Proposition 26

ANALYSIS BY THE LEGISLATIVE ANALYST

BACKGROUND

Gambling in California. The California Constitution and state law limit gambling in California. For example, state law bans sports betting, roulette, and games with dice (such as craps). However, it allows some gambling. This includes:

• State Lottery. About 23,000 stores in all 58 counties sell state lottery games. Lottery sales—after prizes and operation costs—support education. About $1.9 billion in lottery revenue supported education last year.
• Cardrooms. Currently, 84 cardrooms in 32 counties can offer certain card games (such as poker). Cardrooms pay state and local fees and taxes. For example, cardrooms pay the state around $24 million each year (annually) generally for regulatory costs. Cardrooms also pay around $100 million each year to the cities they are located in.
• Horse Racing Betting. Four privately operated racetracks as well as 29 fairs, publicly operated racetracks, and other facilities in 17 counties offer betting on horse racing. The horse racing industry pays state and local fees and taxes. Last year, the industry paid the state around $18 million in fees primarily for state regulatory costs.
• Tribal Casinos. Tribes operate 66 casinos in 28 counties under specific agreements between certain tribes and the state (discussed below). These casinos offer slot machines, lottery games, and card games on tribal lands. Last year, tribes paid around $65 million to support state regulation and gambling addiction programs. Tribes also pay tens of millions of dollars to local governments each year. Additionally, tribes operating larger casinos pay nearly $150 million each year to tribes that either do not operate casinos or have less than 350 slot machines.

Tribal-State Compacts. Native American tribes have certain rights under federal law to govern themselves, such as certain rights to offer gambling. This means that the state generally cannot regulate tribal gambling except as allowed by (1) federal law and (2) federally approved agreements between a tribe and state (known as tribal-state compacts). When a tribe wants to offer gambling on its lands, federal law requires that the state negotiate a compact with the tribe. If the tribe and the state cannot agree, the federal government may issue a compact instead. In California, compacts allow tribal casinos to offer slot machines and other games on tribal lands. These compacts lay out how gambling will be regulated. They also require certain payments, such as to the state and local governments. California currently has compacts with 79 tribes. Tribes can ask for these compacts to be changed, such as when new types of gambling become legal in the state.

Enforcement of State and Local Gambling Laws. California’s state and local gambling laws are enforced in various ways. For example, regulatory agencies can take back licenses, issue fines, or seek penalties through civil lawsuits filed in state trial courts. The California Department of Justice (DOJ), county district attorneys, and city attorneys can file criminal cases in state trial courts against those breaking certain gambling laws.

Annual Required Education Spending. The California Constitution requires the state to spend a minimum amount on K—12 schools and community colleges each year. This minimum amount grows over time based on growth in state tax revenues, the economy, and student attendance. The state’s current budget includes $110 billion to meet this requirement. The state General Fund currently provides more than $80 billion towards this amount. (The General Fund is the state’s main operating account, which pays for education, prisons, health care, and other public services.) Local property taxes also are used to meet this minimum amount.

PROPOSAL

Proposition 26 allows in-person sports betting at racetracks and tribal casinos. It requires that racetracks and casinos that offer sports betting make certain payments to the state—such as to support state regulatory costs. The proposition also allows additional gambling—such as roulette—at tribal casinos. Finally, it adds a new way to enforce certain state gambling laws.

Allows In-Person Sports Betting at Racetracks and Tribal Casinos. Proposition 26 changes the California Constitution and state law to allow the state’s privately operated racetracks and tribal casinos to offer sports betting. However, the proposition bans bets on certain sports—such as high school games and games in which California college teams participate. Figure 1 shows the locations that could choose to offer sports betting.

