Behind the $400 million fight over sports betting in California

You’d think hundreds of millions of dollars could buy you just about anything.

But apparently, even nine figures might not be enough to legalize sports betting in California. Despite a record amount spent on the two gambling-related state ballot measures this campaign season, both Propositions 26 and 27 are trending toward defeat in the polls just before the election.

For an industry that could rake in over $2.8 billion per year from California bettors by some estimates, the stakes are quite high, needless to say.

With that much money potentially on the table for big betting corporations, along with it being the most expensive ballot measure battle in state history (more than $400 million collectively for and against), skeptics have concerns about what is behind all the claims being made.

The California homelessness problem

Prop. 26 would legalize in-person sports betting at tribal casinos, as well as allow dice and roulette games there. Prop. 27 would legalize online betting in California and is backed mainly by gambling websites like FanDuel, DraftKings and BetMGM, who have collectively contributed $95 million. As a whole, the industry spent $150 million on political ads.

Prop. 27 promises to help fight homelessness, mental illness and addiction in the state by taxing betting corporations and diverting those funds to the cause. Organizations in support of the legislation have focused heavily on that in their marketing.

But it hasn’t exactly been a lack of funding that’s held California back from finally making progress in its fight to end homelessness.

Billions of dollars have been spent to address homelessness over the past five years, but things have only continued to get worse. A recent report by the independent State Auditor said California’s spending on homelessness is “disjointed” and “has not fulfilled its most critical responsibilities.”

For example, in Los Angeles there is a $1.2 billion bond measure currently falling short of its promise to create up to 10,000 housing units for the homeless over the course of a decade. The projects continue to drag on as costs only get higher. This is according to a city audit from February 23.

A state audit from 2021 criticized the California Interagency Council on Homelessness for failing to track spending across the state, which was a big reason for its creation in 2017.

All this is to demonstrate that the main issue with the lack of progress in California’s fight against homelessness isn’t due to a lack of funding (the main thing Prop. 27 promises to provide) — it’s due, at least in part, to the shortcomings of the state government.

“We have a very challenging system and we’re trying to make it work,” Molly Rysman, chief program officer at the Los Angeles Homeless Services Authority, told NBC. The LAHSA coordinates spending and oversees housing and social services for sprawling Los Angeles County. “We do not have a well-oiled machine and that has become a real crisis in this county in terms of housing unhoused residents.”

Opponents of Prop. 27 say that fixing this system should take priority before dumping more taxpayer money into it.

Examining the fine print

Any company that wants to participate in California’s sports betting market would have to pay a $100 million licensing fee to the state to set up shop — that’s four times as much as the current highest licensing fee, New York’s $25 million.

“Remember it was drafted by lawyers hired by the seven companies that are bankrolling it,” said Kathy Fairbanks, spokesperson for No on 27. “So this isn’t something that the legislature put on the ballot. This is a ballot measure that they wrote to benefit themselves.”

While the regulation is supposedly in place to protect consumers, it clearly benefits big betting companies, setting impossibly high barriers to entry that smaller companies cannot pay.

Alex Kane, CEO of Sporttrade, a small Philadelphia-based betting company, said he thinks the bigger companies writing the initiative don’t want to face competition. “They’re looking at ‘what would we be willing to pay to get rid of competition altogether?’” he said. “You can see that it’s worth a lot of money to them.”

“The way Prop. 27 is written…the ballot measure identifies a 10% tax rate for the online companies that participate in California’s market,” Fairbanks said. “So obviously 90% is not going to California…Automatically 90% right off the top goes straight back to the companies and into their pockets.”

How things are faring

The latest Berkeley Institute of Governmental Studies (IGS) survey released last month showed Prop. 26 down by 11 percentage points and Prop. 27 failing by 26 percentage points.

“These results suggest that the sports wagering initiatives are foundering in the face of the opposition advertising campaigns,” said IGS co-director Eric Schickler in a statement. “The lack of support among key demographic groups makes passage of each an uphill climb at best.”

Over the past three years, nearly 40 states have introduced legislation to legalize sports betting, and 30 — most recently Arizona and Arkansas — have already passed the initiatives.

But in California, voters simply aren’t buying what the betting companies have been trying to sell.

“They’re promoting it as a solution to homelessness, but voters aren’t buying that,” said Fairbanks. “Voters don’t believe that funding for homeless programs is the only problem [with the fight against homelessness]. It’s government bureaucracy, it’s red tape, it’s all of that, none of which is considered in Prop. 27.”

Nathan Click, spokesperson for Yes on 27, told the Los Angeles Times that Prop. 27 has faced “over $100 million in misleading and false attacks — $45 million before we even qualified for the ballot.”

It’s because of the uncertainty and lack of understanding over the propositions themselves that many voters are simply voting no.

“I think I’m just gonna say no,” said Brian Mercado, a Los Angeles resident watching football at a local sports bar. “I don’t really understand all the fixing homelessness stuff…and I honestly feel like people can still [bet on sports] anyway. I do sometimes.”

Because of the sheer size of the untapped California betting market, it’s likely a matter of when, not if, some form of legalized sports betting makes its way into the state. The betting companies aren’t likely to give up on billions in potential profit. One DraftKings executive has even called California one of the industry’s “holy grails.”

According to I. Nelson Rose, author and emeritus gambling law professor at Whittier College, voters could even wind up seeing sports betting propositions on the 2024 ballot, and likely will if these ones fail to pass.

“The reality is they’re definitely going to try again if it doesn’t pass,” said Rose. “Some group is going to quickly start writing an initiative again.”