Should California Legalize and Tax Sports Betting? Voters Could Decide

Sports bettors place wagers at a casino on June 5, 2018 in Delaware, the first state to launch legal sports betting since a Supreme Court decision allowing it. (Mark Makela/Getty Images)

California legislators are unveiling details of a proposal to legalize sports betting through an initiative they plan to place on the November ballot.

With the state potentially facing billions of dollars in budget cuts, supporters of legal sports wagering are doubling down on their argument that taxing bets will provide a new revenue stream for the state.

"Raising money from as many sources as possible so we can make fewer cuts to this already devastated budget is so incredibly important," said state Sen. Bill Dodd, D-Napa, the proposal's author, in an interview. "Sports betting in the state of California is in the billions of dollars right now, and it's totally untaxed."

Nationally, the American Gaming Association estimates that $150 billion is bet illegally every year through bookies and apps based offshore.

Under Senate Constitutional Amendment (SCA) 6, the details of which were released on Thursday, Californians could legally place sports bets at Indian casinos and horse racing tracks.

Importantly, bets could also be placed online, or through mobile apps. Those online wagers could make up more than 85% of the betting in California, according to estimates from Eilers & Krejcik Gaming, a research firm focused on the gambling industry.

Betting on regular-season games involving California public universities would not be allowed, Dodd said.

SCA 6 would place a 10% tax on bets placed in person and a 15% tax on bets placed online.

Twenty states have already authorized sports gambling, with an average tax rate of 19%, according to Chris Grove, a partner with Eilers & Krejcik.

"As you move tax rates above that threshold, your ability to capture demand from the illegal market drops off disproportionately," Grove told legislators at an informational hearing in January.

If SCA 6 is able to move through the Legislature in the next month it could appear on the November ballot.

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Supporters hope their argument to bring sports gambling out of the shadows will be bolstered by the promise of new tax revenue.

They estimate an additional $500 million to $700 million could flow from the new taxes every year – relatively small compared with the state's estimated $54 billion deficit – but not insignificant either.

"We can put an end to this black market and restore critical public funding – that's a win-win," said Assemblyman Adam Gray, D-Merced, the measure's co-author, in a statement.

A competing measure to legalize sports gambling is already moving toward the November ballot.

That plan, supported by a handful of California's most powerful Indian tribes, would only allow bets to be placed in person at tribal casinos and racetracks.

The Legislative Analyst's Office says the potential revenues from that proposal "could reach the tens of millions of dollars annually," considerably less revenue than the Legislature's version.

The tribal proposal goes beyond sports wagering: It would allow the introduction of craps at tribal casinos, and it would also make it easier to bring civil lawsuits against violations of state gaming laws. That provision is seen as a way for tribes to sue card rooms for offering games that resemble blackjack, which is currently not allowed in card rooms.

The constitutional amendment released Thursday seeks to strike a compromise: It would allow tribal casinos to offer craps and roulette, while also clarifying the ability of card rooms to continue to offer games they are allowed to play.

Card rooms, including Bay 101 Casino in San Jose, have signed onto Dodd's proposal – but it's unlikely the plan will have support from the state's largest tribes, at least initially.

Dodd said the disagreements between card rooms and casinos over gaming rules will the biggest hurdle to getting his proposal through the Legislature.

"This is like trying to solve Middle East peace, to bring peace between the card rooms and the tribes," Dodd said. "We're giving it our best shot."