In November, California voters are being asked if they would like to bet on sports.
On the ballot will be two propositions on the subject. Proposition 26 would allow sports betting in person in tribal casinos and at the state’s horse racing tracks. It is sponsored by most of the Native American tribes in California and the racetracks. The second proposition, number 27, would permit remote wagering and is sponsored by FanDuel, DraftKings, and other online operators with the support of three tribes.
The success of either is in doubt. The issue is clouded, complicated, and confused by the wording in the propositions and the media campaigns. Supporters of the propositions are spending big bucks, possibly more than has ever been spent on a ballot initiative. The total has already reached $364 million, a royal battle indeed.
Why so much money? For the tribes, it is a matter of sovereignty; they want to protect the exclusive right to casino gambling and Proposition 26 would do that. Although a California tribe was responsible of the Indian Gaming Regulatory Act, it took more than 10 years before California tribes could open legal casinos. It was not an easy process. More than once, the tribes had to resort to a ballot initiative to gain their objective. In the end, the tribes were successful and as a result have built a very successful and profitable gaming industry. Estimates are that 70 Indian casinos in California generate $9 billion annually. While Proposition 26 would grant them the right to offer retail sports betting, it would keep out non-Indian operations, such as FanDuel and DraftKings.
For the supporters of Proposition 27, the stakes are also large. It allows the major mobile sports providers an opportunity to participate, along with the tribes, in mobile sports betting. California has nearly 40 million people and that is the key. Mobile wagering is a numbers game: The larger the population, the bigger the wagering pool. With 19.5 million people, New York currently generates the largest betting handle in the country, $1 billion a month. The number is likely to approach $2 billion in the heat of the NFL season. Revenue, meanwhile, is a function of handle, and since 2018, sports books have won approximately 7 percent of all wagers. New York is producing approximately $100 million per month in win. That number is also likely to double in the midst of the NFL season.
New York has approximately half as many citizens as California. Using New York as a model, California should generate somewhere between $2 billion and $4 billion a month in handle. The monthly win could be $200 million to $400 million. It is a significant amount of money, enough to spend $360 million fighting over. But those are Prop 27, mobile wagering, numbers. Under Prop 26, the numbers would be much smaller. Before mobile wagering was legalized in New York, the monthly handle was less than $20 million and the win less than $4 million. No one would put up much of a fight over those numbers.
The tribes are proposing retail sports betting and some additional table games. The addition would be nice, but not game-changing. The tribes are engaged in this fight to keep the likes of FanDuel out of California and to retain their semi-exclusivity. On the other side, supporters of Prop 27 are not fighting to keep the tribes out, they simply want a shot at those 40 million Californians. FanDuel and DraftKings have been phenomenally successful wherever mobile sports wagering is permitted. Between them, they have a 70-80 percent market share. In New York in July, FanDuel had a 43 percent market share and DraftKings 27 percent.
FanDuel and DraftKings have been fighting over market share since they burst onto the national scene in September 2015. In those early days, the two were fighting over new customers and spending more than they were making. In that first month alone, they spent $30 million or more on television advertising. But they said that someday, the profits would come. Today, FanDuel and DraftKings are still duking it out, now for the market share of the actual revenue. In the market-share fight, FanDuel is winning. In a recent announcement, the company claimed a 50 percent share of the mobile-wagering market, up from 41 percent a quarter earlier. Profits remain elusive, because the major companies are spending big bucks on advertising and bonuses for new players. In 2022, the sports wagering industry is on track to spend nearly $2 billion in advertising.
Twenty-one states have legalized mobile wagering, including the most populous. California is one of the last big plums to be plucked. Bringing California into the fold would be significant for the industry, but especially for DraftKings and FanDuel. It could also mean that the days of a net profit might be on the way and they could begin reducing those outrageous marketing expenses. However, plucking the California plum will not be easy.
The titles, wording, and advertising for the propositions are not exactly transparent. According to the website YesOn27, Proposition 27 is the California Solutions to Homelessness and Mental Health Support Act. Mobile betting revenue would be taxed at 25 percent and 80 percent of that would go to homelessness and mental health. “For the first time ever, Prop 27 will provide permanent funding for organizations like ours,” Rachelle Ditmore, cofounder of City of Refuge, says in one advertisement. “Saying yes to Prop 27 means more people get the assistance they need.”
The California Nations Indian Gaming Association disagrees, insisting Prop 27 supporters are attacking tribal sovereignty. The association’s chairman, James Siva, said, “Prop 27 jeopardizes Indian gaming and vital funding that both gaming and non-gaming tribes use to provide housing, healthcare, firefighting services, education, cultural preservation, and other services for our communities.”
The campaigns are expensive, disingenuous, acrimonious, and confusing. Most observers are calling for both propositions to fail. Voters are growing weary of the advertising and put off by the absence of clarity. But with a couple of months still to go, voters can expect to see hundreds of millions of additional dollars’ worth of advertising, each ad intended to discredit the opposition and further obscure the issues. It is a battle of kings and probably one destined to end in a royal failure.