Report: Prop 27 Would Create $2.8 Billion in California Sports Betting Revenue

If Prop 27 passes in California, the California sports betting market would generate $2.8 billion in annual revenue.

That’s according to a mid-August report published by Eilers & Krejcik Gaming, an independent research and consulting firm in the gaming and gambling space. According to Business Insider, the report projected that revenue would swell to $3.1 billion if Prop 26, which would allow sports betting in person at California tribal casinos and horse racetracks, also passes.

But the significant disparity in revenue projections if both pass — $2.8 billion for Prop 27, $300 million for Prop 26 — reflects what the two sports betting ballot measures’ fiscal notes say. Prop 27’s fiscal note says it will generate up to the “mid-hundreds of millions of dollars annually” in state tax revenue. Prop 26’s fiscal note says it will generate up to the “mid-tens of millions.”

Let’s do some math. Prop 27 would tax online sports betting at 10%. So, based on the $2.8 billion projection, that would mean $280 million would be paid in taxes. And, based on Prop 27’s dispersement plan, $238 million would go toward homelessness programs and the remaining $42 million would go toward non-gaming and limited-gaming California tribes.

Online sports betting is significantly more popular than retail sports betting across the US. In some states, such as New York and New Jersey, around 90% of sports betting is online. Throughout the country, that average number is closer to 70%.

The Eilers & Krejcik Gaming report, which can be bought for $1,000, had some other interesting findings.

DraftKings, FanDuel, BetMGM Would Rule California Sports Betting at First

Eilers & Krejcik Gaming estimates that, if Prop 27 passes, US sportsbook giants DraftKings, FanDuel, and BetMGM would together dominate the early days of legalized California online sports betting. Just how much? The independent firm projects those three companies would own at least 70% of the market share, at least initially.

DraftKings, FanDuel, and BetMGM have been among the chief supporters of Prop 27, and they want to launch DraftKings California, FanDuel California, and BetMGM California. Those three sportsbooks, along with PENN Gaming (Barstool Sportsbook) and Fanatics (FanaticsBet), have all donated $25 million to the Prop 27 campaign. WynnBET and Bally Bet have also each donated $12.5 million.

Companies Could Merge to Get a California Sports Betting License

The requirements to apply for a California sports betting license under Prop 27 are strict. The licensing fee is $100 million, and sportsbooks must be licensed in at least 10 other states. That will rule out some smaller sports betting operators.

As a result, Eilers & Krejcik Gaming predicts companies may merge or coordinate acquisitions in order to gain any type of share in what would be the most lucrative sports betting market in the US. The report, per Business Insider, listed these four companies as potential merge and acquisition candidates:

• Fanatics: After rising to prominence as a sports apparel and merchandise company, Fanatics is diving headfirst into the sports betting space. It is already lined up to have retail sportsbooks in Maryland and Ohio. And the fact that it has donated $25 million to Prop 27 suggests it’s bent on being in California.
• ESPN: There’s long been chatter that ESPN could get involved in sports betting, but nothing concrete has happened yet. FOX and Barstool Sports have already entered the US market. California could entice ESPN to be next, in some way.
• Bet365: One of Europe’s most popular sports betting platforms, Bet365 is only live in New Jersey in the US. So it likely won’t be close to being licensed in 10 states by the time CA online sports betting launches. And that’s estimated to happen by September 2023, if Prop 27 passes.
• FTX: This crypto company is trying to get involved in sports betting. It has the money to buy an existing sportsbook platform (it already tried to buy PlayUp).

Nothing May Happen Until at Least 2024

In a bit of a darker projection, Eilers & Krejcik Gaming said the chances of either Prop 26 or Prop 27 passing would currently be “less than 50%.” If neither pass, interest groups would be forced to wait until the 2024 ballot to try again.

“The political power and deep pockets of interests with dogs in this hunt … together with competing sports betting measures whose back-to-back presentation on the ballot is likely to confuse voters have us leaning negative on California’s sports betting legalization prospects this fall,” the report said, according to the New York Post. “We preliminarily put the odds of one or both measures passing at less than 50%.”