California Prop 26: What It Was & Why It Failed (2022 Ballot Initiative)

Table of Contents#

1. What Was California Prop 26?
   • Official Title and Purpose
   • Key Provisions: Sports Betting and Tax Reclassification
2. The Backstory: Why Prop 26 Appeared on the 2022 Ballot
3. Key Supporters and Opponents
   • Who Backed Prop 26?
   • Who Fought Against It?
4. Why Did Prop 26 Fail?
   • Voter Confusion with Competing Initiatives
   • Controversy Over Tax Reclassification
   • Public Health and State Revenue Concerns
5. Impact of Prop 26’s Failure
6. Conclusion
7. References

What Was California Prop 26?#

Official Title and Purpose#

Prop 26, officially titled “Allows In-Person Sports Wagering at Tribal Casinos and Horse Racetracks. Initiative Constitutional Amendment and Statute,” was a dual-purpose ballot measure. It sought to:

1. Legalize in-person sports betting at California’s tribal casinos and licensed horse racetracks.
2. Redefine how certain state and local “fees” are classified under California law, potentially making them harder to implement.

Key Provisions#

1. In-Person Sports Betting#

Prop 26 would have permitted tribal casinos and horse racetracks to offer sports betting on professional, college, and Olympic sports (excluding high school sports). To operate sportsbooks, tribes would have had to renegotiate their gaming compacts with the state, paying a 10% tax on sports betting revenue (with 85% of that tax funding state regulatory costs and 15% going to homelessness programs). Horse racetracks would have paid a 10% tax on sports betting revenue, with 85% of that tax funding state regulatory costs and 15% going to homelessness programs, separate from any additional revenue distribution requirements for horse racing purses and track maintenance.

2. Tax Reclassification: “Fees” vs. “Taxes”#

A less-publicized but critical provision of Prop 26 centered on redefining what constitutes a “tax” under California law. Currently, the state Constitution requires a two-thirds legislative vote (or voter approval) to pass new taxes, but allows “fees” (charges tied to a specific service or regulatory purpose) to be approved by a simple majority of the legislature.

Prop 26 expanded the definition of “tax” to include many fees previously classified as regulatory or user fees. For example:

• Fees on tobacco, alcohol, or cannabis (often used to fund public health programs).
• Environmental fees (e.g., on oil extraction or plastic production).
• Fees on businesses for regulatory violations (e.g., workplace safety fines).

Under Prop 26, these fees would have been reclassified as “taxes,” requiring a two-thirds legislative vote or voter approval to implement—making them far harder to pass.

The Backstory: Why Prop 26 Appeared on the 2022 Ballot#

Prop 26 emerged from two converging interests:

• Tribal Gaming Revenues: California’s tribal casinos, which already dominate the state’s gambling market (via slot machines and table games), sought to expand into sports betting—a fast-growing, high-revenue industry. By limiting sports betting to in-person tribal locations, Prop 26 would have given tribes a monopoly on legal sports wagering, excluding online operators (e.g., DraftKings, FanDuel).
• Opposition to “Hidden Taxes”: Some business groups and conservative advocates argued that the state had increasingly used “fees” as a loophole to raise revenue without the two-thirds vote required for taxes. Prop 26 aimed to restrict this by reclassifying many fees as taxes, curbing government’s ability to raise funds through simple-majority votes.

Key Supporters and Opponents#

Who Backed Prop 26?#

• Tribal Governments: Major tribal casinos, including the Pechanga Band of Luiseño Indians, Morongo Band of Mission Indians, and Sycuan Band of the Kumeyaay Nation, were the primary funders. They spent over $100 million to support Prop 26, seeing it as a way to secure their dominance in sports betting.
• Horse Racing Industry: Groups like the California Horse Racing Board and racetrack owners backed the initiative, hoping to revive struggling racetracks with sports betting revenue.
• Anti-Tax Advocates: Organizations like the Howard Jarvis Taxpayers Association supported the tax-reclassification provision, arguing it would limit government overreach.

Who Fought Against It?#

• Public Health Groups: Organizations like the American Cancer Society and California Medical Association opposed Prop 26, warning that reclassifying tobacco/alcohol fees as taxes would make it harder to fund anti-smoking and addiction programs. For example, California’s 2016 tobacco tax (Prop 56), which funds cancer research, would have been at risk if similar future fees required two-thirds approval.
• Online Sports Betting Companies: Firms like DraftKings and FanDuel opposed Prop 26 because it excluded online betting. Instead, they backed Prop 27, a competing initiative that would have legalized online sports betting.
• State and Local Governments: The California Legislature, Governor Gavin Newsom, and local officials argued Prop 26 would cripple their ability to fund critical services (e.g., environmental protection, public safety) by making fee-based revenue harder to access.
• Labor Unions: Groups like the California Teachers Association opposed the measure, fearing it would reduce funding for schools and social programs.

Why Did Prop 26 Fail?#

Despite heavy spending by supporters, Prop 26 was rejected by 57% of California voters. Several factors contributed to its defeat:

1. Voter Confusion with Competing Gambling Initiatives#

Prop 26 was one of two sports betting initiatives on the 2022 ballot, alongside Prop 27 (which proposed online sports betting). Both measures flooded the airwaves with ads, leaving voters confused about their differences. Prop 26 focused on in-person tribal betting; Prop 27 on online, mobile betting. Many voters saw the two as conflicting and chose to reject both (Prop 27 also failed, with 83% voting no).

2. Controversy Over Tax Reclassification#

The tax-reclassification provision was a “poison pill” for many voters. While supporters framed it as a check on government spending, opponents successfully portrayed it as a threat to public health and essential services. Ads from public health groups warned that Prop 26 would “make it harder to fund cancer research” or “protect kids from tobacco.” This resonated with voters, who prioritized funding for social programs over limiting government revenue.

3. Opposition from Diverse Coalitions#

Prop 26 faced unified opposition from unlikely allies: public health advocates, labor unions, environmental groups, and online gambling companies. This broad coalition outspent supporters in the final weeks, framing the initiative as a giveaway to tribal casinos at the expense of everyday Californians.

4. Tribal Backlash and Public Skepticism#

Some voters viewed Prop 26 as a power grab by wealthy tribal casinos, which already generate billions in annual revenue. Critics argued that tribes were using sports betting to expand their monopoly rather than benefiting the state. Additionally, the 10% tax on sports betting revenue was seen as too low compared to other states (e.g., New York taxes sports betting at 51%), leading to concerns that California would miss out on critical funding for homelessness and education.

Impact of Prop 26’s Failure#

Prop 26’s defeat had several key consequences:

• No Legal Sports Betting in California: With both Prop 26 and 27 failing, California remains one of the largest U.S. states without legal sports betting, leaving an estimated $3 billion annual market unregulated.
• State Fees Remain Flexible: The legislature retains the ability to pass fees (e.g., on tobacco, plastic, or oil) with a simple majority, preserving funding for public health, environmental, and social programs.
• Tribal Gaming Status Quo: Tribes continue to dominate California’s gambling market but have not expanded into sports betting. Some tribes have since pushed for legislative compromises to legalize sports betting, but progress has been slow.

Conclusion#

Prop 26 was a complex initiative that tried to marry tribal sports betting expansion with tax policy reform. However, its downfall stemmed from voter confusion, opposition to its tax-reclassification provision, and a broad coalition of critics who framed it as harmful to public health and state services. While the debate over sports betting in California continues, Prop 26’s failure underscores the challenges of combining narrow special interests with broader policy changes in ballot initiatives.

References#

• California Secretary of State. (2022). “Proposition 26: Allows In-Person Sports Wagering at Tribal Casinos and Horse Racetracks. Initiative Constitutional Amendment and Statute.” Link
• CalMatters. (2022, November 8). “California Prop 26, 27: Sports betting initiatives fail.” Link
• Los Angeles Times. (2022, October 25). “Why California’s sports betting initiatives are so confusing.” Link
• American Cancer Society Cancer Action Network. (2022). “Oppose Prop 26.” Link