is NOT a solution to homelessness."

NO on 27 suggests that gambling addiction is on the rise

The CSAC opposition comes on the heels of last Thursday's press release by the NO on 27 committee that made public data from several states relating to the skyrocketing numbers of calls made to problem gambling hotlines.

According to the release, gambling addiction may be on the rise in states that have reported a massive spike in calls to problem gambling hotlines since online sports betting became legal in 2018.

The Councils on Compulsive Gambling in both New Jersey and Pennsylvania reported that calls into their problem gambling hotlines have soared 500% and 285%, respectively, while Michigan's Department of Health & Human Services reported a nearly 300% increase.

Although this latest anecdotal evidence of addictive betting behavior has not gained much traction in California media, the CSAC decision certainly lends added credibility to the No side — and is likely to feature in upcoming ads that portray Proposition 27 as deceptive and misleading.

Meanwhile, the tribal coalition is hoping that Californians will back their rival Proposition 26, which would allow tribal casinos and state-licensed racetracks to host retail sportsbooks.

In terms of optics, tribal attack ads have repeatedly pointed out that the official wording of Proposition 27 is deliberately misleading, as the sportsbooks made a calculated marketing decision to name their legislation the "California Solutions to Homelessness and Mental Health Support Act."

In effect, a bill whose primary purpose is to legalize online sports wagering in California is in fact masquerading as an altruistic intiative by focusing voters' attention to the purely charitable provision in the legislation.

The fundamental impetus to Prop 27 is to provide online betting services to Californians and generate billions of dollars in expected revenues to the major sportsbooks.

This is why the tribes' have launched a series of attack ads that accuses the operators of "deceptive marketing" and hammers away at a "Solutions to Homelessness" bill that obfuscates its real intent.

Sportsbooks too kind... to themselves

The NO on 27 Coalition further argues that the tax rate the sportsbooks wish to impose on themselves is overly generous. The tribal group believes that the amount given to funding homeless and mental health care programs is a mere pittance compared to the billions of dollars the "corporate operators" will be taking out of the pockets of Californians — and sending out of state.

According to the bill written by the operators, California would tax all betting revenues at 10%, which is comparatively low when New York, Pennsylvania, and New Jersey — three of the biggest sports wagering states — impose levies of 51%, 36%, and 13% on online betting revenues, respectively.

Of this 10% total, the State Treasury would be legally bound to allocate 85% of those tax revenues to homeless and mental health care programs. The remaining 15% would be divided among tribes that do not currently participate in gaming.

Given that California Gov. Gavin Newsom has already allocated $12 billion towards such relief measures over the next two years, projected Prop 27 sports betting revenues would only add a meager 4% to that amount.

Further, there is a minor contradiction implicit in the legislation, with respect to the mental health care aspect, which can be construed as a loose euphemism for "gambling addiction treatment" — it's argued that the bill will be funding a 'solution' to a problem that it will be partly responsible for creating.

Analysts predict defeat of Prop 27

And just when it appeared that last week's bad news cycle for the sportbooks could not get any worse, a team of analysts at Eilers & Krejcik Gaming predicted that both Proposition 27 and Proposition 26 are doomed to defeat.

"The political power and deep pockets of interests with dogs in this hunt … have us leaning negative on California’s sports betting legalization prospects this fall," read the research report published last week.

Voter confusion was cited as one of the principal factors preventing both the sportsbooks and the tribes from obtaining the 51% of the vote necessary for their ballot initiatives to become law. Two rival measures on the same ballot, for the same issue, dilutes the appeal of each proposition as opposed to a single up or down ballot measure:

"Two competing sports betting measures occurring consecutively on the same ballot is unprecedented in U.S. sports betting's political history, which complicates efforts to predict its outcome," read the report.

Inherent flaw and lack of vision in Proposition 27

The sportsbooks' brain trust behind Proposition 27 may have been too smart for their own good. They opted for a clever and inspired marketing ploy to set aside funds for homelessness and mental health as a way of providing a humanitarian justification for voters to approve a bill to legalize online sports betting.

But this may simply have muddied the waters and ignored a genuine chance to raise funds for green energy development, water conservation, school funding, women's shelters, family food security programs, and similar causes that would have had a far broader appeal to California's progressive-leaning electorate.

Such a comprehensive measure would have been more difficult for the tribes to attack, while immunizing the sportsbooks against what is being portrayed as a very narrow and cynical attempt to woo voters.

An Aug. 31 column by Los Angeles Times business writer Michael Hiltzik capped off the sportsbooks' very bad/not so good/pretty terrible week:

"...The gambling firms are all public-spirited in their way, but do you really think they care about the crisis of homelessness in California as opposed to drinking deeply of the potential profits from online gambling in the vast California market?"

"Me neither."

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