Confronted with a looming budget deficit disaster, lawmakers in California are looking to legalize and tax the sports betting industry as a new source of revenue.
Back in January, before the ongoing coronavirus outbreak began in the U.S., Governor Gavin Newsom (D) announced that California could expect to have a budget surplus of $5.6 billion. But since the coronavirus forced Newsom to order a statewide closure of nonessential businesses in March, those rosy projections have been reversed by an order of magnitude.
Based on the abrupt cessation of tax collections derived from shuttered businesses, Newsom recently revealed new estimates that peg California’s budget deficit to be $54.3 billion.
Faced with the prospect of cutting $14 billion in funding for education, health care, and social assistance programs, state assemblyman Adam Gray (D-21) and state senator Bill Dodd (D-3) are floating legal sports betting to shore up the budget.
Lawmakers Look to Legal Sportsbooks as Valuable Sources of Revenue
In the wake of Newsom’s disastrous budget projections, Gray and Dodd – the chairmen of their chambers’ respective Governmental Organization Committees – issued a joint statement addressing their state’s financial shortfall:
“Revenue from sports wagering will help us avoid teacher layoffs and painful cuts. At the same time, it will allow us to regulate a practice that happens anyway.”
Gray followed suit by telling CalMatters.org that any financial benefits afforded by legal sports betting are welcome during this unprecedented era of uncertainty and unrest:
“It certainly won’t solve our budget crisis, but given the incredible impacts of the coronavirus on our bottom line, these proposals provide some flexibility.”
Tax Revenue from Sports Betting Now Deemed “Essential”
Under their plan, Gray and Dodd propose a tax rate of 10 percent on gross revenues reported by brick-and-mortar sportsbooks and 15 percent for online / mobile operators.
Based on those rates, the Associated Press (AP) reports California could generate between $500 million and $700 million in additional revenue. During the first year alone, the AP reports regulated sportsbooks could send $200 million into state coffers.
But according to Dustin Gouker – who serves as chief analyst for the iGaming website PlayCA.com – California stands to gain much more from the long-awaited legalization of a lucrative market:
California is the holy grail of sports betting markets, and not just because of its sheer size.
“California is the holy grail of sports betting markets, and not just because of its sheer size.
It appears that legislators are working to put in place a structure that will make California uniquely attractive to every major operator.
And because it has the potential to be the largest legal sports betting market in the U.S., ultimately it represents a seismic shift in the industry.”
Based on PlayCA.com’s projections, a regulated sports betting market could generate over $30 billion in annual wagering “handle” – or the dollar amount of wagers placed. When payments distributed to winning bettors are subtracted from the equation, California could add $300 million in annual tax revenue.
Under the bill, which must be approved by voters, both brick and mortar sportsbooks and their online / mobile affiliates would be authorized to book bets.
Per comments made to the Associated Press (AP), a mature legal sports betting industry will generate $600 million in annual taxes. In the first year, the AP reports $200 million in additional tax revenue.