Ballot proposal's requirements

California: Online sportsbooks-backed initiative could block smaller firms and startups, experts say

Reading time 4:41 min

Analysts have raised concerns over one of the three ballot initiatives still gathering signatures to legalize sports betting in California, the “California Solutions to Homelessness and Mental Health Support Act,” backed and funded by major online operators DraftKings, BetMGM, FanDuel, Bally’s Interactive, WynnBET and Penn National Gaming/Barstool Sportsbook, among others. Critics are concerned it will effectively block smaller gaming companies and startups from operating in the state.

The proposal would allow gaming companies and Native American tribes to provide online sports betting across the state. But embedded in the initiative are requirements that would be very difficult for the companies’ smaller competitors to meet, experts say. If the initiative passes, gaming companies would have to pay a $100 million licensing fee to do business in the state, as well as already be licensed in 10 states, or be operating in five states and running 12 casinos.

“I think it’s absolute nonsense,” John Holden, a professor at Oklahoma State University who studies sports gambling policy, told CalMatters. “I think what’s effectively happening is, basically, the 5 to 10 frontrunners in the market have decided ‘Alright, let’s ensure that there’s no one else who can compete by agreeing to pay these exorbitant license fees.’” He added that the $100 million fee essentially ensures no startups will be able to operate in California.

The fee is one way the measure generates “significant revenue to fund homelessness housing and mental health treatment and provide financial support for California Tribal nations,” Nathan Click, a spokesperson for the initiative’s campaign, stated. “California is best served by creating a safe and tightly regulated sports betting market, one where customers can know they are working with experienced platforms with a proven track record of safe and responsible operation in other markets,” Click wrote.

While the measure hasn’t qualified for the ballot yet, Click said the measure is well ahead of where it needs to be to qualify.

The $100 million licensing fee is much higher than what any other state has on the books, Becca Giden, director of policy for Eilers & Krejcik, told CalMatters. Now, New York’s $25 million licensing fee is the highest, she said. Most states that have legalized sports betting have licensing fees in the low single-digit millions or hundreds of thousands — and no other state requires companies to already be licensed in other states, according to Giden.

The requirement that a company already be licensed in 10 states would cut off smaller companies and startups that are only licensed in a few states, Giden said. That, combined with the fee, would “meaningfully limit the ability of small companies and startups” to participate in the market, she said.

Early-stage startups that get money from venture capitalists generally raise around $5 million to $20 million in their first round, Olav Sorenson, a sociologist at UCLA’s Anderson School of Management who studies entrepreneurship, told the cited website. But only about 1 out of every 100 startups get any venture capital money, Sorenson said. When you include startups that rely on credit card loans and other sources of funds, the amount of money new companies have at their disposal shrinks. “Very, very few startups would be able to afford that kind of fee,” Sorenson said. “I think it’s going to dramatically limit competition.”

A few companies already dominate online sports betting. FanDuel commands 31% of the U.S. market, followed by DraftKings with 26%, BetMGM with 16% and Caesars with 12%, according to research from Eilers & Krejcik.

“The goal of this seems to be to create an oligopoly market for sports betting,” said Marc Edelman, a law professor at Baruch College who specializes in sports, gaming, and antitrust law. It would, he said, benefit a limited number of companies “to the detriment of smaller companies and consumers.”

Last week, a group of California local elected officials joined California cities and officials throughout the state in opposition to the only qualified gaming initiative so far, called Tribal Sports Wagering Act, which would allow California Indian tribes to offer in-person sports wagering at tribal casinos. On the same day, the Coalition for Safe, Responsible Gaming announced that a broad coalition of California Indian tribes, civil rights organizations, homelessness advocates, faith leaders, public safety groups, and business advocates has come out in support of the Tribal Sports Wagering Act, and in strong opposition to the “California Solutions to Homelessness and Mental Health Support Act.” 

survey commissioned by the Coalition for Safe, Responsible Gaming was released Tuesday, with findings from a survey of 1,094 California voters fielded in April to assess opinions toward the online sports wagering ballot initiative (#21-0017A1) sponsored by the sportsbook operators. Based on the measure’s official Title and Summary as prepared by the Office of the Attorney General, a 53% majority initially opposes the initiative, roughly one third (36%) favor it, and 10% are undecided.

The initiative needs a total of 997,139 verified voter signatures to appear on the 2022 ballot. Back in March, according to California's Secretary of State’s website, the “California Solutions to Homelessness and Mental Health Support Act,” was the only sports betting campaign currently in circulation to reach the 25% signature threshold. "We hit that threshold months ago, and we continue to make steady progress toward our goal. We are very much on track to qualify,” Nathan Click, spokesperson for the campaign, said then.

If approved by voters in November, the measure would allow qualified sportsbook operators to partner with California Tribal Nations to operate online sports betting in the state. Also, it would allocate 85% of revenue to the California Solutions to Homelessness and Mental Health Support Account, which will help combat homelessness and mental health issues in the state. The additional 15% of revenue will be allocated to the Tribal Economic Development Account, which will provide economic development and assistance to tribes in the state who do not participate in the online sports betting program.

third initiative is supported by the mayors of San Jose, Colma, Inglewood and Gardena alongside major cardroom operators, and would legalize online and in-person sports betting while also permitting licensed cardrooms to offer additional card and tile games currently limited to tribal casinos. 

There is also a fourth initiative, presented last November by the San Manuel Band, the Rincon Band of Luiseño Indians, the Federated Indians of Graton Rancheria, and Wilton Rancheria, which seeks to give tribes exclusive rights for operating both in-person sports betting on tribal lands and online gambling statewide. It also promises funds to solve California’s homeless struggles as it would send 85% of tax revenue per year toward helping people secure housing. In January, it was cleared to begin collecting petition signatures for the November 2022 ballot.

California's sports betting legalization, called to be the next big market in the US, would be supported by 45% of voterswhile more than 1 in 5 claims to be undecided, according to a poll released late Febraury by the University of California's Berkeley Institute of Governmental Studies in collaboration with the Los Angeles Times.

State law allows proponents of a ballot initiative to withdraw their measure any time before the final deadline on June 30.

Leave your comment
Subscribe to our newsletter
Enter your email to receive the latest news
By entering your email address, you agree to Yogonet's Condiciones de uso and Privacy Policies. You understand Yogonet may use your address to send updates and marketing emails. Use the Unsubscribe link in those emails to opt out at any time.