July 11, 2020

Special Report: California missing out on 2.5-billion market in tax revenue

Sacramento showdown proves a solution is nowhere in sight.

By Sophia Capaldi, California Business Journal.

Native American tribes and California legislators are not in much of a hurry when it comes to finding a solution to legalize online sports betting.

When members of the California Senate and Assembly met in Sacramento to discuss the issue on Jan. 8, virtually everyone agreed that there is a thriving black market happening in land-based establishments as well as over the phone and online.

The result? California is losing huge tax revenues, while other states are reaping the benefits of having put a legal framework in place. The public, for example, hasn’t had any problems using one of the best apps to place bets.

The research firm Eilers and Krejcik Gaming has assessed that the market of sports betting could be worth $2.5 billion per year in California — on the condition that mobile apps are available. Representatives of the state’s tribal casinos, card rooms and racetracks were present at the hearing.  “You could feel the obstruction in the room,” says Chris Grove of Eilers and Krejcik. “A solution is nowhere to be seen.”

The current annual revenue generated by the legal sports betting sector is $1B. This figure, Grove says, will reach $6bn by the end of 2023, as more states legalize the activities and the market reaches a mature phase. California has four NFL teams, four NBA teams, and five MLB teams, hence Eilers and Krejcik Gaming’s estimate of a $2.5B potential tax revenue per year.

Skepticism was the reaction of some lawmakers. “Taxes must be kept under the 20% mark. The average rate in states where legalization has been enforced is 19%,” Grove says.

The meeting in Sacramento was informal but integrity advocates and major sports leagues spokespeople were invited, along with some key representatives from other states. Spokespeople from the Major League Baseball and the National Basketball Association gave presentations to the attending lawmakers. A strong case for transparency and consumers’ protection was made by Oregon Lottery information officer Matt Shelby, who pointed out the advantages of a legally regulated market.

The two-thirds majority needed to modify the state constitution and approve a gambling related bill in California is a “mission impossible” without a large base of consensus among stakeholders. Why is it not there? State tribes are pushing to get exclusivity to offer legal sports betting, something that would leave card rooms and racetracks at a huge disadvantage. In November 2019, the coalition of the state’s tribes did put forward a proposal in this sense, opposite another proposal that does not contemplate exclusivity for tribal casinos.

A public ballot is needed to amend the constitution. It could take place in Nov. 2020, but before that, one or the other proposal will have to win the support of at least two-thirds of both the state Senate and the Assembly.


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