• Requirements on Racetracks. The proposition allows the state’s four privately operated racetracks to offer sports betting to people 21 years of age and older. All bets must be made in person at the track. The proposition also requires the racetracks pay the state 10 percent of sports bets made each day—after subtracting any prize payments. These payments would go into a new California Sports Wagering Fund (CSWF).
• Requirements on Tribal Casinos. The proposition includes specific requirements for tribal casinos that choose to offer sports betting. For example, sports betting can be offered on tribal lands only after a tribe changes its compact with the state to allow it. Each tribe’s compact would lay out the requirements it must follow. For example, the compact could specify the minimum age to place a bet, required payments to the state and local governments, and whether tribal payments would go into the new CSWF. If payments do not go into the new CSWF, the proposition requires tribes at least pay the state for the cost of regulating sports betting at tribal casinos.

Requires Specific Use of CSWF Revenues. Proposition 26 requires CSWF revenues be considered state tax revenues to calculate the minimum amount of spending on K—12 schools and community colleges each year. This means CSWF monies would first be used to help meet this required spending level on education. The proposition requires that monies next be used to support state regulatory costs. Remaining monies would be used in three ways: (1) 15 percent for gambling addiction and mental health programs and grants, (2) 15 percent for sports betting and gambling enforcement costs, and (3) 70 percent to the state General Fund.

Allows Additional Gambling at Tribal Casinos. Proposition 26 changes the California Constitution to allow roulette and games played with dice at tribal casinos. Before offering these games, tribal compacts with the state would need to be changed to allow them to do so.

Adds New Enforcement Method. Proposition 26 adds a new way to enforce certain state gambling laws, such as laws banning certain types of card games. Specifically, it allows people or entities that believe someone is breaking these laws to file a civil lawsuit in state trial courts. This lawsuit can ask for penalties of up to $10,000 per violation. It can also ask for the court to stop the behavior. These civil lawsuits would be allowed only if the person or entity filing it first asks DOJ to act and either (1) DOJ does not file a court case within 90 days or (2) a court rejects the case filed by DOJ and does not prohibit it from being filed again. Penalties collected would go into the CSWF for the purposes laid out above.

FISCAL EFFECTS

Proposition 26 would impact both state and local government revenues and costs. The actual size of these effects, however, is uncertain and would depend on how the proposition is interpreted and implemented. For example, it is unclear if tribal-state compacts changed to allow for sports betting would require additional payments to local governments. The fiscal effects would also depend on the number of people who choose to make sports bets and how often the new civil enforcement method is used.

Increased State Revenues. Proposition 26 would increase state revenues from racetrack and tribal sports betting payments as well as civil penalties. The size of this increase is uncertain, but could reach tens of millions of dollars annually. Some of this revenue would be new. For example, the state currently does not receive any share of illegal sports bets. This means the state would receive new revenue when people make sports bets legally rather than illegally. However, some of this revenue would not be new. For example, the state currently receives revenue when people spend money on certain things, such as lottery games or shopping. This means the state might not receive new revenue when people spend less on those things so they could make sports bets.

Some of the increased revenue would go into the CSWF. This would result in a higher minimum amount of spending on K—12 schools and community colleges than would otherwise be required. About 40 percent of CSWF money would likely be used to meet this higher minimum spending amount. The remaining 60 percent would be used for sports betting and gambling-related costs as well as other state spending priorities.

Effects on Local Government Revenues. Proposition 26 could impact local government revenues. For example, cardrooms may earn less revenue if they are negatively impacted by the new civil enforcement method. This could reduce the taxes and fees they pay to the cities where they are located. The effects on most local governments would likely not be large. However, there could be larger effects on a few local governments that receive a large share of their revenue from cardrooms. For example, one city estimates cardroom payments are about 70 percent of its General Fund revenues. At the same time, tribal-state compacts changed to allow for sports betting could require additional tribal payments to local governments.

Increased State Regulatory Costs. Proposition 26 would create more work for state agencies (such as DOJ) to regulate sports betting. The amount of work would depend mostly on how sports betting is regulated, such as what types of bets are not allowed. Total costs for this additional work could reach the low tens of millions of dollars annually. Some or all of these costs would be offset by CSWF revenues and tribal payments to the state that do not go into the CSWF.

