The Failed California Sports Betting Effort Cost More Than Just Dollars

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“You’ve gotta spend money to make money.” Or so the saying goes.

That’s certainly been the mantra of the groups angling to bring legalized sports betting to California. However, it’s now looking like all the money they’ve spent will be for naught. And that has to leave a bad taste in some mouths, given the overall economic climate.

California: A Different Kind of Battleground State

Gambling in California is a mixed bag. At the moment, residents can wager on horse racing, play the state lottery, play poker or casino-like card games at one of approximately 70 cardrooms, or play slots and card games at one of 66 tribal establishments. Conspicuously missing is a legal way for Californians to wager on sports.

Legal sports betting has swept the US.  This year’s big success story was New York’s online betting launch. Sports betting apps in NY have already generated over $12 billion in betting handle, nearly a billion dollars in revenue, and nearly half a billion in state tax revenue. No wonder California would like to follow suit.

Ahead of the midterm elections, two competing initiatives to legalize sports betting in California have appeared. The groups behind those efforts have spared no expense to spread their respective messages. At the time of writing, more than $450 million has been spent on the priciest ballot-initiative fight in US history. Unfortunately, all they seem to have accomplished is to cancel each other out. At this point, neither measure appears to have any chance of passing.

On the one hand, it’s understandable. It’s tough to look at such a populous and affluent state and not see dollar signs. Everyone wants a bigger piece of that pie for themselves.

On the other hand, until some version of sports betting successfully passes, this is all just an extremely expensive and mutually destructive game of chicken.

The Pitchers’ Duel

One of the initiatives, Proposition 26, has the backing of more than 30 Native American tribes already involved in gaming in the state. Prop 26 would allow for wagering on sports in person at tribal casinos and licensed racetracks, as well as adding roulette and dice games to their offerings.

The rival proposal, Proposition 27, had the backing of several of the nation’s largest sports betting operators, as well as several non-casino tribes. Prop 27 would amend state law to allow for online and mobile sports betting for adults within state borders.

Under the terms of 27, multistate operators would be required to partner with a tribe, while tribal operators could choose to fly solo.

Both propositions suggest a 10% tax rate.

Follow the Money

Each initiative has accumulated high-profile backers and detractors. Here’s how much everyone has spent:

  • Yes on 27: Seven of the nation’s largest casino companies, led by DraftKings, FanDuel, BetMGM, and Penn Interactive. They’re joined by several non-casino tribes including Big Valley Rancheria, Middleton, Rancheria Pomo, and Santa Rosa Rancheria Tachi Yokut, who feel Prop 26 unfairly advantages those tribes which already have casinos over those that do not. All of these parties contributed to Yes on 27’s $169.3 million war chest.
  • No on 27 – Californians for Tribal Sovereignty and Safe Gaming: A coalition of gaming tribes – including the San Manuel Band of Mission Indians, the Federated Indians of Graton Rancheria, and the Pechanga Band of Luiseño Indians – lead the resistance to Prop 27. They claim that it would lead to a disproportionate chunk of profits going to gambling companies, and have raised well over $100 million.
  • The Coalition for Safe, Responsible Gaming: This group, also made up of gaming tribes, has raised more than $130 million to support Prop 26 and oppose Prop 27.
  • Taxpayers Against Special Interest Monopolies: This group consists largely of California’s card rooms, who oppose Prop 26, in part because it would allow tribes to sue them. The group has raised almost $40 million.

Alongside financial questions, several tribes have expressed concerns that partnering with large casino companies poses a threat to tribal sovereignty. This is a concern held by Mark Macarro, Chairman of the Pechanga Band of Luiseño Indians, which owns California’s largest casino, Pechanga Resort, and Casino, who wore a “Not Today, Colonizers” T-shirt at the recent Global Gaming Expo in Las Vegas:

Inviting the DraftKings, the FanDuels, etc., as subservient partners — subservience isn’t the issue. It’s that they would be sitting essentially in parity with tribes in figuring out legalization.

Overwhelmed by Ads

This high-stakes battle has resulted in the bombardment of Californians with advertising. California’s Democratic Party didn’t take an official stance on Prop 26 but opposed Prop 27. Governor Gavin Newsom recently spoke out against the misleading claims present in some Prop 27 ads. The California Republican Party, meanwhile, opposes both proposals.

Historically, when such conflicting initiatives appear side-by-side on the ballot, both tend to fail. Props 26 and 27 appear poised to follow that trend. Recent polling shows that just 31% of voters support Prop 26, while 27% support Prop 27.

One key takeaway here is that Californians do not appreciate being caught in the middle of a tug-of-war.

At the same time, the cost of this failure is massive, and not only to the parties involved.

An Unconscionable Waste

Now, we’re already gearing up for endless postmortems on the failed efforts. There will be takes regarding messaging, the ubiquity of advertisements, missed opportunities, and the seemingly endless sniping between profit-seeking proponents on each side. Lost amidst this is the true legacy of the Prop 26/27 fight. By the time balloting closes on Nov 8, half a billion dollars will have been spent to no practical end.

This, of course, is in the midst of a housing crisis that, as of Jan 2020, had already left 161,000 people homeless. Of that number, more than 40% reported suffering from long-term disabilities, whether physical or psychological.

The global pandemic began weeks after the publication of that data. Naturally, it has not helped. According to Zillow, in Oct 2022, “the median rent for all bedrooms and all property types in Los Angeles (the California city that’s home to more homeless persons than any other) is $3,100.”

That’s an increase of 19.2% year-over-year, and 21.2% since January 2021.

Between spiraling rents, reduced shelter capacity, the dissolution of social safety nets, and inflation, it’s not unlikely that the true total is now 200,000 or more.

Of course, solving homelessness isn’t the responsibility of either the tribes or the online gambling industry. However, this backdrop makes the conspicuous waste of money even more galling in terms of optics.

Making matters worse is the way the industry attempted to leverage the crisis in its quest for a new market. Sports betting was never about solving homelessness. The attempt to present it as such – while wasting hundreds of millions on ads – was a transparently cynical ploy that may have done more harm than good to the industry, and to sports betting’s future chances.

About the Author

Emile Avanessian

Emile is a one-time banker turned freelance writer. He previously worked in equity research and as a member of the Financial Sponsors Group with Goldman Sachs, where he worked on numerous casino- and gaming-related projects. His written work has focused largely on sports (NBA basketball and European soccer) and sports betting. Emile currently also writes for Squawka and Urban Pitch. His work has also been published in The Los Angeles Times, The Blizzard, Yahoo Sports, SI.com, and ESPN.

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