“‘Legal online sports betting is projected to bring hundreds of millions in tax revenue annually to the state to address two of the state’s most pressing issues: homelessness and mental health.’”
That was DraftKings CEO Jason Robins during the company’s fourth-quarter earnings call on Friday, promoting the idea that if sports betting is legalized in California the tax revenue it brings in could help curb homelessness and issues surrounding mental health in the state.
Here is the full quote:
“In California, we continue to work with a number of leading online sports betting operators in support of a campaign to bring regulated, safe, and responsible online sports betting to the state,” Robins said. “Legal online sports betting is projected to bring hundreds of millions in tax revenue annually to the state to address two of the state’s most pressing issues: homelessness and mental health.”
States that offer legal wagering have seen big boosts in tax revenue since they began accepting bets. For example, New York took in $1.98 billion in wagers during its first month of legalized gambling in 2021, producing $70.6 in tax revenue, according to New York Gov. Kathy Hochul, a Democrat.
But it’s not clear if a potential influx in sports betting tax revenue would be used to fight homelessness in the state, or even be enough money to move the needle. California Gov. Gavin Newsom, a Democrat, recently announced a $12 billion spending package to tackle the state’s homelessness crisis.
See also: Baseball commissioner says the stock market is a better investment than owning an MLB team — is he right?
There is currently a proposed ballot initiative in California that would give 85% of all tax revenues from sports betting (which is not yet legal in the state) to homelessness causes. The initiative is supported by several California mayors, and has received a total of over $50 million in donations from sports betting operators like DraftKings
company FanDuel and Penn National Gaming
To be clear, the initiative is simply a proposal and is not yet law.
The California State Treasury department and State of California Department of Finance did not immediately respond to MarketWatch’s request for comment on this story.
As of January 2020, California had an estimated 161,548 people experiencing homelessness on any given day, according to data reported to the U.S. Department of Housing and Urban Development (HUD). That number represents a roughly 7% increase from 2019 levels.
This is not the first time pro-gambling advocates trying to get gambling practices legalized have made big promises about social causes to appease legislators and voters. In 1984, the California Lottery was created in part “to benefit public education” without raising taxes.
While more money for a state’s budget is obviously better than less money, the influx in cash from the lottery has not solved California’s public education issues. In 2018, for example, the California lottery sent out $1.7 billion to schools in the state, but that money was divided among many schools and only accounted for about 1.5% of the state’s education budget, according to the Los Angeles Times.
Jack Pitney, a Claremont McKenna College politics professor, believes Californians know that homelessness is a complex issue, and the promise that tax revenue from sports betting could solve it is no sure thing.
“I wouldn’t take this as a sure bet,” Pitney told The Mercury News.
Ironically, research suggests that an individual who is homeless is more likely to have a gambling disorder. According to a research paper from Springer Nature, the relationship, while correlated, is bidirectional. “Gambling can be a direct cause of homelessness, a secondary contributing factor, or only develop after the individual has become homeless,” the paper states.
DraftKings stock sank nearly 20% in the moments after the company’s earnings call, despite a revenue growth of 46.9% to $473.3 million. DraftKings’ net loss widened to $326.3 million from $242.7 million, while per-share losses widened to 80 cents from 69 cents.
DraftKings Inc. is down 51.3% over the past three months, continuing a recent slump for sports betting stocks, compared with a 7.58% drop for the S&P 500
over the same period.