The proposition was supposed to be simple: legalize and tax sports betting, fund the state water plan and solve a critical growth problem for Colorado.
In the dealer's choice of taxing and spending, everybody wins.
There are, however, no sure bets in politics and policy.
"The playbook has kind of gone out the window," said Dan Hartman, director of Colorado’s Division of Gaming.
He said there are too many unknowns right now to predict what, if any, revenue the sports tax might generate this year.
Now gaming officials estimate annual revenue will be as little as $1.5 million, far below the original $9.6 million, which itself was far below the estimated $100 million a year needed to pay for the plan in full.
Moreover, House Bill 1327 last year put aside $1.8 million for the Department of Revenue in the budget year that ends July 1 to pay for launching sports betting.
Colorado voters narrowly passed Proposition DD last November to allow the games to be operated by licensed casinos in the state. Sports wagering started May 1 in Colorado carrying a 10% tax. The historic launch, however, arrived with little fanfare as the state's gambling houses are temporarily shuttered for the coronavirus pandemic. That's not expected to change until at least June.
It’s hard to pump out proceeds from a sports-betting tax when COVID-19 has pushed athletes worldwide away from the fields, courts and stadiums where they would normally play. In relation, it's hard to have players in the wagering game.
But one look at the empty streets and shuttered casinos in Black Hawk and Central City makes clear that the future of sports betting and its promised tax revenues are uncertain at best, at least in the near term.
With a cratering economy, costly questions are yet to be answered about how and when the bet on Proposition DD will begin to pay off.
And that’s a problem for the Colorado Water Plan, a 2015 citizen-backed guide for helping Colorado stave off future water shortages and protect the environment while sustaining agriculture and other heavily water-dependent parts of the economy.
All officials can do now is wait to see if the state can ever pay for the political promise floated by Proposition DD.
"We will have to see how this rolls out and when sports get back to normal and what that looks like," Hartman said.
Never a jackpot
Skepticism about the salvation that betting offered the water plan have been around for awhile; in December the Joint Budget Committee heard projections already far below what was promised during the campaign for Proposition DD.
The Colorado Division of Gaming, part of the Department of Revenue, released an estimate predicting the tax would generate only between $1.5 million and $1.7 million in the fiscal year that starts on July 1.
Estimates presented to the legislature late last year, after voters approved Proposition DD, indicated that the new tax might generate as much as $9.6 million in its first full year of operation; enough to pay for regulatory and administrative costs, and provide perhaps as much as $6.3 million for the plan itself.
That’s a fraction of the $100 million or more water officials think it would cost to fully fund the plan on an annual basis, but it was an important first step in setting up a sustainable source of revenue.
Now the overall state budget is facing a budget deficit that could exceed $2 billion, roughly twice what it suffered during the Great Recession of 2008 to 2010.
As it turned out, the pot won't be nearly what was suspected because of the coronavirus pandemic, with a recovery that's liable to drain the pot more.
The need for tax dollars for water hasn't been questioned on either side of the aisle. The plan itself notes the state's explosive growth from about 1 million in 1930 to nearly 5.8 million today.
Like every bet, Proposition DD offered at least some revenue for the statewide water plan created by the Hickenlooper administration to address the state's dwindling supply against climate change and growth.
The problem with the much-ballyhooed Colorado Water Plan, however, was there was no money to pay for it. The backers left that to future governors and legislators to figure out, then ultimately turned to the voters to cover the wager for water.
The legislation to put the tax on the ballot sailed through the statehouse with bipartisan support, led by two of the Capitol's heaviest hitting players: House Majority Leader Alec Garnett of Denver and Republican leader Patrick Neville of Castle Rock, as well as Democratic Sen. Kerry Donovan and Republican Sen. John Cooke, the former sheriff in Weld County.
It was never as simple as it seemed, however.
"This bill has been a beast to work on," Neville said.
He doesn't gamble himself, but Neville's argument hinged on subverting the untaxed, unregulated offshore gambling online while beginning to solve the state's water problem and putting some money in gambling addiction services.
"I think if we bring it in and regulate it in a decent manner we will eliminate the black market," he said. "This will actually generate new revenue, and the majority of that revenue will actually go toward funding the Colorado Water Plan."
Garnett said 30 other states were doing the same as Colorado: taxing and regulating sports betting.
"I believe we will accomplish our goals, and we will start out on a small enough track that the voters will have confidence that we can regulate this responsibly and we can protect consumers," Garnett argued. "And we can generate revenue to go to one of our most precious resources, water."
