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Post: : The record-breaking bet on sports gambling in California faces long odds

Two dueling ballot initiatives to legalize sports betting in California have wagered more than $400 million on their campaigns, but with a month to go until voters decide, the resulting ad blitz does not appear to have tilted the odds in their favor.

Proposition 26 would legalize sports gambling at tribal casinos and four racetracks, and Proposition 27 would allow for online sports gambling. Big Native American tribes that manage most of California’s casinos, such as the Federated Indians of Graton Rancheria, Pechanga Band of Indians and others, put Prop. 26 on the ballot. Companies that have been fighting for new markets amid a wave of sports-betting legalization in the nation, such as DraftKings
DKNG,
+3.30%

and Flutter’s FanDuel
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+0.04%
,
have been pouring money into Prop. 27.

The prize would be access to the world’s fifth-largest economy, a potentially multibillion-dollar market. But the campaigns so far have shown ads that say little about sports gambling, instead focusing on directing potential proceeds to homelessness, or research into gambling addiction and mental health, as well as issues regarding Native American tribal sovereignty.

Recent polls have shown that only about a third of Californians plan to vote for either proposition, leading the online-gambling campaign to change tactics and the campaign backed by most of the tribes to double down. Prop. 26’s backers hope to contain sports gambling to casinos, and they to continue to attack Prop. 27.

Kathy Fairbanks, spokeswoman for the Prop. 26 campaign, said the “tribes’ priority has always been to defeat Prop. 27.”

The promises and the numbers

Proposition 27, also known as the Legalize Sports Betting and Revenue for Homelessness Prevention Fund Initiative, promises to direct 85% of a 10% tax on sports-gambling revenue to a state homelessness and housing-assistance program, which it emphasized in its online, radio and TV ads.

Many housing and homelessness advocates are skeptical or even downright dismissive of those promises.

The Prop. 27 campaign is “literally saying in their commercials that they’re offering permanent solutions to mental health and homelessness,” said Paul Boden, head of the Western Regional Advocacy Project, a group that advocates for affordable housing in San Francisco. “What the [expletive] are you talking about?”

Boden said “we’ve lost [hundreds of thousands] of affordable-housing units in the past eight years. Your getting in on online gambling is going to fix that?”

Abram Diaz, policy director for the Non-Profit Housing Association of Northern California in San Francisco, said his group examined both propositions and is neutral on Prop. 26. But Prop. 27’s use of homelessness “as a key issue to try to advance [its] proposition” worried the group, he said. “We know in our work just how time- and money-intensive creating true permanent solutions can be.”

The campaign does have a few housing and homeless advocates on its side, including the San Diego Regional Task Force on Homelessness. Prop. 27 “will unlock additional dollars for homelessness that aren’t available without it,” said Tamera Kohler, chief executive of the group, in a statement.

Prop. 27 backers DraftKings Inc., FanDuel and Fanatics, and the digital arms of casino operators Penn Entertainment Inc.
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-3.82%
,
Bally’s Corp.
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,
MGM Resorts International
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and Wynn
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did not return or declined comment, directing MarketWatch to Nathan Click, a spokesman for the Prop. 27 campaign. He told MarketWatch that the measure would bring “a permanent funding source in the state budget for homelessness intervention. That’s ongoing money.”

After recent poll results, Click said the Prop. 27 campaign is pulling back on TV ads, which he said “was not benefiting either side,” and would focus instead on more direct communication with voters. The Public Policy Institute of California showed that 54% of residents were likely to vote no on Prop. 27, while 34% said they would vote yes. Prop. 27 fared even worse in a subsequent Berkeley IGS poll: 53% said they would vote no vs. 27% who said they would vote yes.

More recent ads have shifted focus, especially on early broadcasts of the NFL season: Now its backers are urging Californians to simply vote to be able to gamble on your phone, which is already legal in many U.S. states

The California legislative analyst’s office estimates that if passed, Prop. 27 could bring in hundreds of millions of dollars in additional revenue to the state. Prop. 26’s casino-based gaming approach would bring in less — about tens of millions of dollars in revenue — for the state, the legislative analyst estimates.

Fairbanks, the Prop. 26 spokeswoman, said that estimated amount would be in addition to the approximately $5 billion that gaming tribes share with local, state and federal governments every year. As sovereign nations, tribes don’t pay state taxes — instead they pay local and state fees based on revenue — so revenue from increased gambling at casinos would not be taxed. But the campaign promises to direct 15% of revenue from a 10% tax from sports betting at racetracks toward research into problem gambling and mental health.

