Explaining A Confusing Sports Betting Referendum In Colorado

Explaining A Confusing Sports Betting Referendum In Colorado
© USA Today

Editor's note: First in a series of articles about the decision Colorado voters face in November regarding sports betting in the state.

DENVER — Colorado is poised to legalize sports betting in November — if voters can get past the oddly worded referendum question on the ballot.

Proposition DD — the referendum — mentions tax increases and water reclamation projections before anything related to Colorado sports betting. Referendum backers, including an unusual coalition of politicians, sports betting advocates and water conservationists, fear the wording could dissuade “yes” voters – even if a majority of them support the initiative.

Instead of simply, “Should Colorado legalize sports betting?” the question reads:

"Shall state taxes be increased by twenty-nine million dollars annually to fund state water projects and commitments and to pay for the regulation of sports betting through licensed casinos by authorizing a tax on sports betting of ten percent of net sports betting proceeds, and to impose the tax on persons licensed to conduct sports betting?”

With just a few weeks before the Nov. 5 Colorado election, even would-be legal sports bettors are having trouble understanding just what they’re voting on.

On a recent NFL Sunday in Denver, Tim was placing a bet ahead of Kansas City’s game against Indianapolis with a bookmaker in South Dakota. The Colorado resident, who asked to be identified only by his first name, supports legal sports betting, but is worried about the clarity of the ballot measure.

Tim is far from alone. The non-partisan Flesch-Kincaid Grade Level metric, which projects education levels necessary for a voter to comprehend a ballot question, estimates a voter would need a graduate degree to understand Proposition DD.

"I have two college degrees,” Tim said after reading Proposition DD for the first time, “and I was like ‘It’s confusing as hell.’ ”

What A Yes Or No Vote Means

If a majority votes “yes,” sports wagering will be legal at licensed brick-and-mortar sportsbooks at the state’s casinos, and would also give them the option to take bets online. Though the proposition’s wording begins with a tax increase, the sports betting operators would be the only entity paying taxes: It would have no impact on taxpayers, even if they placed a sports bet.

The majority of the tax revenues would go to government water projects that would have statewide benefits designed for all state residents. It will also cover paying for sports betting regulations as well as gambling addiction services.

More practically, it would mean Tim — and more than 4 million other Coloradoans — could place a bet with their phone legally from their favorite sports bar, Mile High Stadium or anywhere else with internet access within the state’s 104,000-square miles, potentially as early as May 2020.

Mile High Stadium in Denver.
If the referendum is approved, Broncos fans at Mile High Stadium could be placing bets as soon as the 2020 NFL season.

If a majority votes “no,” sports betting in Colorado remains illegal. There will be no new taxes for water projects (or anything else).

The Colorado Legislative Council Staff’s 2019 Blue Book, which was recently mailed to Colorado voters, creates a more-detailed explanation behind both a “yes” and “no” vote. Still, government-authored voter referendum explainers aren’t exactly hot reads.

The simple reality is the convoluted referendum wording doesn’t do the “yes” vote any favors.

“If it's worded like that,” Tim says, “everybody is going to say no.”

Though the legislation was overwhelming approved by elected officials, Colorado lawmakers had to put the sports betting or, more accurately, the taxes behind sports betting, up to a vote of the people. That’s because Colorado is the only jurisdiction in America with a statewide Taxpayer Bill of Rights or “TABOR” clause in its constitution.

TABOR means any tax passed by lawmakers must be approved by voters. It also requires these ballot measures to phrase any question as a tax increase, even if it has little (or no) impact on individual taxpayers, as with Proposition DD.

In Arkansas, the only other state to so far put sports betting up to a public vote, the ballot measure (albeit more than 700 words long) clearly is about gambling. In Colorado, TABOR required the measure to address the tax implications.

Sports betting supporters in the legislature tried to find ways to better convey the question, but state officials in charge of ballot language determined there was no way around TABOR’s mandate. Question DD must begin its description as a tax increase, they concluded.

As anyone following Colorado government will assure you, it hasn’t made passing any new taxes any easier – even those that apply solely, as with Proposition DD, to casino owners.

”The biggest challenge is telling people, or explaining to people, that this is not a tax on them,” said political analyst Floyd Ciruli, director of the Crossley Center for Public Opinion Research at the Korbel School of International Studies at the University of Denver.

Why Sports Wagering Depends On Taxes

The driving force behind what the government documents as HB19-1327 was to generate tax revenues for the state, and its water infrastructure in particular. But passing tax legislation in Colorado, as noted earlier, is never simple.

Authored by former Colorado House representative and anti-tax crusader Douglass Bruce in the early 1990s, the amendment places staunch limitations on taxes that are far more restrictive than in any other state. In subsequent years, Bruce was convicted of, among other felonies, tax evasion, but that was after he preached the gospel of low taxes well enough to convert a majority of Colorado voters to approve TABOR in 1992.

RELATED: Colorado sports betting vote: Proposition DD key questions

Voters in more recent years have eased some of the more draconian restrictions that prohibited tax increases even when specific measures of GDP and population increases generated more revenue. But the crux of TABOR – that all new tax increases must be approved by voters – remains enshrined in the Colorado constitution.

Lawmakers looked at multiple ways to tax sports wagering that wouldn’t be subject to TABOR, including taxing individual bets in a manner more akin to a sales tax. That idea was dismissed when elected officials considered the adverse effects that would have on would-be bettors.

An individual bet tax would ostensibly require betting purveyors to pass on extra vigorish to the wagers, which would drive away players to the illegal options now readily available to anyone with Internet access. No player would take a bet on the Broncos -200 from the government-sanctioned site when they can get them +150 through an offshore sportsbook, no matter how much it could help fund water enhancement projects.

Instead, the bill’s authors settled on taxing sportsbooks’ winnings, a model used by every other U.S. state with legal wagering. Taxes under the passed bill are derived entirely from the hold sportsbooks keep on bets. Department of Revenue staff floated rates between 6.5% to 16%, but lawmakers settled on a 10% tax on sportsbooks’ winnings, which puts it in line with most other states.

The bill’s sponsors and gaming industry officials believe it will create a sweet spot that allows government-regulated offerings to encourage competitive betting lines that will attract players from the black market and generate enough tax revenue to make the endeavor worthwhile.

That taxing decision, most in the gambling industry would agree, was necessary to permit the market to be successful.

How Sports Betting Overcomes TABOR

Even the most ardent Proposition DD supporters admit the first five words – “Shall state taxes be increased” – will turn off a large number of voters. A portion of the electorate will stop reading there and mark “no” without a second thought.

"It's frustrating because we want to be able to help people,” said Rep. Brianna Titone, one of the bill’s co-sponsors, in an interview with Gambling.com. “We have these restrictions, and asking people for more money is virtually impossible.”

For those who get to word six, Proposition DD lays out the specific value of the tax increase before explaining said taxes would be used to fund water projects. It’s not until the 26th and 27th word of the 56-word ballot measure that “sports betting” is mentioned. It's hard to see how an average voter wouldn’t interpret this as some sort of tax to fund new water issues.

That water “tax” may be the ace in the hole.

Campaign advocacy groups on behalf of Proposition DD have raised more than $1 million for the “yes” vote. The groups have preached to voters the dire need to finance underfunded water infrastructure for Colorado’s burgeoning population.

Sports betting is just a corollary in most of the proposition’s supportive marketing. In television spots, a Colorado rancher highlights the benefit to the state’s agriculture industry. In a radio ad featuring Rep. Alec Garnett, the House majority leader explains how all residents can benefit from new water projects, which just so happen to be funded by sports bets.

The other core tenet of the advertising is an explanation of the tax. Succinctly, this is a tax on casinos. Not you. The only party to pay a tax would be the authorized sports betting operators, all of which would be casino purveyors with facilities in the three casino mountain towns.

TABOR, however, doesn’t delineate – a tax is a tax, and the people must have final say. For some voters, that intractable mandate is enough to reject DD, even when it benefits their drinking water and only taxes casinos they have no requirement to patronize.

