An Essential Guide to Proposition 27
Executive Summary:
The repeal of the Professional and Amateur Sports Protection Act in 2018 opened the door for the legalization of online sports gambling. Since then, roughly 30 states have voted yes on legalization and have seen significant increases in revenue as a result. Now, California faces this same decision as Proposition 27 stands to legalize online sports betting in California. Specifically, it would allow licensed companies and tribes to offer online sports gambling contingent on payments made regularly to the state. These payments would be used to cover regulatory costs and further fund various pro-social initiatives. Prior to making a decision on which way to vote, it is important to consider both the potential benefits and consequences of Proposition 27 such as:
- + Increased tax revenue, funding for social initiatives, regulation and safety
- - Insignificant revenue creation, negative effects on native tribes, gambling addiction
Introduction:
Professional sports and gambling have long gone hand in hand. In fact, the earliest signs of sports gambling trace back to the Olympics and other Panhellenic events in Ancient Greece (Matheson). Gone are the days of greco roman wrestling and javelin, however, as professional and amateur sports have been thrusted to the forefront of the global cultural arena. Millions of fans tune in each and every day, and top sporting events like the superbowl and World Cup consistently rank among the most viewed programs of all time. Naturally, as global demand for sports has risen, so too has the desire to wager on matches. As a result, sports gambling has ballooned into a multi-billion dollar industry with wagers placed on everything from Monday Night Football to the National Bowling Championship. Despite its immense popularity, the United States Government has had a complicated relationship with the industry, and in 1992 sports gambling was effectively rendered illegal through the Professional and Amateur Sports Protection Act, commonly referred to as PASPA (Fielkow). This decision was met with backlash, and over the next two decades the support for legalization would continue to grow. As of 2017 over 56 percent of Americans approved of legalization, and in 2018, PASPA was found in violation of states rights and struck down by the Supreme Court in Murphy v. The National Collegiate Athletic Association (Maese). Since then, roughly 30 states have legalized sports gambling, and today, California faces this same issue.
On the State of California voting ballot for November 8th, 2022 stands Proposition 27, an initiative that would render online betting legal statewide. More specifically, Proposition 27 allows for tribes and gambling companies to offer online sports betting contingent on payments made to the state. These payments would then be used to address prosocial initiatives like homelessness as well as fund regulatory costs. Along the lines of regulation, proposition 27 would create a new regulatory unit to oversee operations, grant licenses, and investigate illegal activity among other responsibilities. Furthermore, the initiative offers new solutions to combat illegal bookmakers and the black market industry.
Proposition 27 stands to greatly benefit both the State of California and Native Tribes through significant revenue creation and improved regulatory oversight. Despite these benefits, there are a number of apparent issues that must also be addressed.
The Economic Case for Proposition 27:
One of the primary motivations behind Prop 27 is potential revenue creation for both state and local governments. However, there are a number of different estimates regarding the size of this revenue creation. Nevada, for example, raked in over 1.5 billion in online betting revenue since 2018, 98 million of which were sent to the government in the form of taxes and fees (Gouker). While this figure is strong, Nevada has had legal gambling for decades. Therefore, perhaps a better point of comparison comes from states who have recently legalized online sports gambling. Contrary to popular belief, states like New Jersey and New York, with similar population and demographics as California, have actually out-earned Nevada over the same period. Since 2018, New Jersey has pulled in over 250 million dollars and New York has generated over 400 million (Gouker). This potential cannot be ignored. In addition to comparative figures, legislative analysts have derived more precise estimates on revenue generation. Under Prop 27, 10 percent of all bets placed each month must be paid directly to the state (LA GOV). Given this, the prevailing estimate sits in the hundreds of millions range with the possibility of up to 500 million dollars. (LA Times) Regardless of the exact figure, Proposition 27 would generate millions in new tax revenue for state and local governments; revenue that can then be used toward many of the social and political issues California currently faces.