Colorado's slow roll
Unlike states such as Mississippi and Louisiana that plunged into no-limits, Las Vegas-style wagering, Colorado has always taken a slow approach on locations and pots.
Low-stakes bets of $100 or less are permitted at casinos in Cripple Creek, Blackhawk and Central City that have provided slots, poker, craps and roulette since 1991.
The games pay for a lot of needs, locally and statewide, including historic preservation in gambling towns, community colleges, tourism advertising and help for gambling addiction. American Indian tribes in the towns of Ignacio and Towaoc also profit off casinos.
Because of the coronavirus, however, the rollout of Colorado's entry into sports betting will have to happen through mobile device applications or online sites.
Only four debuted on May 1 with four others planned to launch within days. Bettors had few choices — low-profile sports such as darts, table tennis and a few international soccer leagues — prompting companies offering online betting to debut free games in which customers can place "virtual" $5 bets on politics, entertainment, the weather or which Colorado professional team will next win a championship.
“There’s just nothing to bet on,” said Doug Kemper, executive director of the Colorado Water Congress, a nonpartisan industry group that represents several hundred of Colorado’s key water interests.
Existing daily fantasy sports applications from DraftKings and FanDuel started accepting bets in Colorado on May 1 and sites affiliated with casino giant MGM Resorts (BetMGM) and the Chicago-based Rivers casinos (BetRivers) also launched applications and online betting sites the same day.
At least four other applications, including three affiliated with Cripple Creek casinos, are expected to follow soon. The Colorado Division of Gaming has licensed 17 online wagering operators and 11 sportsbooks that will open inside casinos once those gaming properties can reopen.
"This is a different way of launching than what we thought would happen three months ago, but the whole world has changed since then" with the spread of the coronavirus pandemic that prompted Gov. Jared Polis to order casinos, bars, restaurants and many other businesses to temporarily close in March.
"Some of the operators are looking at this as a soft launch to get the bugs out."
Colorado still has odds in its favor, Hartman said.
"We have some great operators, an extensive catalog of sports (available for betting), a great landscape to do sports betting and a state that likes sports entertainment," he said. "(The numbers) will depend on when life gets back to normal."
Colorado regulators have approved an extensive list of sports on which wagering is allowed, including all major professional, college and Olympic sports and e-sports (video games sanctioned by a league). It also includes less well-known sports like Australian Rules Football, Gaelic Games and pesäpallo (Finnish baseball). The voter-approved law only allows bets on sports (politics, entertainment and the weather are off limits) and does not allow betting on any high school sports, proposition bets (such as who will score first or how many points they will score) on college sports or any other event involving players under 18 years old.
Bettors must be 21 years old and no betting is allowed across state lines, meaning the bettor must be in the state to make a bet with the app or online. Sports betting operators set their own betting limits by sport and league, likely depending on how much betting action is expected on a particular game or league. Operators also will decide to what extent they will accept parlay bets involving multiple games or sporting events .
Operators and investors wait in the wings.
Internet Sports International, for instance, hopes to launch Wildwood Casino's mobile application and online betting platform "as soon as possible" and a sportsbook inside the casino's Woody's restaurant as soon as casinos are allowed to open, said Matt Andrighetti, general manager of the Cripple Creek gaming property.
The sportsbook will include a bank of more than 20 television screens showing sports available for betting, he said. ISI also will offer mobile applications for the Colorado Grande and Johnny Nolon's casinos in Cripple Creek.
Construction continues on a $14 million, 102-room hotel adjacent to the casino with planned opening late in the year despite a few coronavirus-related delays, Andrighetti said.
DraftKings plans to launch its mobile betting application May 1 and plans to open a sportsbook in the Mardi Gras Casino in Black Hawk once casinos are allowed to open, said Matt Kalish, the company's cofounder and president of its U.S. operations. The company's daily fantasy sports mobile application has a large base of customers in Colorado who can now bet through the app, he said.
"There are a variety of international sports — table tennis, darts and some soccer — that are opening up and hopefully a month from now we will see major U.S. sports start popping up again," Kalish said. "Colorado is one of the state's where our fantasy products have been most successful and it is one of the few states in the western U.S. where sports betting has been legalized. We expect Colorado will be one of the better-performing markets in the U.S." for sports betting.
FanDuel launched its sports wagering application May 1 and has no plans to open a sportsbook in Colorado, said Mike Raffensperger, the company's chief marketing officer. The daily fantasy sports giant was attracted to Colorado by a "a phenomenal market with all four major (professional) sports, a reasonably large population, a culture of risk-taking and excitement and an independent spirit," he said. The first major event Colorado bettors will be able wager on is expected to be mixed martial arts event UFC 249 on May 9, he said.
