Water Protection and Sports Betting: How Coloradoans are Funding Conservation Efforts

Denver Professional Sports Scene

Colorado is one of only four states in the continental U.S. that houses a sports team in each of the four major professional leagues: MLB (Major League Baseball – Rockies); NHL (National Hockey League – Avalanche); NBA (National Basketball Association – Nuggets); and NFL (National Football League – Broncos). And everyone in Colorado is on board— once September arrives each year, the sea of orange has less to do with the changing leaves and more to do with NFL’s most loyal fan base. During the winter months, those leaving downtown Denver after work can count on an extra 15-20 minutes as they try to escape the inevitable stampedes to Ball Arena. And in my admittedly biased opinion, there isn’t much that tops a spring evening ballgame at Coors Field.

Historically though, any personal benefit to engaging with professional sports has been predominantly social rather than fiscal. In fact, one might even say that you could count on financial loss when attending a sports game – the tickets, the food and beverage, the transportation, more food and beverage.

The Legalization and Rise of Sports Betting

But people are now regularly making money off professional sports,[1] and you would be hard-pressed to meet anyone who hasn’t at least heard of FanDuel or DraftKings, two of the most popular online sports betting platforms.[2] So, what happened – why is this $10 billion/year industry[3] in the United States only now surfacing and thriving?

Some quick legal background: the United States was founded under the principle of federalism, which in its simplest terms gives all powers to the States if not granted to the federal government by way of the Constitution.

In 1992 Congress, relying under one of its enumerated powers,[4] enacted the Professional and Amateur Sports Protection Act (“PASPA”)[5]. PASPA, amongst other things, made it unlawful for any state to “sponsor, operate, advertise, promote, license, or authorize by law” any sort of betting based on competitive sports.[6] The law didn’t criminalize those who engaged in sports betting per se; it simply allowed the Attorney General to enforce the law.[7]

It took just shy of 30 years – but in 2018, the Supreme Court interpreted PASPA after the New Jersey legislature repealed a law which had previously prohibited sports betting.[8] According to the Supreme Court, this repeal was effectively an authorization, and so was a direct violation of PASPA.[9] But nevertheless, the Supreme Court invalidated PASPA because it was in contradiction with the principles of federalism and the anti-commandeering principle grounded in previous caselaw: the federal government may regulate private individuals, but not force States to regulate.[10] And so, as Justice Alito put it: “Congress can regulate sports gambling directly [in the future], but if it elects not to do so, each State is free to act on its own.”[11] And that is what 38 of the 50 states has done, Colorado being one of them.

In response to the Supreme Court decision, Coloradoans passed Proposition DD[12] in the fall of 2019, which legalized sports betting, and no doubt led to an increase in FanDuel and DraftKings accounts operated in the Centennial State. But that’s not all that Proposition DD effected – with just over 51% of the vote,[13] the legalization of sports betting in Colorado was coupled with an increased tax, capped at $29 million, levied against those licensed to conduct sports betting in Colorado, including the operation of online sports betting.[14] So where does this tax revenue go?

Sports Betting Funds Water Conservation Efforts in Colorado

As of now, up to $29 million is used to “fund state water projects and commitments and to pay for the regulation of sports betting.”[15] Essentially, the funds from the tax revenue are first used to cover an array of costs related to the regulation and operation of sports gambling in Colorado.[16] All remaining tax revenue, up to $29 million, is used to fund several state projects aimed at conserving and protecting Colorado’s water.[17] Importantly, any amount in excess of $29 million goes back to the sports betting operators who paid the tax.

Undoubtedly, nobody could have predicted the impact that online sports betting has had since the Supreme Court ruling. One study found that commercial sports betting revenue has increased 12-fold since 2019, the year that Proposition DD was first approved by Colorado voters.[18] In response, the Colorado legislature has proposed HB 24-1236, which will effectively eliminate the $29 million cap – all tax revenue will be retained by the State and distributed for the purpose of water protection and conservation in Colorado.[19]

As noted above, Proposition DD passed with just 51% of the vote. But while the legalization of sports gambling may have been the obvious aspect that attracted the most attention, there were two important pieces that were also approved by the voters with Proposition DD: (1) operators of both in-person and online sports betting operations would be taxed on their proceeds, and (2) up to $29 million could be used by Colorado for environmental purposes. It is important for Coloradoans to understand the relation between sports betting and environmental efforts in Colorado. Whether HB 24-1236 passes by significantly more than 51% will provide some additional insight as to why there was so much opposition to Proposition DD in the first place.