Assuming the influx of millions in new tax revenue from sports gambling, the question remains as to where this revenue is going to be spent. The infrastructure and regulation necessary for legalization is not free, and California is a large state with a host of issues in need of further funding. So, while revenue generation is beneficial, the revenue must be allocated properly. Proposition 27’s plan involves the creation of the California Online Sports Betting Trust Fund or COSBTF. The monthly payments collected from gambling sites and native tribes would be sent to this fund where it would then be used as follows. Revenues would first cover the state regulatory costs. Then, the remaining cash will be divided among two main causes: 85 percent toward homelessness and gambling addiction programs, and 15 percent toward tribes not participating in online sports betting (Praciado). On the surface, revenue created as a result of Proposition 27 appears to primarily benefit key issues in the state. Although there are some who claim this proposition hides the negatives of gambling under the veil of philanthropy, recently, homelessness has been a tentpole issue for many Californians, and any amount of further funding could help lift hundreds if not thousands off the streets. Furthermore, even prior to legalization gambling is a massive industry, and, unfortunately, many already suffer from addiction. Legalizing online sports gambling would help to fund services for those who seek counsel for this addiction. As is often the case in politics, promises and proposals do not always achieve their intended benefit. Yet, Proposition 27 stands to generate millions of dollars in revenue that, if handled as intended, would help improve California on both the collective and individual level.
Cleaning Up an Existing Industry:
Increased Regulation
In 1992 PASPA banned sports gambling across the country. To the surprise of few, however, PASPA did little to stop the practice of sports betting. Rather, gamblers began to place their wagers through illegal bookmakers and criminal organizations. As a result, prior to PASPA’s repeal in 2018, the illegal sports gambling market grew to dwarf the legal one. In fact, a 2016 estimate from the “American Gaming Association, a lobbying organization for legal casinos, suggested that $2 billion would be bet legally on (American) football games, and $88 billion would be bet illegally, in the 2016–2017 football season.”(Humphreys) Illegal books not only represent a massive amount of untouched revenue for states and governments, but also a large underground of organized crime and illegal activity. Through legalization of online sports betting, California could greatly reduce the extent of this illegal activity. For one, legalization would naturally pull a majority of gamblers away from the illegal books and over to the more reputable brands and sites. While merely a conjecture, many rightfully assume that individuals would favor the safety and assurance of a known gambling name over the shady unknowns of underground casinos and sites. Legalization will likely reduce underground gambling naturally, but Proposition 27 also plans to take additional, active steps to tamper illegal activity. When individuals “place sports bets with an unlicensed entity,” for example, “…the proposition requires those people pay the state a penalty. This penalty equals 15 percent of the amount that they bet. The proposition also allows for a $1,000 penalty for each day this money is not paid.” (LA GOV) This increased scrutiny, in combination with the natural shift toward known sites, demonstrates Proposition 27’s potential to reduce illegal gambling activity and serves as a major positive for the initiative.
Safety Measures
While the government clearly benefits from the potential reduction in illegal sports books, so too do individuals through increased regulation and safety measures. Currently, the gambling landscape in California forces bettors to place their wagers through underground crime organizations. This exposes them to a number of potential dangers such as match fixing and violence. Regarding the latter, legal gambling sites adhere to government regulations and, as a result, have the power to enforce debts through legal action. On the other hand, “illegal operators… don’t pay taxes, they have no consumer protections, they aren’t regulated and they have no qualms about resorting to violence” (Minton, Lieberman). Personally, I know many people who have been threatened violence if they fail to pay a debt, and this risk is ever present so long as these illegal sites remain. In addition to violence, a key issue surrounding illegal gambling lies in corruption and the potential for match fixing. In order to protect the integrity of sports and the safety of bettors, Prop 27 stands to increase regulation through the creation of a new unit within the California department of Justice. In all, Proposition 27 will help reduce illegal gambling activity and protect the safety of bettors through improved regulation.
Criticisms of Prop 27:
Proposition 27 presents a number of clear benefits for both state and local governments as well as individual bettors. Yet, several clear concerns must be also considered in order to make an informed voting decision.
Criticism #1: Where is the revenue really going?