Increased State Enforcement Costs. The new civil enforcement method would create more work for DOJ and the state courts. DOJ would need to review and respond to claims that gambling laws are being broken. State courts would also need to process any civil lawsuits filed. Total state enforcement costs would depend largely on how often the new civil enforcement method is used. However, these increased costs would not likely exceed the low millions of dollars annually . This amount is less than one-half of 1 percent of the state’s total General Fund budget. Some of these costs could be offset by CSWF revenues.

Other Fiscal Effects. Proposition 26 could result in other fiscal effects on the state and local governments. For example, state and local revenue could increase from people coming from out of state to place sports bets and spending more than they otherwise would. Additionally, state and local governments could have increased costs. For example, more people visiting racetracks or casinos could increase state and local law enforcement costs. The net effect of the above effects on the state and local governments is unknown.

Visit https://www.sos.ca.gov/campaign-lobbying/cal-access-resources/measure-contributions/2022-ballot-measure-contribution-totals for a list of committees primarily formed to support or oppose this measure.

Visit https://www.fppc.ca.gov/transparency/top-contributors.html to access the committee's top 10 contributors.

Back to the Top

CALIFORNIA INDIAN TRIBES, CIVIL RIGHTS, BUSINESS, PUBLIC SAFETY LEADERS URGE: YES ON PROP. 26

For over two decades, California voters have stood with Indian tribes, granting them the right to operate highly regulated gaming on tribal lands. Indian gaming has helped lift tribes out of poverty—creating jobs and providing revenues for critical tribal services including education, healthcare, housing, public safety, cultural preservation and more.

Prop. 26 will continue this legacy by authorizing in-person sports wagering at highly regulated Indian casinos for adults 21 and over and allowing Indian casinos to offer additional games like roulette and dice.

PROP. 26 PROMOTES INDIAN SELF-RELIANCE

A broad coalition of California Indian tribes supports Prop. 26 because it will promote self-reliance for all tribes, including smaller and non-gaming tribes. Prop. 26 will increase funds for revenue sharing agreements that provide tens of millions every year to California’s smaller, poorer Indian tribes.

“I’ve seen first-hand the transformative impacts Indian gaming revenue sharing has had on our people, helping our small tribe pay for schools, health clinics and fire services. Prop. 26 will continue to lift tribes like ours out of poverty and allow us to become more self-reliant.” —Thomas Tortez, Tribal Chairman, Torres Martinez Desert Cahuilla Indians

PROP. 26 IS THE MOST RESPONSIBLE APPROACH TO AUTHORIZING SPORTS WAGERING

Prop. 26 will legalize sports wagering in a controlled manner at highly regulated tribal casinos and licensed horse racing facilities. Requiring sports wagering in-person provides the strongest age verification safeguards to prevent underage gambling and protections against problem gambling. On the other hand, Prop. 27 would legalize online and mobile sports gambling in California, turning virtually every cellphone, tablet and laptop into a gambling device—increasing the risk of underage and problem gambling. We respectfully ask you to VOTE YES on Prop. 26 and NO on Prop. 27.

PROP 26. BENEFITS ALL OF CALIFORNIA

California’s tribal casinos annually generate $26.9 billion for the state economy, support over 150,000 jobs, $12.4 billion in wages and contribute nearly $1.7 billion in revenues to state and local governments. Prop. 26 will create more jobs and economic opportunity for Indian tribes and all Californians.

PROP. 26 SUPPORTS PUBLIC SCHOOLS AND STATE PRIORITIES

According to the nonpartisan Legislative Analyst , Prop. 26 will generate tens of millions of dollars annually for vital services such as public schools, homelessness and mental health programs, wildfire prevention, senior services and other state priorities.

PROP. 26 CONTAINS PROVISIONS TO ENFORCE CALIFORNIA’S GAMBLING LAWS AND PREVENT CRIMINAL ACTIVITY

California law prohibits house banked card games like those found in Nevada casinos. Despite this, some cardroom casinos and their financial bankers have been running these prohibited card games—operating illegal gambling and blatantly violating state law. Illegal gambling leads to money laundering, fraud and criminal activity. Prop. 26 will strengthen enforcement of California’s gaming laws to crack down on illegal gambling and prevent this criminal activity.