The unlikely alliance between sports betting supporters, water conservationists and state politicians is hopeful this two-fold approach to voters – this helps your water and doesn’t raise your taxes – will be enough overcome TABOR’s mandate and draw enough voters to the “yes” camp.

Though the outcome of Proposition DD remains very much undetermined, the fact Colorado voters will even have the choice to approve sports betting in 2019 seemed almost impossible just a few years ago.

Federal Repeal Opens Nationwide Betting

After decades of federal prohibition on nearly every form of sports betting outside Nevada, the Supreme Court unexpectedly took up New Jersey’s legal challenge to the national ban in 2017. Citing the 10th Amendment’s protections on state’s rights via the Constitution’s anti-commandeering clause, a majority of justices sided with New Jersey and struck down the federal ban in May 2018.

This interpretation didn’t technically legalize sports betting nationwide, but instead allowed each of the 50 states to authorize these games.

There are 13 states taking bets now, and another five (plus the District of Columbia) are likely to accept their first legal wagers by next year. Up to two dozen additional states are expected to take up sports betting bills in 2020, and at least half of that group has good odds to pass these measures before 2021.

The Supreme Court’s May 2018 ruling came too late for Colorado lawmakers to take up a sports betting bill before the state’s legislative session concluded that year, but the legislature, and Garnett in particular, aggressively pushed sports betting during the 2019 session. Garnett tweeted his support for exploring Colorado sports gambling shortly after the decision announcement and began pitching the idea to fellow lawmakers that summer.

"I thought that it was a no-brain step to find a way to legalize it in Colorado, to build a competitive marketplace that isn't too big, that it's burdensome to regulate, but it's big enough that it's competitive and it gives consumers choice,” Garnett told Gambling.com.

Colorado Gov. Jared Polis, left, who signed sports betting legislation this summer, sits with Rockies ower Dick Monfort during a Rockies game against the San Diego Padres at Coors Field in June.
Colorado Gov. Jared Polis, left, who signed sports betting legislation this summer, sits with Rockies ower Dick Monfort during a Rockies game against the San Diego Padres at Coors Field in June.

Elected officials decided early in the process to direct the majority of tax revenues from sports gambling to water enhancement projects, another incentive that helped push wavering lawmakers (and those who otherwise wouldn’t concern themselves with sports gambling) into the “yes” camp.

Less than two months after the bill was introduced, legislators in Denver agreed to a sweeping measure that would allow essentially online sports betting access everywhere. After months of behind-the-scenes negotiations with potential gambling stakeholders, lawmakers agreed brick-and-mortar sportsbooks would be permitted exclusively in the state’s historic gaming communities of Black Hawk, Cripple Creek and Central City. The 33 casinos spread between the three cities would also have the only rights to partner with third-party vendors for online wagering, which makes up the vast majority of revenues in states with legal mobile betting.

This disappointed gaming entities outside those communities, but lawmakers ultimately determined there was no other way to pass this bill. Gambling expansions for jurisdictions outside the three towns, all of which are in rural parts of the Rocky Mountains, had been rejected repeatedly by the public, and lawmakers feared sports betting would suffer a similar fate.

“I think it would, would've rubbed people a little bit,” said Garnett, who was the most prominent House leader pushing the bill through the legislature. “It would have been too risky at the outset.”

The final bill overwhelming passed with degrees of bipartisan, bi-cameral support unrivaled by nearly any other states considering sports betting. Gov. Jared Polis quickly signed the bill, and sports betting was approved by the Colorado government this summer.

Voters Hold Final Approval

Especially when compared to other states considering sports gambling legalization, Colorado lawmakers moved quickly to advance legal sports betting. But since it included a tax on the casinos taking sports bets, it now has to go to the voters via the ballot measure. It’s now up to Colorado residents.

“I know hundreds of people that do it and don’t get in trouble for it right now, so what’s so wrong with making it technically legal when it already happens?” says Tim, the sports bar bettor. “I think Colorado has made money on things like that before, like marijuana and the lottery. People are doing it anyway, they made it legal and look how much money went to the state.

“If the state is going to make more money, you might as well approve it.”

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