On the last day of the 2019 state legislative session, the Colorado General Assembly passed a bill to ask voters whether to legalize and tax sports betting. The referred measure, now known as Proposition DD, had bipartisan sponsorship and overwhelming support from the legislature. Yet, because of the way it had to be written, Proposition DD could face opposition from a statewide electorate who, by and large, disfavors the imposition of new taxes.
Proposition DD does not straightforwardly ask whether Colorado should legalize and tax sports betting, but rather follows the complex linguistic formula required by a peculiar Colorado law called the Taxpayer’s Bill of Rights, or TABOR:
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 operations?
TABOR wholly shifts the taxing power from the legislature to the voters. This means that while the state legislature could act on its own to legalize sports betting, it lacks the authority to levy a special tax on the industry. Here, the legislature has proposed a 10% tax on net sports betting proceeds, to be paid by the casino operators and largely dedicated to pay for projects under the state’s water conservation plan. As required by TABOR, the law sets a $29 million annual cap on this new special tax, and any tax collected in excess of that amount would have to be refunded to the taxpayers in some way.
Therefore, because TABOR requires Proposition DD to be framed in terms of a tax, voters are first asked whether they want to increase taxes, as opposed to simply asking whether voters want to legalize sports betting in a manner that taxes only casino operators (and not the general public), and uses the money to pay for water conservation projects. Advertisements in support of Proposition DD have already started, and they focus on highlighting who pays the tax and where the money goes, rather than that the referred measure increases taxes.
Proponents have specifically analogized how Proposition DD would use taxes from sports betting to fund water projects to how the state lottery’s proceeds are used to preserve and enhance parks and open space. A new tax on a new source of revenue, Proposition DD is also similar to the voter-approved tax on marijuana.
The law creates three new categories of licenses: Master License, Sports Betting Operator License, and Internet Sports Betting Operator License, each good for a term of two years and renewable thereafter. Only existing Colorado casinos, located in approved gaming towns (Black Hawk, Cripple Creek, and Central City), are eligible to apply for a Master License, allowing them to operate retail and online sports betting. Operators of retail sportsbooks must apply for a Sports Betting Operator’s License, while operators of online sports betting would apply for an Internet Sports Betting License, each of which would be offered under the casino’s Master License.
There is only one online sports betting site (or “skin”) allowed per master license, and many of Colorado’s casinos are already entering into agreements with third-party online sports betting operators in anticipation of Proposition DD’s passage. Importantly, because casinos are limited to the three relatively remote cities mentioned above, many industry participants were happy to see that internet and mobile signup will be permitted, meaning customers are able to create and fund accounts to wager online without visiting a casino in person.
If voters approve Proposition DD on Nov. 5, sports betting would become legal on May 1, 2020. However, this is not the final step in authorizing sports betting in Colorado. The Colorado Limited Gaming Commission must still issue regulations to establish the license fees that will be assessed and other important requirements. In addition, the cities of Black Hawk, Central City and Cripple Creek are voting on companion referenda in November to allow retail sports betting in those cities.
Proposition DD is receiving support from many groups, including the Colorado Chamber of Commerce, the Denver Metro Chamber of Commerce, the Colorado Gaming Association, accompanied by numerous other local organizations, chambers of commerce and elected officials.
For more information, contact any of the attorneys below or with the firm’s Gaming Law Group. Keep track of state ballot initiatives with Brownstein’s Colorado Ballot Tracker.
This document is intended to provide you with general information regarding Colorado Proposition DD. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.