Proponents of Proposition 27 often cite its significant revenue creation resulting in increased funding for pro-social initiatives like homelessness and gambling addiction. Yet, these proponents fail to recognize the fact that a large portion of this supposed revenue would end up in the pockets of multinational gambling corporations. As stated previously, ten percent of all sports gambling revenue would be pledged to fund regulatory costs and social initiatives across California, and while advocates of legalization see this in terms of absolute profit — a potential 500 million dollars in tax revenue — the opposition sees the other side of the coin (LA Gov). If only one-tenth of revenue generated goes to the state, who benefits from the remaining ninety percent? The vast majority of the supposed “profit-pie” would be shipped out of California and end up in the hands of large multinational gambling corporations. Therefore, it comes as no surprise that the primary donors in support of the proposition include companies like FanDuel, BetMGM, and DraftKings who stand to generate billions from the newly legal California sports gambling industry (Schlepp). In light of this, critics of prop 27 label the initiative as nothing but a ploy for large corporations to cash out; all while hiding behind the veil of supposed social responsibility. Furthermore, an argument can be made that the revenue committed to homlessness would ultimately do little to help the issue. Gavin Newsom and his administration have already “budgeted a record $12 billion over two years for homelessness programs. The funding from the ballot initiative would add about 4% to that.” (Hiltzik) This is hardly a notable contribution, but disregard that fact for the time being. Even if the sum could significantly move the needle, the homelessness problem in California seems a complex one, and I am not sure the solution lies in throwing more money in the pile.
Criticism #2: Prop 27 Hurts Many Native Tribes
Sports gambling is an immensely profitable industry, and its legalization in California would likely generate billions of dollars in new revenue. Therefore, regardless of revenue allocation, it is reasonable to assume that both the state of California and large Gambling corporations benefit from Prop 27 in some capacity. So, if both of these entities stand to profit from sports gambling, even if the latter earns the lionshare, who sits on the opposing side? It turns out that the legalization of online sports betting could significantly hurt many Native Tribes across California. Currently, there are 80 tribal casinos in California which generated over 8 billion in revenue in 2021 (Reed). This revenue is vital to the survival of these tribes and is used to provide housing, healthcare, firefighting services, education and other services. If Proposition 27 is passed, the influx of new competitors in the gambling industry could take away a large portion of revenues that these tribes rely on. Furthermore, if tribes wish to participate in online sports gambling, they must give up many of the rights they are afforded due to their sovereignty.
Criticism #3: Proposition Opens the Door to Addiction and Child Gambling
In addition to the economic implications of Proposition 27, the social repercussions of legalizing online sports gambling must also be considered. Although millions safely and willingly participate, pathological gambling was the first non-substance behavioral addiction in the DSM-5 and has the ability to ruin lives (Mann). Gambling addiction is a serious issue nationwide, and it is even more concerning that “problem gambling rates are markedly higher in sports betting than other forms of gambling. In part that’s because sports gamblers tend to perceive their gaming as subject to their own skills rather than simply luck.” (Hiltzik) If Proposition 27 passes, it would essentially turn every online device into a mobile sports betting station. This increased access could lead to an uptick in the number of individuals with gambling issues across California. Additionally, the mass proliferation of online sports betting could introduce children to gambling on a much larger scale. Many companies already engage in predatory behavior through the use of pseudo-gambling features like micro-transactions in games, and legalizing online sports gambling could open the door even further.
Recommendations:
This guide is not meant as a lecture on how to vote, nor a means to influence in one direction or the other. Individuals have their own values, political affiliations, and opinions, and these ultimately serve as the foreground for any voting decision. Therefore, the information provided here should serve as a tool to come to an independent conclusion on Proposition 27.
Prop 27 In a Snapshot
YES to Prop 27:
- Allows licensed gambling companies and tribes to offer online sports betting to individuals 21 years of age and older.
- Companies and tribes must make payments to the state of California equal to ten percent of revenue generated. This money will be used to support regulatory costs as well as pro-social initiatives such as homelessness.
- Creation of a new online sports betting regulatory unit, and offers ways to reduce illegal sports gambling
NO to Prop 27
- Online sports gambling would continue to be illegal in California.
VOTE: A Voters Guide
Reasons to vote YES:
- You currently participate or plan to participate in some form of online sports betting
- Proposition 27 would legalize sports gambling across California
2. You see homelessness as an issue in need of further funding
- Eighty-five percent of payments to the state would go to address homelessness across the state
3. You seek further regulation and safety measures across the sports betting industry
- Proposition 27 would create a new regulatory unit to reduce illegal activity like match fixing fixing and increase safety for bettors
4. You are concerned about the vast illegal gambling industry and black-market activity
- Proposition 27 would reduce the need for illegal books and sites and further crack down on predatory activity.