Fairbanks also said “we are focusing all our resources on educating voters about why they should reject Prop. 27 and have not done any Prop. 26 ads.”

The state’s biggest tribes have outspent the big gambling companies on television ads, according to records filed with the secretary of state. Most of the money spent on the ads in airtime and production costs so far — about $116 million — have been pro- Prop. 26 and anti-Prop. 27. It hasn’t helped Prop. 26 much, either: The Berkeley IGS poll found that 42% of those surveyed plan to vote no vs. 31% who said they would vote yes. But the poll also found that 53% of voters viewed the gaming tribes favorably, while only 14% viewed the companies that operate sports-betting sites favorably.

The American Gaming Association, whose members include tribal casinos and commercial casino operators — in other words, backers of both campaigns — estimates that California’s tribal casinos generated about $8.4 billion in revenue in 2016, and that their annual revenue-sharing impact on local and state governments was about $3.5 billion.

By comparison, $152 billion has been wagered in 25 other states and Washington, D.C., since the legalization of online sports betting in 2018, according to publicly available data cited by Legal Sports Report.

Effects on tribes

Advertisements for both sides have also focused on tribes, including early ads in which the Prop. 27 campaign said smaller tribes would benefit more from its initiative. Joely Proudfit, director of the American Indian Studies Department at California State University San Marcos, said she views Prop. 27 as a threat to most of the state’s tribes — the gaming tribes that are behind Prop. 26.

“As a voting California citizen, as a Native woman, it’s very disturbing that [Prop. 27’s] proponents are investing in fake storytelling to deceive people,” Proudfit said, referring not just to promises being made by the campaign but also its claims that Prop. 26 leaves smaller tribes out. She said gaming tribes have shared $1 billion in revenue with smaller tribes since 1998, contrary to what Prop. 27’s ads say.

She also called the measure an “insidious attack on tribal sovereignty.”

“Tribal government gaming has been the only real economic engine to help bring tribes out of abject poverty,” Proudfit continued. “We want tribes to continue to be self-sustaining… Prop. 27 would undermine what they have been building for decades.”

Representatives from the two tribes listed as proponents of Prop. 27, Big Valley Rancheria and Middletown Rancheria, did not return requests for comment.

The Indian Gaming Regulatory Act established a federal gaming structure in 1988, legalizing limited forms of gambling, such as bingo, on tribal land. In 1998, California voters approved Proposition 5, which a year later made way for the formation of gaming compacts between the state and tribes, and allowing additional types of gambling, such as slot machines, in tribe-owned casinos.

The issue of problem gambling

Advocates and others question whether the potential additional revenue will outweigh their concerns about the possible harms of allowing more gambling, no matter what the form. Harold of Gamblers Anonymous in Northern California, who prefers that his last name not be used, said his organization does not take political positions but that he is personally against both propositions.

“This could be the biggest cash cow ever,” he said. “And it’s going to be on the backs of people.”

As a recovering gambling addict who hasn’t placed a bet in 26 years, the rise of mobile gambling especially makes him worry.

“There’s already a proliferation of gaming that people can do on their cell phones without [Prop. 27] passing,” he said. “We’re seeing an uptick of people coming in, particularly young men.”

Timothy Fong, a medical doctor who is co-director of the UCLA Gambling Studies Program, said a 2006 statewide survey on which the program was a consultant found that 1% of Californians have a gambling problem, and 4% have struggled with gambling at some point in their lives.

“So we’re going to raise more money by [adding more] gambling,” Fong said. “Then we’re going to put more money into treating the problem we just created.” Still, he said gambling is going to happen whether or not it’s regulated by the state.

He also expressed concern about how online-betting operators would ensure that children don’t place bets. “In person, you say no to someone who’s not 21,” Fong said.

Click, the spokesman for Prop. 27, said the measure requires “that every operator use state-of-the-art, know-your-customer technology,” like the kind that big financial institutions use to check ID.

Fong also said regardless of what happens with the ballot initiatives, funding for gambling problems should be part of the state’s general budget: “Just like traffic, air quality, potholes, schools and the water supply, all of it has to do with the quality of life in California.”

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