California holds first hearing to consider sports betting legalization

California state Senate held a joint meeting Wednesday with the California Assembly to collect information from the legalized gambling industry, integrity advocates and representatives from sports leagues including the National Basketball Association (NBA) and Major League Baseball (MLB).

From the hearing, first one on the matter since PASPA's repeal in 2018, there was a consensus over betting on sports currently happening, whether bettors use an old-fashioned bookie or a new-fangled platform like offshore gambling sites, and providing a legal alternative protects the integrity of the sports leagues, guards consumers and confers a higher degree of transparency on an industry currently shrouded in shadow.

“A regulated market is the surest way to ensure the highest integrity standards,” said Jake Williams of Sportradar, as reported by Courthouse News Service. One of the ways a legal market provides transparency is that data analyst sites like Sportradar, which are provided data, can immediately discover potentially illegal activity by identifying bets being piled up on a given side or on an obscure matchup, indicating the fix is in or points are being shaved.

“If something is amiss you see weird betting patterns,” said Matt Shelby, an information officer with the Oregon lottery, who advocated for a legal market. “Because we are a legally regulated market there is transparency there.”

Brian Seeley, a lawyer with MLB, agreed. “Illegal operators do not comply with my investigations,” he said, saying a legal alternative would be the most effective method of reducing the size of the black market.

Furthermore, Chris Grove, a gaming industry analyst, said the legal sports gaming industry produces about $1 billion in revenue annually at present. That number is expected to expand exponentially, with Grove’s company Eilers & Krejcik Gaming estimating the legal sports betting will bring in about $6 billion by the end of 2023.

California, with five MLB clubs, four NBA teams and four NFL teams, could expect to garner $2.5 billion in the sports gaming industry. If Golden State was to tax sports bets it could expect to bring in significant revenue to the general fund, Grove said.

Some lawmakers expressed skepticism about tax windfalls from legalizing an activity with a previously robust illegal market, as promises about tax revenue from legal marijuana have fallen far short of consensus prognostications.

But Grove said the key to inducing price-sensitive consumers into the legal market is to keep tax rates reasonable, below 20%. The medium rate for states that have already legalized sports gambling is 19%. States can also expect to collect licensing fees from various sports gambling operators looking to establish their business in California. “It provides a useful one-time injection of funds into the budget,” Grove said.

Another benefit touted by those who testified before lawmakers is the ability to set age limits for gambling and create programs to combat problem gaming. “Transparency is the best disinfectant,” said Todd Furnham, a sports betting analyst.

The lawmakers asked a few pointed questions but did not tip their hands on whether they are leaning toward the legalization of sports gambling in California. To become legal, a constitutional amendment approved by voters is required. Such an amendment could originate in the Legislature or via a ballot initiative.

Even if such an amendment passed, legal hurdles could arise. In Section 19 of the California Constitution, there is a provision that explicitly outlaws the establishment of “casinos of the type currently operating in Nevada and New Jersey.” Lawsuits citing this and other relevant passages of the state constitution could ensue.

Lawmakers tried to introduce bills to legalize sports gambling in 2016 and again in 2017, but both bills failed to advance out of committee. However, those efforts preceded the Supreme Court decision that opened up sports gambling in states.

If California does move forward with legalization, tribal casinos throughout the state will likely lobby heavily to restrict such gambling to brick-and-mortar establishments and prohibit online or mobile gambling.

Most of the panelists testifying on Wednesday argued online gambling is a necessary component to help stamp out the illegal market and helps provide immediate data to ensure integrity in the sports leagues.