California Sports Betting Update: Cardroom Plan Tax Rate Down to 15%

Posted on: October 3, 2021, 10:57h. 

Last updated on: October 3, 2021, 12:08h.

A proposed measure to legalize sports betting statewide pushed by a coalition of leaders from California cities has been amended with a reduced tax rate. However, a legislative analyst’s report to state Attorney General Rob Bonta noted that tax collections still could increase to the point a constitutionally mandated appropriations limit is reached.

California sports betting
Matthew Stafford of the Los Angeles Rams celebrates as he leads the team to a win over the Chicago Bears in the Sept. 13 season opener. Next year, voters in California will get a chance to decide whether to legalize sports betting in the state, and proponents of one measure that could make the ballot have amended their plan by reducing the tax rate. (Image: NFL.com)

On Friday, Gabriel Petek issued a five-page report to Bonta. The report indicated that the California Sports Wagering and Consumer Protection Act put forward by Cities for Responsible Gaming may increase revenues by “the mid-hundreds of millions of dollars” each year. Petek noted not all of that revenue may be new funding to the state.

However, some of this revenue increase to certain local governments could be partially or fully offset by decreased revenues,” the analysis read. “For example, given the significant expansion of non-tribal gaming activities, renegotiated tribal-state compacts could result in reduced tribal payments to local governments.”

Regulatory costs would also increase, naturally, as gaming is expanded in the state. That cost could run in “the high tens of millions,” Petek stated. That is contingent on how the state implements and regulates sports betting. Some costs would be offset by the increased revenue, or payments made by tribal entities based on their compacts with the state.

Under the proposed measure, the state-licensed cardrooms and racetracks, as well as tribal nations with valid gaming compacts and California’s major professional sports teams would be allowed to offer retail and online sports betting. If approved, the state’s constitution would be amended to legalize the gaming opportunity as of Jan. 1, 2023.

California currently has four thoroughbred tracks, 66 tribal casinos, and 86 cardrooms.

Sports Betting Revenue Could Have Cap Implications

The amended version of the measure would tax gross sports betting revenue at 15 percent. When Cities for Responsible Gaming first submitted its proposal to Bonta in mid-August, it listed the tax at 25 percent. The amendment was offered during the 30-day comment period, and the initiative’s backers said it was “reasonably germane” to their intent.

Licenses would initially cost $5 million to start offering sports betting, with renewals costing $1 million every four years.

Supporters of the measure call for revenues generated by sports betting to cover costs associated with public education, the state’s homeless crisis, affordable housing, and mental health. The state treasury would create a special fund to collect those tax dollars.

However, Petek said the tax dollars generated by sports betting could lead to the state exceeding its annual constitutionally mandated appropriations cap. That mandate puts restrictions on the amount the state can spend, excluding allocations for infrastructure and emergencies. The constitution gives the state two options when revenues exceed that cap: it can either issue rebate checks to taxpayers or allocate more funding to schools.

Besides the 15 percent tax, licensed sports betting operators would also dedicate 1 percent of their gross gaming revenue to fund problem gambling programs. The measure caps the amount collected at $10 million annually.

Cardroom Measure Would Also Add Other Gaming

In addition to allowing sports betting, the initiative would also allow roulette and craps at tribal casinos. It would also allow additional card games, like blackjack and baccarat, in California’s state-licensed cardrooms, as long as they’re not banked by the house. Currently, cardrooms in the state offer offshoots of those games.

The measure, if approved by voters, would amend the state constitution to define a banking game as those in which patrons play against the house, rather than each other. It also includes language that banking games exclude cardroom games where licensed third parties are hired by those establishments and can take action from other players.

“The use of licensed third parties generally reflects existing cardroom practices,” Petek wrote.

Three May Be a Crowd on California Ballot

The Cities for Responsible Gaming-sponsored measure is one of three sports betting proposals that could be on the California ballot in November 2022.

One initiative backed by tribal entities has already been approved by the state, as its sponsors secured the 997,139 valid signatures needed earlier this year. That measure would allow sports betting in brick-and-mortar sportsbooks only at tribal casinos – with an amended state-approved gaming compact – and at the state’s four licensed racetracks. The initiative would also allow Class III tribal casinos to offer roulette and craps as well.

The Cities measure states that if more than one gaming initiative appears on the 2022 ballot and they conflict with one another, then the measure with the most yes votes would be the measure enacted.

There is though yet another measure that’s before Bonta. In late August, an initiative sponsored by seven major sportsbook operators was filed for review. It, too, would allocate funding for mental health and homelessness programs across the state. However, it would limit sports betting to online operators that pay an initial fee of $100 million to operate in the state and tribal gaming entities that pay a $10 million upfront fee. For tribal entities, they would be allowed to offer online sports betting across the state under the name of their casino as of July 1, 2021.

That initiative would tax online operators at 10 percent of their adjusted gross revenues, with 85 percent going to homeless and mental health issues. The remainder would be allocated for tribal economic development.

Backers of the California Solutions to Homelessness and Mental Health Support Act say their measure would not conflict with the tribal-backed proposition already on the ballot. The 30-day comment period ended for that proposed measure on Thursday. It’s uncertain if it received any proposed amendments, or if backers will make any changes to the measure.

Deadlines for Sports Betting Petition Drives

Both the California Sports Wagering and Consumer Protection Act and the California Solutions to Homelessness and Mental Health Support Act await state approval to begin collecting signatures. Like the tribal measure, supporters from both will need to gather 997,139 valid signatures from registered voters.

In order to qualify for the Nov. 8, 2022 election, California Secretary of State Dr. Shirley N. Weber must decide by June 30, 2022, if a measure met the signature threshold. Under the recommended timeline offered by April 26, 2022, is the final day supporters of either measure could submit their petitions to elections officials in the state’s 58 counties.

California Horsemen Being Proactive

In a newsletter to members Saturday, the Thoroughbred Owners of California (TOC) Chairman Gary Fenton said the organization is working with the tracks. The goal is to determine how revenue tracks receive from sports betting would be shared. Racing stakeholders in the state have been hopeful that revenue from sports betting could generate enough funds to boost purses for live racing and help attract more horsemen to Del Mar, Golden Gate Fields, Los Alamitos, and Santa Anita Park.

Fenton added that TOC CEO Greg Avioli and Vice Chairman Bob Liewald have also held conversations with supporters of the other two measures. They also talked with state lawmakers and officials from Gov. Gavin Newsom’s office regarding the topic.

“We anticipate a number of twists and turns in the coming months and will keep the membership updated as new events unfold on this potentially lucrative endeavor,” Fenton wrote.