Gaming Tribes Battle Online Corporations for Control of California Sports Betting

Messy, dueling ballot initiatives await voters in November.

More than two dozen states and Washington, D.C., have legalized some form of sports betting since a Supreme Court decision struck down a federal ban in 2018. California still has not, but a pair of dueling initiatives on the November ballot may bring about change.

In the style of California politics, it's all a gigantic, expensive mess of competing interests. Proposition 26 and Proposition 27 will legalize betting on professional, collegiate, and amateur sports. But who is allowed to make money off gambling, where gambling tax revenue goes, and how citizens may gamble varies wildly. Existing tribal-owned casinos are looking to maintain a cartel free from competition from online gambling corporations, who want to move in and serve more gamblers.

Proposition 26 is the baby of those existing gaming tribes, and it shows. It confines sports betting to existing casinos and licensed racetracks, all tribe-owned in California. It would also allow for dice games and roulette at existing tribal casinos should they amend their compacts with the state to offer them. It does not allow for online or mobile sports betting. Prop. 26 will mandate a 10 percent tax on the money from sports betting. Fifteen percent of that 10 percent tax would go to the state for gambling addiction programs. Another 15 percent would go to the state's Bureau of Gambling Control to enforce the rules. The rest would go to the state's General Fund to be spent however lawmakers choose.

Proposition 27 allows for online sports betting companies to partner up with gaming tribes in the state to offer online sports betting for those over the age of 21. It specifically requires that people engaged in sports betting be in the state of California but not on Indian lands. It also imposes a 10 percent tax on sports bets. It would establish a division within California's Department of Justice to regulate online betting and enforce the law. The tax revenue from Prop. 27, after funding the regulatory costs, would go into a trust fund. An account would set aside 85 percent of this money for homeless housing and assistance and mental health treatment. The remaining 15 percent would be sent to "nonparticipating tribes" in California that don't have gambling compacts.

Prop. 27 is supported by Major League Baseball, and donors to the campaign include BetMGM (the online sports betting partner to MGM resorts) and the corporations behind FanDuel Sportsbook and DraftKings, according to Ballotpedia. Prop. 27, for reasons that should be obvious, is opposed by the existing gaming tribes in California (some tribes who stand to benefit from the Prop. 27 fund, however, do support it).

Millions of dollars are being spent to support and oppose the two propositions as tribes and corporate gaming firms go head to head. Ballotpedia calculates about $150 million in donations both for and against Prop. 26 and $200 million both for and against Prop. 27. California residents are being hammered with advertisements.

The Los Angeles Times opposes both bills in unabashedly paternalistic terms, worrying about the negative impacts of the expansion of gambling and caring very little about individual freedom. Whether people want to gamble does not seem to factor in their position, just that "The normalization of sports betting has been egged on by betting platforms, athletic leagues and media companies, which see profit in convincing people to gamble away their dollars."

For those who actually value individual freedom over moral panic, Michelle Minton and Marc Joffe of the Reason Foundation (the nonprofit that publishes Reason) analyzed both Prop. 26 and Prop. 27 for their impacts. When discussing Prop. 27, they note that a panic about problem gambling crops up with every single expansion of access, but that "Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown."

Their analysis finds that Prop. 27 would be the initiative that provides California consumers with a competitive gambling environment and the state with more revenue (because, unlike the tribal casinos, these gaming companies would be paying additional taxes to the state on top of the 10 percent mentioned in the initiative). Here's how they see the two stacking up:

Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes. Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market.

Proposition 26 would benefit the state's gaming tribes and block out-of-state gambling companies from California's market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.