Following the Supreme Court’s recent decision to strike down the federal law limiting sports betting, Delaware and New Jersey quickly legalized it and a host of other states are set to follow. California should join the growing movement to legalize sports gambling so it can reap the financial and social benefits that come with ending needless prohibitions.
The 1992 federal law banning sports gambling exempted Nevada and grandfathered parlay betting in Oregon, Montana, and Delaware. The rationale was to “protect sports from becoming a vehicle for promoting gambling among teenagers, ensuring that the values of character, cooperation, and good sportsmanship that have figured so heavily in the growth of athletic competition throughout the ages are not significantly compromised.”
By the law’s own standards it failed miserably. Sports still had to battle corruption and point-shaving scandals. Illegal sportsbooks and offshore websites, with few or no age restrictions or consumer protections, flourished and left bettors vulnerable to bad actors. The unregulated, illegal betting market grew to $150 billion a year, according to the American Gaming Association.
But the Supreme Court’s decision to reject overreaching federal power over sports gambling offers California a new legalization opportunity, just as marijuana legalization has.
California is the largest state to legalize recreational marijuana. Its taxes on legal marijuana raised $60.9 million in the first quarter of 2018, with the Legislative Analyst’s Office estimating the full-year revenue will reach $630 million. Legal sports betting offers the promise of more revenue. Gambling is already a major industry in California, with tribal casinos generating $400 million in state and local tax revenue in 2014.
Last year, Assemblyman Adam Gray introduced a constitutional amendment to legalize sports betting, which would require two-thirds approval in the Assembly and Senate and have to pass a majority vote of the electorate. Sports betting won’t be on the November ballot, but a ballot initiative has been proposed for 2020.
Native American Casinos are already claiming they have the exclusive ability to operate casino-style games. “California voters have, on numerous occasions, confirmed the exclusive right of California tribal governments to operate casino-style games,” said Steve Stallings, chairman of the California Nations Indian Gaming Association. “Legalization of sports betting should not become a backdoor way to infringe upon exclusivity.”
The state will need to remedy this because constructing a sports betting regime for the benefit of a single interest group would negate many of the benefits of legalization.
Then, for sports betting to be successful and eliminate black markets, a number of prerequisites will need to be in place. First off, taxes must be low. Legal sports betting providers in the U.S. and overseas operate on thin profit margins meaning high taxes would threaten the viability of the entire enterprise. Nevada imposes a 6.75 percent tax of gross gaming revenue, even though it is the only state in the union that legally offers single-game betting. Any tax on sports betting in California should aim to be lower than Nevada’s 6.75 percent rate.
To spur a competitive marketplace, the availability and affordability of businesses licenses will also be key. Sky high fees and/or artificial limits on the number of operators would result in less competition and could prompt bettors to stick with black market bookies. Legal operators should be permitted to offer a diverse range of products, especially online, so they have the ability to draw consumers away from the illegal market and toward a fairer and more satisfying legal sports betting market.
Consumer protections and age verifications can be installed to ensure gambling is adult-only. And the state and gambling companies can partner to ensure adequate information and resources are provided for people with gambling problems.
Other states are moving quickly. California can and should move to emulate the best sports betting markets in the world like those in the United Kingdom and Australia, which are short of scandals, suffer no increase in problem gambling, and preside over a thriving and successful sports gambling industry.
This column originally appeared at the Los Angeles Daily News.