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Online Sportsbooks Remain Committed to California Despite a Pasting at the Polls

Online Sportsbooks Remain Committed to California Despite a Pasting at the Polls

Voters in California overwhelmingly rejected a ballot measure seeking to legalize online sports betting when they headed to the polling booths this week. More than 83% of Golden State residents voted “no” to Proposition 27, which was backed by leading online sportsbooks including FanDuel, DraftKings and BetMGM. It was a bruising defeat for the Yes on 27 campaign, but spokesperson Nathan Click said they would not abandon efforts to legalize online wagering in California.

“Our coalition knew that passing Prop 27. would be an uphill climb, and we remain committed to California,” said Click. “This campaign has underscored our resolve to see California follow more than half the country in legalizing safe and responsible online sports betting. Californians deserve the benefits of a safe, responsible, regulated, and taxed online sports betting market, and we are resolved to bringing it to fruition here.”

However, it remains to be seen if the sportsbooks will be willing to pour millions of dollars into future campaigns after suffering such a comprehensive rebuke. Dan Schnur, a Professor at the University of California – Berkeley’s Institute of Governmental Studies, said the campaign “might go down in history, in the Michael Bloomberg Hall of Fame,” referencing the media tycoon’s failed $1 billion bid for a presidential run in 2020. Schnur, who advocates for campaign finance reform, said he could not recall a single campaign that secured a smaller percentage of the vote after spending so much money. “This is the worst I can remember,” he added.

A Long and Bitter Fight Ends in Defeat for Both Sides

Californians were met with ballot measures from two rival coalitions when they went to the polling booths this week. Proposition 26, created by a large group of tribes in the state, would have restricted sports betting to retail lounges at tribal casinos and horse racing tracks, with online sports wagering prohibited. The rival measure, Proposition 27 – backed by FanDuel, DraftKings, BetMGM, Wynn, Penn National, Bally’s and Fanatics – would have permitted online sports betting across California, bringing it in line with neighboring states Arizona, Nevada and Oregon.

However, a bitter war of words erupted between the two sides. The tribes backing Prop. 26 referred to Prop. 27 as the “Corporate Online Gambling Proposition,” and they invested heavily in ads attacking the campaign, urging Californians to vote for Prop 26 instead. The Yes on 27 campaign started to fight back, and it bankrolled a major ad campaign fronted by Jose “Moke” Simon chair of the Middletown Rancheria of Pomo Indians, who said Prop. 27 would “protect our sovereignty and also create opportunities for economic wealth for the next seven generations for our tribe.”

The online sportsbooks’ measure, Prop. 27, would have required them to team up with tribes for market access, handing them a portion of the revenue. Any tribes that did not take part in the gaming industry would have been awarded grants, so some tribes favored Prop. 27. To make matters even more complicated, California’s card rooms launched their own offensive against Prop. 26, arguing that the measure would increase the power of wealthy tribes and grant them a virtual monopoly on gambling in the state. It would also have allowed casinos to offer roulette and craps.

Everybody Loses in a Nuclear War

In the end, the warring factions spent around $460 million promoting their measures and attacking the rival measures. The online sportsbooks stumped up roughly $170 million for their campaign. A coalition of tribes that created the No on 27 committee raised $116 million to see it defeated. A separate coalition of tribes behind the Yes on 26, No on 27 campaign raised $128 million, and most of it went on pouring scorn on Prop. 27. Finally, two groups funded by California’s card rooms spent $44 million attacking Prop. 26.

Spending on the rival propositions eclipsed spending on the crucial Senate races in Georgia, Arizona, Wisconsin and Nevada during the build-up to the midterms, according to an ad-tracking company called AdImpact. They spent more on TV ads than Hillary Clinton did during her entire presidential bid. Voters were bombarded with a series of conflicting messages throughout the fall. When that happens, both measures normally fail. 

“Whenever we have dueling ballot measures, and the competitors have an arsenal of dollars... the competitors will go nuclear, and in a nuclear war, everybody loses,” Professor David McCuan, chairman of the political science department at Sonoma State University, told the Associated Press. “The most powerful money in California politics is on the ‘No’ side of ballot measures. What California voters object to is the vulgarity of having campaign ads thrown in their face at every turn. It has that backlash effect.”

What Next for Legal Sports Betting Measures in California?

In the end, just 16.7% voted yes to Prop. 27 and 83.3% opposed it. Prop. 26 did not fare much better, as it was rejected by 70.1% to 29.9%. “I think we all expected Propositions 26 and 27 to go down,” said Fernando Guerra, a political science professor at Loyola Marymount University. “But to go down by the margins it did, with the money spent, it’s pretty incredible.”

It begs the question: where do the sportsbooks go from here? They were met with fierce resistance by powerful, highly-funded tribes, and they simply canceled one another out. It does not bode well for future efforts. “When you have two competing initiatives that are so confusing that people don’t know what’s going on, so the voters say, ‘A pox on both your houses,’” said Daniel Weiner, the director of the elections and government program at the Brennan Center for Justice at New York University’s School of Law.

It is unlikely that online sportsbooks such as DraftKings, FanDuel and BetMGM will ever succeed in passing a ballot measure without negotiating with the tribes. If they could reach a compromise, they may be successful in convincing Californians to vote yes on a joint measure. Bill Dodd, a Democratic state senator from Napa, has offered to broker an agreement between both sides.

Offshore Sportsbooks are the Big Winners

Another option would be to eschew the ballot process and work with the state legislature, urging it to pass a law permitting sports betting. That is the route many states have gone down. Legislators could also pass a constitutional amendment, which would then be put to the voters. In the meantime, the biggest winners are offshore sportsbooks, who will continue to dominate online sports betting in the largest market in the United States.

“Californians are currently placing billions in bets each year on illicit offshore sport betting websites — unsafe and unregulated enterprises that offer no protections for minors or consumers and generate no support for state priorities,” said Click. “Dozens of states and countless local governments are benefitting from the significant tax revenue that online sports betting provides, and as California faces tax revenue declines and uncertain economic headwinds, online sports betting can provide substantial solutions to fill future budget gaps.”

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