California Sports Betting Failure Saves Operators Cash

When the push to legalize sports betting in California failed this past November, it was seen as a gigantic loss for all the primary stakeholders. Tribes in the state would not be able to diversify their gaming revenue streams. California itself would be missing out on millions upon millions in tax revenue. And, of course, retail sportsbooks were yet again refused entry into a market believed to be worth billions of dollars per year. There's no good way to spin these squandered opportunities. Or so you'd think. But as it turns out, the great California sports betting failure of 2022 will wind up saving online sportsbooks a boatload of money...in the short term.

This doesn't seem possible when considering the finances. Not only are retail sportsbooks prevented from generating any gambling revenue inside The Golden State, but they spent hundreds of millions of dollars funding a failed betting campaign.

Proposition 27, which was the measure that would have legalized online sports betting in California, cost a collective of retail sportsbooks over $400 million to bankroll, according to the Associated Press. This figure includes money spent on advertising for Prop 27 as well as counter-advertising placed against Proposition 26, which sought to legalize sports betting exclusively tribal properties. It would have been one thing to burn through all that cash and have voters approve the online sports betting bill. They didn't. The proposal was a failure. There is literally nothing to show for all that money spent on campaigning.

How in the world, then, is the absence of sports betting in California saving online operators money?

Allow us to explain.

Legal Online California Sports Betting Would Have Entailed a Ton of Up Front Costs

For as much as online sportsbooks spent to campaign for legal betting in California, it would have cost them even more to get it up and running. Licensing fees to operate in The Golden State would not have come cheap. California is the most sought after market for legal sports betting in the USA for a reason. It has the country's largest population by nearly 10 million people and, not coincidentally, more professional teams across all major North American sports than any other state.

But setup costs don't just stop at licensing fees. Top online sportsbooks like FanDuel, DraftKings, BetMGM, Caesars, etc. all would have needed to fork over other start-up costs. All forms of sports betting require infrastructure—compliance, software, physical presences inside the state, et al. Proposition 27 also called for each licensed sportsbook to partner up with a licensed casino. Those relationships would have cost money to build out.

On top of all that, the amount of cash spent on advertisements and promotions would have gone through the roof. As chief executive officer of Entain, the corporation behind BetMGM and other online operators, recently explained via a company press release: “While that is, of course, disappointing that we'll not go online, that will, of course, be a positive overall for [earnings before interest, taxes, depreciation, and amortization] and on our journey for profitability as, otherwise, if California did come online, we, and everyone else, would have invested significantly into growing that market."

Spending money is all a part of market growth. And sportsbooks are especially aggressive in the early going. They aren't just trying to put their product in front of people; they're attempting to have them actually use their services by any means necessary.

In this case, that means offering lucrative sign-up bonuses in the form of free bets and deposit matches. Online operators aren't responsible for paying taxes on these promotions, but they must still foot the bill for all the "free" money they end up giving out. Some people win wagers and meet the rollout requirements on their deposit bonuses and then withdraw funds. Others may simply take their time to cycle through promotional money. And while online sportsbooks may invariably get most of their bonus offerings back, they're still processing wagers with house money, which is business off which they make absolutely nothing. This is why so many states see their sports betting revenue climb dramatically following the first few months of the rollout. They're no longer on the hook for as many "free" transactions.

No, the Failure to Legalize California Sports Betting is Not a Blessing in Disguise

Try as online operators might to put a positive spin on the California sports betting failure, there are no winners among those who actually wanted Prop 27 to pass.

Sure, these companies are saving a bunch of start-up costs. But that's a short-term gain. California will eventually legalize online sports betting, and when they do, operators will be on the hook for these same fees.

If anything, the botched campaign for Proposition 27 is costing stakeholders money over the long term. They aren't getting the $400 million they spent back. And now they'll have to finance a whole other campaign in advance of the 2024 ballot. Meanwhile, the state, local tribes and retail sportsbooks all continue to miss out on profits from wagers already being placed.

Plenty of reputable sites from our reviews of the top online sportsbooks allow Californians to set up and service accounts. You better believe many are taking advantage of that opportunity. And if they're not already using one of the best online sports betting sites in the business, they may just be traveling to one of the many close-proximity states that already offer legal gambling.

This is all to say: For online operators, the 2022 California sports betting failure was just that: a failure.

Take a look at this list of the top online sportsbooks so you can decide which one to use for all of your sports betting needs: