Sports betting: Calif. racing backs long shot on Nov. ballot

Sports betting: Calif. racing backs long shot on Nov. ballot
Photo: Eclipse Sportswire with HRN graphic

Recent polling shows two ballot initiatives that would legalize sports betting in California are long shots to be approved by voters in November. That may be bad news for racing, but it is complicated.

Proposition 26 would allow for in-person sports wagering at the state’s tribal casinos and at four racetracks: Santa Anita, Del Mar, Golden Gate and Los Alamitos. Proposition 27, which is backed by major gambling companies such as FanDuel and DraftKings, would legalize online sports wagering.

In a poll conducted this month by the Public Policy Institute of California, only 34 percent of likely voters supported Proposition 27 and 54 percent opposed the measure. The non-partisan institute did not report on voter intentions regarding Proposition 26.

In addition, the research firm Eilers & Krejcik Gaming this month put the prospects of either measure passing “at less than 50 percent.” Among other concerns, it noted the fact two competing sports-betting measures could confuse voters and lead to a no vote by default.

“(That) has us leaning negative on California’s sports betting legalization prospects this fall,” Eiler & Krejcik concluded.

With six weeks until election day Nov. 8, campaign spending for both propositions already is the most for a proposition in history. When the latest figures were provided Sept. 12, more than $422 million had been spent largely on television, radio and other advertising.

The previous campaign spending record was $220 million spent on a 2020 ballot measure in California backed by Uber and Lyft that would keep drivers as “gig employees.” Aided by the deep pockets of the two ride-share companies, the measure passed with 58 percent of the vote.

Estimates project that by election day, campaign spending on propositions 26 and 27 combined will top a half-billion dollars.

What’s in it for racing?

As Proposition 26 would allow on-site sports betting at California tracks, the state’s racing industry has thrown its support behind the measure while also trying to block passage of Proposition 27.

Scott Daruty is president of Monarch Content Management, which distributes the simulcast signal for tracks owned by 1/ST, including Santa Anita and Golden Gate. He has taken a prominent role in the company’s push to pass Proposition 26. Daruty noted the impact of sports betting on California’s horse racing industry “all depends on how it is legalized."

“If Prop. 26 passes, that would be very positive for California horse racing. Our belief is Prop. 27 would be very bad for California racing,” Daruty said. “If Prop. 26 passes, we would certainly have a sport-betting facility at Santa Anita and Golden Gate Fields as would be authorized. We’ve thought about how we would implement, build out a facility and those sorts of things. But it’s in the planning stages. We’re going to make sure first we have the right before we go too far down that road.”

Racetracks would not have to pay a licensing fee to operate, but sports-wagering revenue would be taxed at a rate of 10 percent by the state. Prop. 26 does not specify how the remaining revenue would be split, including how much would go to purses, Thoroughbred Owners of California chairman Gary Fenton said.

“We are in ongoing discussions with our racetrack partners,” Fenton added. “In terms of what that could be, I can tell you with Del Mar, for example, we’ve been ‘50 percent partners’ every step of the way. I wouldn’t be surprised if we’re not in a similar relationship with regards to sports-wagering revenue.”

In the barrage of advertising, Proposition 27 is being sold to voters almost exclusively as a way to aid with homelessness in the state. The fact it is a sport-gambling measure is rarely mentioned.

If it were to pass, operators would be taxed 10 percent of gambling revenue with 85 percent of that earmarked for homelessness and mental-health support programs.

Also, to receive a sports-betting license under Proposition 27, an operator must pay a $100 million fee and already be licensed in 10 other jurisdictions. 

“So they wrote a law that only those conglomerates can satisfy under the pretext of solving homelessness,” Daruty said. “But what it really does is give this small group of cynical, out-of-state, gambling conglomerates exclusivity to conduct sports betting in California.”

It is possible voters approve both propositions, and each theoretically would become law. According to California election rules, if two similar measures are approved, the one with the most votes becomes law. However, if they are ruled not to be in conflict – which could be the case in this instance given one is exclusively online and the other bricks and mortar – then both could be enacted. The state Supreme Court could be the final arbiter.

However it plays out, Daruty said sports betting in California “will not be a game changer” for the state’s racing and breeding industry.

“We’ve done some high-level estimates, but nothing super detailed,” he said. “What we have seen from sports wagering in other markets, it’s not tremendously profitable. I’m not saying it is unprofitable, but it is not a huge windfall. It’s not a game changer as far as changing the economics of racing facilities.”

Still, many are of the thought that a sportsbook at a racetrack would have the added benefit of exposing horse racing to a new audience.

“To be able to offer brick-and-mortar sports wagering, especially for Del Mar during our fall meet when there’s college football and NFL football, we think would be a significant, positive benefit,” Josh Rubinstein, president and COO of the Del Mar Thoroughbred Club, said early this month. “We think the ability to have a world-class sportsbook, to incorporate that with our racing product at Del Mar in such a desirable location has the ability to move the needle significantly for us.”

“That in and of itself is a big upside,” Daruty said. “Once people are in our facilities, ... we could obviously expose them to horse racing and hope they begin to bet on the horses as well.”

Show me the money

The California legislative analyst’s office said the financial impact of sports betting in the state “is unclear” given the many variables of how it would be enacted. But Eilers & Krejcik did a financial impact study and projected that, if Prop. 26 alone were passed, California's annual sport-betting handle would be about $1.6 billion to start. If Proposition 27 also were included, handle would soar to about $3.4 billion in the first year.

In states where both forms of sport betting are legal, the online model dominates. In New Jersey, which was one of the first states to enact sport betting after it was legalized nationwide in 2018, the maturing market ballooned to $10.9 billion in 2021. Of that total, $9.9 billion (91 percent) was bet online.

New Jersey’s Monmouth Park has both a retail sportsbook on site managed by Caesars Entertainment as well as an online wagering platform. Dennis Drazin, the chairman and CEO of the company that operates Monmouth, said the introduction of sports betting has “met our expectations. It is what we had hoped.

“We have been able to generate more money both for operations and purses to help us stay afloat. We started down this path on the theory that racetracks were in need of having a source to bring fans back to the brick-and-mortar facilities. ... We have had a significant number of fans come out for sport betting and stay for the races. There has been a crossover.”

Drazin noted Monmouth Park and Caesars share a “50-50 split” of all sports-betting revenue.

As for what will happen on election day in California, Daruty is not optimistic that either of California's sports-betting measures will pass.

“To be honest, I think it’s going to be a struggle for both. There is a lot of money being spent in opposition to Prop. 27, and it’s sort of hard to figure the potential spillover to Prop. 26 as well,” he said.

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