Pandemic raises stakes on sports gambling measure

For the last two years, the legalization of sports wagering in California seemed like a sucker’s bet. A proposed constitutional amendment in the Assembly went nowhere with lawmakers in 2019, and a similar proposal this year was hardly sprinting ahead like Secretariat.

But with the sudden onset of the coronavirus playing havoc with both ballot measures and the state budget, it might be game-on for legalized sports gambling in 2020 after all.

Nobody is claiming that the tax revenue gleaned from sports betting alone could overcome a deficit like what Newsom is predicting, but it is not inconsequential.

“Right now, we still don’t even know the full depth of this crisis,” says former Assemblymember Lloyd Levine, a Democrat who represented the 40^th Assembly District between 2002 and 2008. “But we do know we’re chewing up our budget surplus at the same time our tax revenues are way down across the board. This is going to be a huge challenge across all government, and it’s going to force a change of perspective and it’s going to force a lot of creativity.”

Levine is intimately familiar with that kind of challenge. He entered the Assembly in one of the worst budgetary years the state has ever faced, with a shortfall of almost $35 billion. And with Gov. Gavin Newsom preparing a May budget revision that he has indicated will have a deficit in the “tens of billions of dollars,” it appears the current crop of lawmakers will soon be faced with the same challenge Levine and his colleagues were faced with in 2002.

Enter the possibilities of ACA 16, a proposed constitutional amendment authored by Assemblymember Adam Gray and Senator Bill Dodd that would allow lawmakers to legalize sports wagering in California. While nobody is claiming that the tax revenue gleaned from sports betting alone could overcome a deficit like what Newsom is predicting, it is not inconsequential.

Tax revenues have varied greatly for the states that have legalized sports wagering since the U.S. Supreme Court cleared the way for them to do so in May of 2018.

Estimates of the real value of sports betting in America are all over the place.

NBA Commissioner Adam Silver has thrown around a figure as high as $400 billion, while the American Gaming Association pegs the figure at closer to $150 billion. But both figures are guesses at the total amount bet rather than the revenue left over after payouts on those wagers. Gaming industry analyst Chris Grove of Eilers & Krejcik Gaming in Irvine says the real figure is around $17 billion in gross annual revenues.

That is of course what matters most to state and local officials because that is where the tax dollars come from.

Tax revenues have varied greatly for the states that have legalized sports wagering since the U.S. Supreme Court cleared the way for them to do so in May of 2018. According to the Legal Sports Report website, which tracks sports gaming data from around the country, at least 18 states have legalized sports wagering in some form or another since then. New Jersey was first out of the gate, with legal betting starting there that June.

Grove pegs revenues at $3 billion a year, which if true would produce hundreds of millions of dollars a year in tax dollars for state coffers.

Since then, Garden State residents have made over $6 billion in bets on sporting events, sending a cool $61 million in tax revenues into state and local coffers through January of 2020. Meanwhile, Pennsylvanians made just over $2 billion in sports bets but generated over $41 million in tax revenue.

Those are the top figures in the country, better even than Nevada, which has one of the lowest tax rates in the nation. Over $8 billion in sports bets there produced only a bit over $36 million in tax revenue in that same time frame.

So how much would legalized sports gambling be worth to California, long considered the biggest untapped market in the nation? Grove pegs revenues at $3 billion a year, which if true would produce hundreds of millions of dollars a year in tax dollars for state coffers. Just how much would depend on the tax rate applied to those revenues.

“Online accounts for around 85 percent of all the sports betting revenue generated in the country.” — Chris Grove

But Grove warns that not all betting is created equal. The states with the largest amount of revenue from sports betting allow online wagering through a variety of venues, but most notably via phone apps and websites. Lower revenue states like New York and Mississippi don’t allow online bets, requiring fans to head to a tribal casino, an independent sportsbook or lottery retailer. Not surprisingly, those states make a fraction of the dollars that New Jersey, Pennsylvania and Nevada haul in.

“Online accounts for around 85 percent of all the sports betting revenue generated in the country,” Grove says.

A lack of an online component is one of the more controversial elements of a proposed ballot measure sponsored by a coalition of tribal casinos that once looked well on its way to qualifying for the November ballot. That measure would not only cut out the state’s non-tribal card rooms, race tracks and lottery retailers, it would also freeze out online betting app companies like Draft Kings and Fan Duel.

A two-thirds majority would be needed to pass ACA16 and put it before voters.

With almost a million signatures gathered by early March, the measure seemed to be a shoo-in to make the ballot. But with the COVID-19 pandemic shutting down paid signature collection and Newsom declining entreaties from several ballot efforts to extend the April 21 deadline, it seems unlikely the tribal initiative would appear before the 2022 ballot.

Which is what will make the future of ACA 16 interesting to watch. Some lawmakers in the past have shown skepticism over rosy revenue projections, while anti-gambling advocates contend it could create a new generation of gambling addicts.

A two-thirds majority would be needed to pass the measure and put it before voters. The question now is, will the proposal stay in its current form – which is sans any details of how the system would work – or will lawmakers take the opportunity to craft a more complete proposal?

That is all to be determined, but Gray spokesperson Adam Capper says history is the wild card now.

“Some members of the current Legislature have never had to deal with a large budget deficit before,” he says. “The revenue element of this could become much more critical now.”

The depth of the impending budget hole will likely have a lot to do with how members see the issue whenever it finally comes before them again.

One train of thought is that a delay would not necessarily be a bad thing if it gives the various competing parties a chance to keep working on a compromise solution that will everyone a chance to get a cut of the action. But Grove says more time is not likely to foster any more compromise, and in fact would likely produce just the opposite condition.

“A delay just gives everyone more time to dig in, and frankly it just makes all the stakeholders a little more desperate and maybe a little less willing to compromise than they would be otherwise,” he says.

The depth of the impending budget hole will likely have a lot to do with how members see the issue whenever it finally comes before them again. Levine likens it with how fast the state moved to repair the I-10 freeway in Los Angeles after the 1994 Northridge earthquake. If the freeway had still been usable, he says, lawmakers would have had the chance to debate all the various possibilities for replacing it – building a double decker or perhaps running a light rail system down its middle. But with the freeway in rubble, lawmakers didn’t have that luxury.

“Almost any crisis will force more immediate action,” Levine says. “You look at a situation like that, acknowledge that it’s terrible – because it really is terrible – but then you have to put that aside and just get to work on solving the problem. You just have to get things done.”