*The views expressed in this article do not represent the views of Santa Clara University.
"Horse Betting" Credit https://ahc.digital-ar.org/
As the November elections approach, two propositions have been at the forefront of television commercials and opinionated articles. Propositions 26 and 27 will be on the ballot for Californians to vote on this fall, which could result in major changes to the reality of gambling in the State, particularly relating to sports. These propositions come as a result of the Supreme Court decision in Murphy v. National Collegiate Athletic Association, freeing states to regulate sports gambling to their liking.*1 Many states have already passed legislation to permit their citizens to participate in sports betting. Both propositions seek to provide access to sports betting to California citizens, but differ heavily in the method of access they provide.
Before diving into what these proposed new changes mean for the landscape of gambling in California, we first must look back on how we arrived at where we are today. In 1987, the Supreme Court ruling in California v. Cabazon Band of Mission Indians opened the door for new laws expanding Native American tribes’ ability to operate gambling casinos in the state of California and other states.*2 Within the chain-reaction of new legislation came the Indian Gaming Regulatory Act of 1988 (IGRA).
The goal of the Act was to establish a structure for tribal-hosted gambling and to promote tribal self-sufficiency, as well as governmental and economic development.*3 The Act permits gambling on reservations, lands held in trust by the United States for the benefit of particular tribes, and in other specified areas where a tribe exercised governmental control.*4 Since the enactment of the IGRA, the landscape in California has undergone a number of changes. In 1999, 2004-05, and 2012, California entered into compacts with a number of Indian tribes to solidify their specific ability to operate these casinos. However, only 75 of over 100 federally recognized tribes obtained such an agreement.
Of the tribes with compacts in place, there is a split between those supporting Proposition 26 and 27, with the heavier side recently leaning towards support for Proposition 26. Some tribes are concerned with the impact these rulings may have on the protections former legislation provides. Before casting your vote, take into account what each proposition has to offer in terms of not only the expansion of rights, but also the impact that each proposes to have on the State as a whole.
Proposition 26
If Proposition 26 were to pass, tribal casinos would have the ability to permit in-person sports betting at their casinos.*5 It would also extend this right to certain privately-owned horse-racing tracks throughout the state.*6 The major difference in the expansion of sports betting rights between Proposition 26 and 27 is with regards to online sports betting, which Proposition 26 does not seek to legalize.*7 With Proposition 26, major corporations in the space, such as DraftKings and FanDuel, would not be permitted to provide hand-held sports betting via smartphone applications. As a result, the protections provided to tribes in the past would be strengthened by protecting the market from being overpowered by competitors with much larger financial backing.
The caveat, however, is that formerly negotiated and approved compacts would have to be reworked to account for the change in the law.*8 This means the 75 tribes currently with compacts would have to change their compacts with California. Such compacts would outline the requirements each tribe must follow regarding sports betting as well as determine allocations to state and local government.*9 This could have an impact on the time when placing sports bets becomes a reality for Californians.
The privately-owned race tracks, on the other hand, have no need to negotiate compacts. Unlike the tribes, Proposition 26 immediately permits these four tracks to offer in-person sports betting to people 21 years and older.*10 The tracks are also required to contribute ten percent (10%) of all sports bets made each day to the state, which will be allocated to a new California Sports Wagering Fund (CSWF).*11Indian tribes differ in this regard because the terms of their compacts with the State will determine whether the payments they make go into the CSWF or just to state and local governments.*12 Regardless, both Indian tribes and private race tracks would be required to contribute at least a portion of the bets placed for the benefit of the State.