YES ON 26: SUPPORTED BY INDIAN TRIBES, CIVIL RIGHTS LEADERS, BUSINESS AND PUBLIC SAFETY ADVOCATES

• American Indian Chamber of Commerce • NAACP California • California District Attorneys Association • Yolo County Fire Chiefs Association • San Diego Police Officers Association • La Raza Roundtable of California • California Nations Indian Gaming Association • Gold Coast Veterans Foundation • Baptist Ministers Conference of LA and Southern California

www.YesProp26.com

Beth Glasco, Tribal Vice-Chairwoman

Barona Band of Mission Indians

Tracy Stanhoff, President

American Indian Chamber of Commerce

Greg Sarris, Tribal Chairman

Federated Indians of Graton Rancheria

PROP. 26: LEGALIZES SPORTS BETTING

Prop. 26 is a massive expansion of gambling in California sponsored by five wealthy tribal casinos whose goal is to expand their monopoly over all gambling and legalize sports betting on college and professional games.

Prop. 26 will lead to more underage gambling and addiction.

PROP. 26: EXPANDS UNREGULATED GAMBLING

The sponsors of Prop. 26 claim it will lead to better regulation of gambling, but they are not subject to most state laws in the first place.

Some of these same gaming tribes even refuse to abide by California laws, including:

• Our environmental quality laws • Our anti-discrimination and sexual harassment laws • Our minimum wage laws

Some prohibit their employees from joining a union and some even allow eighteen-year-olds to gamble!

PROP. 26: DESTROYS COMPETITION

The sponsors of Prop. 26 made big profits staying open during COVID while their card club competition had to close. Now they want to put licensed and regulated card clubs out of business by giving private trial lawyers the enforcement powers held by the Attorney General to bury card clubs with frivolous lawsuits.

PROP. 26 HURTS OTHER COMMUNITIES OF COLOR

If Prop. 26’s sponsors are able to put their card club competition out of business, the state will lose 32,000 jobs and $500 million in annual local revenue that funds police, fire, health care and afterschool programs—disproportionately in communities of color. Even worse, California’s communities will lose $1.6 billion in wages.

PROP. 26 IS SO BAD MOST CALIFORNIA INDIAN TRIBES DON’T EVEN SUPPORT IT.

Learn more at VoteNoOnProp26.org .

Floyd Meshad, President

National Veterans Foundation

George Mozingo, President

California Senior Advocates League

Shavon Moore-Cage, Member

American Federation of State, County, and Municipal Employees Local 36 Management Chapter

PROP. 26 IS A MASSIVE EXPANSION OF GAMBLING IN CALIFORNIA that will legalize betting on professional, college and amateur sports. Five wealthy tribal casinos are sponsoring Prop. 26 to expand their monopoly over gambling in California—so they can make billions more in profits and continue to pay virtually NOTHING in state taxes.

PROP. 26: MORE UNDERAGE GAMBLING AND ADDICTION

Despite state laws that make it illegal for anyone under 21 to gamble, one of the sponsors of Prop. 26 regularly allows 18-year-olds to gamble, and NOTHING in their measure stops underage gamblers from betting on college and professional sports in a tribal casino.

PROP. 26: LEAVES WORKERS UNPROTECTED

Prop. 26’s sponsors have refused to allow their workers to join unions or engage in collective bargaining and claimed they are not required to pay the state’s minimum wage—even encouraging employees to go on Medi-Cal rather than pay for their health insurance.

Even worse, they have a history of refusing to follow California’s anti-discrimination and sexual harassment laws. One tribal casino behind Prop. 26 promised it would waive sovereign immunity for sexual harassment lawsuits in exchange for adding more slot machines. But when one of its employees sued for sexual assault in federal court, the casino claimed immunity and asked a judge to toss the sexual harassment claims.