Circa Sports is expected to launch Century Casino's mobile application "pretty soon after" the May 1 statewide sports wagering launch, said Eric Rose, Century's general manager in Cripple Creek. He said Century's Colorado Springs-based parent company, Century Casinos, is studying options for a sportsbook, but likely would operate from a kiosk inside the casino, rather than a larger and more elaborate facility.
British sportsbook operator Smarkets plans to launch a mobile application for Bronco Billy's Casino within days of the May 1 launch and a sportsbook operated by racetrack giant Churchill Downs would debut when the casino reopens, said Baxter Lee, general manager of Bronco Billy's. A second Bronco Billy's mobile application is planned later in the year by Las Vegas-based casino giant Wynn Gaming, he said.
Full House Resorts, parent company of Bronco Billy's, has halted construction on a 400-space parking garage to help weather the shutdown of all of its casinos. The garage is the first phase of a $120 million project consisting of a 150-room upscale hotel, a top-rated restaurant, meeting and event space for up to 1,000 people and an outdoor courtyard for events. The company also plans to rebrand its Christmas Casino, a holiday-themed casino that has remained unprofitable, Lee said.
Officials from Triple Crown Casinos, which owns the Brass Ass, McGrills and Midnight Rose casinos, and the Double Eagle Hotel and Casino, were not available for comment on their sports wagering plans. However, the Double Eagle had earlier announced plans to open a sportsbook and sports betting operation through Australian sports betting operator PointsBet. The PointsBet application is expected to launch within days.
Muddy road to recovery
Colorado casino profits have been climbing on par with the stock market the last few years. The proceeds from 2019 are expected to be robust when they're officially reported in June, but 2018 was a record year in Colorado and other domestic gambling market. U.S. gross gaming revenue was $41.7 billion in 2018, a 3.5% increase over 2017.
For the first time in 2018, casinos' electronic gaming devices — bettors' preferred method of wagering on sports — outpaced the growth from table games.
"Casino gambling expenditures show positive growth during expansions and no growth during recessions," states a 2012 study in the Journal of Gambling Studies that looked at the economy's effect on betting.
While gambling proceeds paid a heavy price in the last recession, "[t]here is very little understanding about how the general conditions of the economy influence gambling activities and only very few studies investigate whether and how gambling activities are influenced by the economic crisis," the study states.
But sports-betting revenue estimates were in trouble even before COVID-19 shut down sports.
By late December, the Department of Revenue had determined that the license fees on which revenue estimates had been partially based originally were set too high and would have to be brought down significantly, from $125,000 to roughly $1,200, according to the Division of Gaming.
“It’s definitely a major blow,” said Floyd Ciruli, a political analyst who followed Proposition DD, and who tracks water issues for the Colorado Water Congress.
Hartman said the Division of Gaming did approve a new operations fee, which will at least cover the cost of overseeing betting.
“While we didn’t get those license fees that were written into statute, we did impose a fee [on operators] that takes the cost of regulation out of the tax money,” Hartman said. “So whatever tax money comes in will all go to the beneficiaries,” including the water plan and gambling addiction programs.
How much state money, if any, can be salvaged elsewhere for the water plan this year isn’t clear.
The Colorado Water Conservation Board, which implements the plan, also receives funding from tax revenues generated by oil and gas production and those funds have helped pay for water plan programs. But that money is drying up as well due to the crash in oil markets. Because those revenues don’t flow to the CWCB in the year in which they’re received, their loss won’t hit the CWCB until the next fiscal year, which begins July 1, 2021, according to the Joint Budget Committee.
State agencies are expected to have a clearer picture of how much cash they will have to operate with once the Joint Budget Committee finishes work on a revised spending plan in early May. Until then each is evaluating various alternatives, officials said.
Becky Mitchell, executive director of the CWCB, said the agency hadn’t planned on big cash from the sports-betting tax anytime soon and that the news wouldn’t deter her staff from continuing to implement the plan.
“Just because we don’t have [that additional] money, doesn’t mean we stop working. It means we up our game,” she said.
Wayne Heilman is a reporter for The Gazette who can be reached at email@example.com. Jerd Smith is a veteran Colorado environmental writer who is the editor of Fresh Water News. She can be reached via email at firstname.lastname@example.org or @jerd_smith on Twitter. Fresh Water News is an independent, nonpartisan news initiative of Water Education Colorado.