Proposition 26 additionally expands the enforcement of violations of gambling laws in California. Private citizens and entities of the State would be permitted to file civil suits in state courts for observed or alleged violations.*13 Filers can seek injunctive relief or penalties of up to $10,000 for violations.*14 Individuals and entities hoping to file suit must first report them to the Department of Justice (DOJ) and wait for a 90-day period to lapse, or in cases where the DOJ takes on the case, when the court rejects the claim, assuming the court does not prohibit the suit from being filed again.*15 Any penalties collected on the civil suits would be paid to the CSWF.*16
The total monetary impact is largely speculative because all sports betting in the state is currently illegal, and thus contributes no funds to state or local governments. Some estimates have state revenues from gambling increasing by ten to tens of millions of dollars.*17 The increase does come at the expense of higher regulatory costs, including a heavier workload for the DOJ, given the changes in enforcement provisions.*18 Luckily, estimates of additional costs likely would constitute less than half of a percent (0.5%) of the state’s General Fund budget.*19 With funds being applied to the new CSFW, the State expects to contribute roughly forty percent (40%) of the generated state revenue to K-12 schools and community colleges throughout the State, reserving the remaining sixty percent (60%) for other state-related priorities.*20
Proposition 27
Proposition 27 would allow already licensed tribes and gambling companies to offer online sports betting.*21 It alters the California Constitution and state law to allow people 21 years of age and older to have access to online sports betting on devices that have internet access by September 2023.*22 The proposition would allow online betting on athletic events, such as football games, as well as non-athletic events, such as awards shows and video game competitions.*23 However, it would also ban betting on other events, such as high school games and elections.*24
While Proposition 27 expands the reach of the licensed tribes and larger gambling companies, there are additional regulations intertwined into the five-year licensing.*25 "Licensed tribes, or their contractors, will be able to offer online sports betting under the tribe’s name."*26 However, they are required to give up some of their rights under federal law in order to get the license.*27 Gambling companies are also subject to regulations, including partnering with a tribe that has tribal-state impact.*28 Proposition 27 limits licensing to gambling companies with already established online sports betting licenses in at least 10 U.S. states or territories.*29 With expansion comes regulation in the form of certain payments that must be made to the State for the purposes of regulatory costs and to address homelessness.*30
More specifically, a tribe must pay $10 million when the five-year license is approved and $1 million at each renewal.*31 Given the income disparity, the gambling companies must pay $100 million when the license is renewed and $10 million for each renewal. Id. The proposition also creates a new online sports betting regulatory unit and provides new ways to reduce illegal online sports betting, consisting of a fine equaling fifteen percent (15%) of the amount that they bet if the bet is placed with an unlicensed entity.*32
The State will require the tribes and gambling companies with sports betting licenses to pay ten percent (10%) of sports bets made each month to the State, after subtracting various expenses.*33 The expenses include: "(1) any bets made with credits from promotional offers, (2) prize payments, and (3) federal gambling taxes."*34 Any losses incurred by these tribes and gambling companies could be used to offset these payments.*35 These payments will go into a new California Online Sports Betting Trust Fund (COSBTF).*36 The revenues would first be used for state regulatory costs.*37 The rest of the revenues would be used for two major purposes: (1) eighty-five percent (85%) to address homelessness and for gambling addiction programs, and (2) fifteen percent (15%) for tribes that are not involved in online sports betting.*38
If passed, the fiscal effects of Proposition 27 would have an impact on both state and local government revenues and costs.*39 The extent of this impact is uncertain and fully dependent on how the proposition is interpreted and implemented, how many entities offer online betting, expenses the entities incur, and how many people choose to use the online betting services.*40 Overall, the proposition seeks to increase state revenues by up to $500 million annually through new revenues earned by people moving from illegal online gambling entities to legal, taxed online betting entities.*41 A concern, however, is that with the money being allocated to sports betting, the money allocated for lottery games and shopping may decrease.*42
Alongside an apparent increase in state revenue comes increased state regulatory costs that are fully dependent on implementation of the regulations.*43 Full regulation could cost tens of millions annually, however, this proposition seeks to offset those costs with COSBTF revenues.*44 Other fiscal effects could include revenues from out-of-state visitors coming to place their bets.*45 On the other hand, the possibility of increased revenues comes with increased costs. People with gambling addictions may have a more difficult time refraining from placing bets, which could then lead to more reliance on government assistance.*46 The net effects are unknown at this point.*47
While past propositions have made similar promises to contribute large sums of money to state funds and institutions, they have often fallen short. For example in the year 2000, Proposition 20 promised an increased allocation of funds to K-14 public schools through revenues from the State lottery.*48 In reality, the lottery currently only accounts for a tiny portion of the money spent on public education in California at about one-and-a-half percent (1.5%).*49
Proposition 27 is supported by many large nationwide gambling corporations. The convenience of having wagering readily available seems to be enticing. Similarly, the way that the media portrays the proposition as a solution for homelessness, is appealing to voters.
When casting your vote, avoid strictly basing your vote on the ideas surrounding allocations of revenues, given the deficiencies in California’s ability to make effective use of similar past propositions.
You may be asking, what happens if California citizens pass both propositions? When two conflicting ballot measures pass, the California Constitution calls for the proposition that passes by a higher percentage to take effect.*50 This will require a determination of whether or not these propositions in fact conflict. Proponents from both sides claim that they do not. While both propositions allow for sports gambling, it will be interesting to see which one resonates with Californians more, or if both will resonate. Although most sports bettors probably desire the convenience brought by Proposition 27, most Californians probably have an interest in keeping the money in California as described under Proposition 26.
Footnote Citations:
Murphy v. National Collegiate Athletic Association, 138 S. Ct. 1461 (2018).
California v. Cabazon Band of Mission Indians, 107 S. Ct. 1083 (1987).
California Tribal Questions and Answers (2007) Lao.ca.gov.
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Cal. Const. Art. 2, § 10.
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