Reasons to vote NO:
- You believe the California should receive a larger portion of all gambling revenue
- Currently, the state stands to receive only ten percent of gambling revenue. The rest would go to large gambling corporations.
2. You are a member of and/or worried about the negative effects on Native Tribes
- Proposition 27 would significantly decrease the revenue for tribal casinos
3. You believe that this could lead to significant increases in gambling addiction
- Sports gambling has been shown to be even more addictive than traditional gambling. Legalizing could exacerbate this problem
4. You believe that children are at risk
- Proliferation of gambling could introduce children to gambling at an earlier age and potentially lead children to gamble illegally.
Works Cited:
Fielkow, Justin. “The Present and the Future.” Gambling in America, 2004, pp. 175–188.,
https://doi.org/10.1017/cbo9780511510915.008.
Humphreys, Brad R. “An Overview of Sports Betting Regulation in the United States.” SSRN
Electronic Journal, 2017, https://doi.org/10.2139/ssrn.3074627.
Humphreys, Brad R. “Legalized Sports Betting, VLT Gambling, and State Gambling Revenues:
Evidence from West Virginia.” Eastern Economic Journal, vol. 47, no. 1, 2021, pp. 9–28., https://doi.org/10.1057/s41302-020-00178-0. \
Gouker, D. (2022, October 6). Sports betting revenue tracker — US betting revenue & handle by State.
Legal Sports Report. Retrieved October 12, 2022, from https://www.legalsportsreport.com/sports-betting/revenue/
Hiltzik, M. (2022, August 31). Column: Proposition 27 backers say it will solve homelessness by enabling
sports gambling. don’t bet on it. Los Angeles Times. Retrieved October 12, 2022, from https://www.latimes.com/business/story/2022-08-31/prop-27-solve-homelessness-sports-betting
LA GOV. Allows online and mobile sports wagering outside tribal lands. Initiative Constitutional
Amendment and statute. Proposition 27 [Ballot]. (2022, November 8). Retrieved October 12, 2022, from https://lao.ca.gov/BallotAnalysis/Proposition?number=27&year=2022
LA Times. (2022, September 11). Endorsement: No on Propositions 26 and 27. legalizing sports betting
stacks the odds against Californians. Los Angeles Times. Retrieved October 12, 2022, from https://www.latimes.com/opinion/story/2022-09-11/sports-betting-problems-solutions-vote-no-prop-26-prop-27-endorsement
Maese, R., & Guskin, E. (2017, September 26). Poll: For first time, majority of Americans approve of
legalizing sports betting. The Washington Post. Retrieved October 12, 2022, from https://www.washingtonpost.com/sports/poll-for-first-time-majority-of-americans-approve-of-legalizing-sports-betting/2017/09/26/a18b97ca-a226-11e7-b14f-f41773cd5a14_story.html?noredirect=on&utm_term=.175825724815
Mann, Karl, et al. “Pathological Gambling: A Behavioral Addiction.” World Psychiatry, vol. 15,
no. 3, 2016, pp. 297–298., https://doi.org/10.1002/wps.20373.
Matheson, Victor. “An Overview of the Economics of Sports Gambling and an Introduction to the
Symposium.” Eastern Economic Journal, vol. 47, no. 1, 2021, pp. 1–8., https://doi.org/10.1057/s41302-020-00182-4.
Minton, M., Lieberman, B., 09/21/2022, 09/17/2022, Young, R., &
09/15/2022. (2020, October 9). Legalizing sports betting in the United States. Competitive Enterprise Institute. Retrieved October 12, 2022, from https://cei.org/studies/legalizing-sports-betting-in-the-united-states/
Preciado, D. (2022, September 22). States where sports betting is legal. Forbes. Retrieved October 12,
Reed, K. (2021, September 25). How much demand is there for another north bay casino? The North Bay
Business Journal. Retrieved October 12, 2022, from https://www.northbaybusinessjournal.com/article/article/is-the-proposed-600m-sonoma-county-casino-a-financially-viable-bet-a-look/#:~:text=There%20are%20108%20tribes%20in,be%20%248%20billion%20a%20year.
Schlepp, T., & Wire, N. M. (2022, October 9). What is Prop 27? explaining California’s online sports
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