California remains one of the country’s largest untapped sports betting markets. Now, the advent of prediction markets may further complicate efforts to legalize sports betting in the Golden State.
California Sports Betting: Where Things Stand
There is no legal sports betting in California, but there are alternative online sports betting for Californians via social sportsbooks, such as:
- ProphetX
- Novig
- Kalshi
In the parlance of social media, California’s relationship with sports betting has been “complicated.”
Much of the complication stems from the state’s tribal gaming lobby, which initially viewed the legalization of sports betting as a threat to their dominance in California’s gambling sector.
While California represented a huge potential market for sports betting companies, the state’s penchant for regulation and taxes – coupled by tribal interests – were recognized headwinds for legalization.
Initially, Californians were positive about legalizing sports betting, a contentious battle over two sports betting propositions in 2022 dampened their enthusiasm. Sports betting companies spent almost a half billion dollars on the effort, but both propositions failed.
Just as it looked as though corporate and tribal interests had found a constructive path toward sports betting legalization, a new complication has surfaced. Sports betting companies may have found an easier way into California – one without the burden of state regulation and tribal cooperation. The newest threat to state licensed and state regulated sports betting in California is prediction markets.
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What's next?
California may have missed the boat to legalize and regulate sports betting at the state level. Instead of spending more money in California, attempting to pass sports betting legislature, the market leading sportsbook providers have come up with a cheaper way to tap California bettors.
DraftKings, FanDuel, and Fanatics are all forming federally regulated prediction markets.
Like legal sportsbooks, prediction markets are offering “investments” on sporting event outcomes, prop bets and parlays. Unlike legal sportsbooks, prediction markets aren’t regulated or licensed by the state, nor do they pay state taxes.
Tribal gaming interests see prediction markets as a significant threat. But they aren’t alone. More than a half dozen states are currently challenging the legality of prediction market-run sports contracts. Ultimately, the issue could end up with the U.S. Supreme Court. In the meantime, the industry may be reluctant to invest in California sports betting legislation.
Notes and quotes
Referring to California’s failed attempt to legalize sports betting in 2022, Frank Sizemore, FanDuel VP of Strategic Partnerships said this year, “If and when the crowd decides to legalized sports wagering, it’ll be a tribally led initiative. We have no interest in running another initiative. We’ve learned our lesson and it did not go well.”
After California successfully banned sweepstakes gambling, Shawn Fluharty, president of the National Council of Legislators from Gaming States, remarked on the significance of the bill’s unanimous legislative support. He said, “[Sweepstakes] couldn’t get one vote in California. You know how hard that is? They can’t agree on the color of the carpet.”
A California Attorney General’s Office legal opinion upended DFS in California. “California law prohibits the operation of daily fantasy sports games with players physically located within California, regardless of where the operators and associated technology are located,” the opinion says. “Such games constitute wagering on sports in violation of Penal Code section 337a.”
Year in review
October: California Governor Gavin Newsom signed A.B. 831 into law, banning contest and sweepstakes gambling. The bill was unanimously passed by both the Senate and the Assembly. The law also prohibits any entity facilitating sweeps, including “financial institution, payment processor, geolocation provider, gaming content supplier, platform provider, or media affiliate.”
September: The NCAA banned three Fresno State basketball players for sports betting violations. This is was first in a series of prop bet-related investigations being conducted by the NCAA, which may ultimately lead to stricter regulations relative to college-level player prop bets.
August: A poll found that 60% of California respondents were open to legalizing sports betting after a 2022 ballot attempt failed to produce a legal change. The Politico-Citrin Center-Possibility Lab survey found a majority of both women and men were essentially positive about legalization.
July: Three federally-recognized California Indian tribes sue prediction market operator Kalshi and electronic trading platform Robinhood for offering sports betting, in violation of the Indian Gaming Regulatory Act (IGRA) and the Federal Wire Act.
July: California Attorney General Rob Bonta issued an opinion that daily fantasy sports (DFS) violate California law. DFS operator Underdog attempted to block the AG from releasing its opinion, but lost that battle in court. Both PrizePicks and Underdog removed Pick’em contests from their California offerings.