“Prop. 26 leaves workers unprotected from California’s worker safety, wage-and-hour, harassment, and anti-discrimination laws and regulations. Please join us in voting NO on Prop. 26.”—Shavon Moore-Cage, Member, American Federation of State, County and Municipal Employees Local 36 Management Chapter

PROP. 26: PUTS CARD CLUBS OUT OF BUSINESS AND HURTS COMMUNITIES OF COLOR

Prop. 26 is sponsored by five wealthy southern California tribal casinos that made big profits staying open during Covid while the state forced their card club competition to close. Now those same casinos want to expand their monopoly and put card clubs completely out of business by changing the State Constitution to give private trial lawyers the enforcement powers of the Attorney General to bury card clubs with frivolous lawsuits.

If the sponsors of Prop. 26 are allowed to put card clubs out of business, some of the state’s hardest hit communities of color will lose $500 million in local tax revenue that pays for essential services like police, fire, health care and after-school services. Those communities will lose 32,000 jobs, $1.6 billion in wages and $5.6 billion in economic output.

“We support the rights of Native Americans to be self-sufficient, but we oppose Prop. 26 because it will devastate other communities of color in California.”—Julian Canete, President and CEO, California Hispanic Chambers of Commerce

PROP. 26: EXPANDS GAMBLING AT HORSE RACETRACKS

Prop. 26 is cleverly designed to save the horse racing industry by expanding sports betting to horse racetracks around California—giving them millions in new revenue just to save a dying industry that drugs, abuses and kills horses year after year.

Please join us and VOTE NO on PROP. 26.

Madeline Bernstein, President

Society for the Prevention of Cruelty to Animals Los Angeles (spcaLA)

Jay King, President

California Black Chamber of Commerce

Floyd Meshad, President

National Veterans Foundation

PROP. 26 AUTHORIZES IN-PERSON SPORTS WAGERING ON TRIBAL LANDS

For over two decades, California voters have entrusted California’s Native American tribes to operate safe, highly regulated gaming on their own tribal lands. Prop. 26 allows Indian tribes to offer in-person sports wagering, roulette and dice games at tribal casinos. Section 3 of Prop. 26 specifically expresses its intent to limit sports wagering to “those 21 or older to safeguard against underage gambling.”

“California’s Indian Casinos are strongly regulated and have operated safe, responsible gaming for over two decades.” —Richard Schuetz, Former Commissioner, California Gambling Control Commission

PROP. 26 PROMOTES INDIAN SELF-RELIANCE

Prop. 26 will generate additional funding to support education, housing, healthcare and other services in tribal communities. Prop. 26 will also provide tens of millions annually in revenue sharing for smaller, non-gaming tribes.

CARDROOM CASINO OPERATORS ARE RUNNING A DECEPTIVE CAMPAIGN AGAINST INDIAN TRIBES AND PROP. 26

Cardroom casino operators and their gambling bankers funding attacks on Prop. 26 have been fined millions for violating anti-money laundering laws, misleading regulators, and illegal gambling. But there is very little state oversight of cardroom casinos. These bad actors are running a deceptive campaign against Prop. 26 to avoid accountability.

PROP. 26 HELPS STOP AND PREVENT ILLEGAL GAMBLING

Illegal gambling is often associated with drug trafficking, money-laundering, loan sharking, and violent crime. Prop. 26 establishes a streamlined process with the Department of Justice to help stop and prevent illegal gambling. Prop. 26 will NOT shut down a single legitimate business.

SUPPORT INDIAN SELF-RELIANCE AND SAFE, RESPONSIBLE GAMING: YES ON 26.

YesProp26.com

Maxine Littlejohn, Tribal Councilmember

Santa Ynez Band of Chumash Indians

Anthony Roberts, Tribal Chairman

Yocha Dehe Wintun Nation

Olin Jones, Former Director

Office of Native American Affairs at California Department of Justice

Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency.

Back to the Top