Legalizing sports betting could help with the damaged California economy

  • California is now facing a $50 billion budget deficit because of the economic effects of COVID-19 and is looking at legalizing sports betting to help offset the damage.
  • Legislators have finally set operating conditions for the existing sports betting bills, although they still must be passed in the Legislature and then again in November via voter referendum.
  • New provisions in the bill have drawn the ire of California’s tribal gaming organizations for infringing on tribal gaming sovereignty by legalizing nontribal card rooms.
  • There are issues with California’s legalization measures, but with hundreds of millions of dollars at stake, expect all involved parties to reach a reluctant compromise.

SACRAMENTO, Calif. – California is facing a $50 billion budget shortfall because of the COVID-19 pandemic, and state legislators are looking at legalizing sports betting as a way to generate badly needed revenue.

In 2019, two California legislators created constitutional amendment bills that would allow citizens to vote via referendum on whether or not to legalize sports betting.

These bills were mothballed for the better part of a year, but have now gained traction with other California lawmakers in response to the ongoing economic crisis.

The Legislature has begun to outline the exact details of sports betting implementation. While most aspects of implementation are relatively standard, two components could prove to be problematic:

The bill as proposed would officially authorize cardrooms to continue operating unabated. Licensing fees would top $5 million and $1 million in annual renewal fees for online wagering.

If California is going to pass these bills— ACA 6 and ACA 16 – it will need the full support of tribal gambling groups.

Although this bill gives exclusive online and retail sports betting rights to tribal gaming facilities, it also serves as a functional acknowledgment that card rooms have been operating illegally for two decades.

All house-banked card games like blackjack are legally meant to be the exclusive domain of tribal gaming bodies, and they likely won’t offer their support unless this provision is changed.

Additionally, the high licensing fees would serve to limit the companies that could afford to enter the market, stifling competition and limiting industry growth.

If these bills pass, they will need to win a two-thirds vote of the state’s citizens in November. That will prove difficult without the support of all relevant parties.

California Sports Betting Revenue Projection

Regardless of the exact nature of implementation or its potential flaws, legalizing sports betting would undoubtedly be a huge boon for the California economy.

Senator Bill Dodd, who authored the bills, estimates that it would generate $700 million for the state annually. That figure is a pipe dream at best, but something in the $300-400 million range is possible.

Based on an LSB revenue projection model, California sports betting revenues for the first full year of operation would likely look like this:

  • Handle: $5.9 billion
  • Revenue: $406 million
  • Taxes: $56.9 million ($48.7 million online + $8.1 million retail)

Keep in mind this only covers taxes on the revenue generated by sportsbooks.

Individuals’ gambling winnings would also be taxed via state income tax and licensing fees alone could generate tens of millions of dollars in the first year of operation.

Legalizing sports betting won’t singlehandedly solve California’s budget crisis, but it could put a sizable dent in the budget deficit and help the government avoid crucial cuts to healthcare, public education and environmental protections.

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