California sports-betting initiatives crushed at polls

Haley Hintze Author Photo
Haley Hintze
Posted on: November 09, 2022 06:20 PST

Two separate statewide voter referendums on legalized sports betting in California officially failed on Tuesday, effectively putting the state back at the starting blocks in regards to approving a popular gambling form that's already available in numerous other U.S. states.

The twin failures of the sports-betting measures were assured weeks ago in the face of massive negative sentiment by voters, leading the corporate backers of both initiatives to stop political spending on the measure. Proposition 27 alone generated the most expensive referendum-based advertising spend in American political history. The shocker, however, was how roundly both initiatives were panned by the voters in California, which is by far the U.S.'s most populous state.

Proposition 26 would have legalized live sports betting at select retail venues, almost exclusively inside the state's tribal casinos, plus some pari-mutuel outlets. With some votes still to be counted, Prop 26 failed by more than a 2:1 margin; the most recent tallies show the "No" side receiving over 70% of the votes.

Proposition 27, which would have legalized online sports betting, fared even worse, losing by roughly a 5:1. Just 17% of California's voters approved the initiative, which was funded and backed by several prominent American sports-betting firms, including BetMGM, DraftKings, and FanDuel.

Voters negatively impacted by industry warfare

Why the sports-betting measures failed so miserably on Tuesday is a case study in image mismanagement. The live-sportsbetting Prop 26 was championed by a hardcore group of casino-owning California tribal nations (and tacitly supported by many other tribal nations), who have long eyed the sports betting market, but only if the tribal casinos received de facto exclusivity in the state. As we reported in August, Prop 26 not only blocked California's card rooms from joining the live sports-betting market, it also secretly inserted a poison pill into its language designed to give the tribes extra-legal enforcement powers against the rooms.

The hardcore coalition used somewhat similar tactics against the Prop 27 backers, spending hundreds of millions of dollars on negative advertising designed to demonize online sports betting. The massive negative spend may have worked too well, in exposing the divisiveness and greed among all of California's would-be sports betting stakeholders. Numerous major news outlets declined to endorse either Prop 26 or Prop 27, and voters ended up rejecting both initiatives. California is the only one of seven U.S. states where voters have turned down sports-betting measures.

“I have never seen anything in my career that’s this big of a flop,” said Macquarie Group industry analyst Chad Beynon to the Financial Times. “If they barely managed 30 per cent [of votes] with hundreds of millions spent, how much more are they going to have to spend to get it passed? We are arguably further away from legal sports betting [in California] than we were before the campaign.”

Lessons not learned in immediate aftermath of propositions' failures

The divisiveness that marked the failures of both Prop 26 and Prop 27 remained on display when the initiatives' losses became official on Tuesday night. “These out-of-state corporations have gotten arrogant,” said Dan Little, chief intergovernmental affairs officer at the San Manuel Band of Mission Indians, to the Times. “They overplayed their hand — they could have worked with us and they didn’t — and they lost miserably.”

The San Manuel nation is one of the leaders of the tribal coalition that seeks to expand claimed sovereignty over certain gambling forms into sports betting. "It’s a direct attack on our tribal sovereignty," said Regina Cuellar, the tribal chairwoman of the Shingle Springs Band of Miwok Indians, to California's KCRA last month. However, sports betting is not currently among the forms of gambling allowed under the U.S.'s IGRA (the Indian Gaming Regulatory Act). That omission is largely historical, but federal legislators have not taken action to date to act upon tribal nations' claims in that sector.

The intersection between sports betting and tribal-gaming rights is already the subject of lawsuits in another populous U.S. state, Florida, where the Seminole Tribe briefly launched live sports betting services under an agreement with the state. However, lawsuits quickly forced the Seminole Tribe to halt those services pending the actions' resolution.

California's massive ballot-box failure also indicates that the best path forward remains negotiations within the state's legislature. However, as a decade's worth of failed negotiations involving California's possible legalization of online poker have shown, the various sides are entrenched in their positions and claims and remain at an impasse. All sides have ended up as losers. California's massive population remains frozen out of legalized gambling forms available in many other states, and both the would-be stakeholders and the state are missing out on much-desired revenue. An industry estimate by Eilers & Krejcik is that legalized sports betting in California would generate roughly $3 billion in annual revenue.