Legalized sports betting has swept the nation, though the wave has bypassed the states with the most significant populations. For example, Florida briefly legalized wagering at one casino, but the courts quickly struck it down. Texas has made some progress, and a 2023 legalization push has the backing of every major sports team in the state, but the legislature only meets every other year, so it will be a long wait if it fails in 2023.
Then there is California, where nothing appears anywhere close right now. Two propositions that would have legalized sports betting made it to the ballot box in 2022, and both went down in flames.
Proposition 26 would have legalized sports betting at any of the 66 tribal casinos in the state, as well as racing establishments Del Mar Race Track, Golden Gate Fields, Los Alamitos Race Course, and Santa Anita Park. However, online sports betting will not be legal until another measure is passed someday. It went down in defeat from 68.49% to 31.51%.
It turns out that getting nearly ⅓ of the vote was a relatively good performance. Proposition 27, also on the November ballot, kept the tribes in charge of the process but would have allowed them to partner with online sportsbooks, similar to an arrangement in many other states. The Prop legalized online wagering. It did not provide retail sports books. The Prop lost 16.96% to 83.04%.
As it stands now, the tribes essentially control the gambling industry in California. While they would stand to benefit from a stake in legalized sports betting, they would need strong incentives to upend the status quo. Their only competition for any form of wagering is the racing tracks. Thus, the consensus is that the only way to get anything done is a legislative solution strongly backed by many tribes.
Therein lies a big problem. There are precisely no measures working their way through the California legislature, nor is there anything even in the planning stage. No one believes anything will pass until 2024 at the earliest, and even then, it would have to make its way to the November ballot box. So the best guess is that California is 4-6 years away from legalized sports wagering.
One possible ultimate solution is a split into thirds. The tribes would own all the sports betting operations, and the commercial sportsbooks would effectively run the wagering. The revenue would be split evenly among the tribes, the books, and the state. The effective 33.3% tax rate is high relative to most states, though importantly, New York is the largest state that now legalized sports betting, and they tax the books at a 51% rate.
California is leaving a huge revenue source on the table. Ohio is the most recent state to fully open the betting windows, which has been an enormous success. Ohio Betting Sites went live statewide just after the stroke of midnight on January 1st. New customers can still take advantage of generous welcome bonuses, often bet credits that offset a loss on an initial wager, sometimes for as much as $1000.
Ohio, with an estimated population of 11.8 million, is the seventh largest state in the country and about 30% the size of California. The first month of legalized sports wagering saw a handle of $1,113,251,403. The state took in $208,921,342 for a hold rate of 18.9%. Even at their low 10% tax rate, that is $20,892,134 in the state coffers.
Now, of course, none of this is completely sustainable. Betting gets bumped a bit in the first month as all the sportsbooks ran highly publicized promotions. However, it also helped to open up as the NFL season ended and the playoffs started. That is, of course, no accident; New York had a similar timeline in 2022 and had an equally impressive launch.
Additionally, the hold rate of 18.9% is not sustainable over time. Most states see rates in the 8-10% range.
The Ohio revenue will remain significant, though. New York is not a perfectly analogous case but very similar. The Empire States has an estimated population of 19,677,151, which makes it about 67% larger than Ohio. They fully opened up on January 8th, 2022, which means their first month was a week shorter than Ohio’s first month, and they had a handle of $1,686,263,898. That is all very similar to Ohio’s opening numbers, except for the hold, which was just 7.3% in New York. Importantly, the handle dipped in the spring and summer when the NFL and March Madness had passed but then surged again in 2023 to a record $1,799,048,366 in January 2023.
Ohio’s hold will likely halve from January, but the handle will not. If California merely doubled the handle of Ohio, even though they have over three times the population, held 10% and taxed at 33.3%, they would take in about $74 million in a month just for opening up the windows.
Massachusetts will provide the next data point. Legalized wagering opened up at three casinos at the end of January. Online sports betting will start on March 10th, just before March Madness. The estimated state population is 6,981,974, but the numbers they put up vs. their size could be impressive. Both Boston winter sports teams, the Celtics and the Bruins, sit at or near the top of their leagues and look to have long playoff runs this spring. The Red Sox do not look like they will have a banner year, but they are enormously popular no matter what they do.
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