Nearly 175 years after the famed Pike’s Peak Gold Rush, Colorado has struck gold with a determined bid to bring legalized sports betting to the Centennial State.
Despite a global pandemic, sports betting hit the mark of launching on May 1, 2020 as four huge names, DraftKings, FanDuel, BetMGM and BetRivers all went live. This taking place just six months after the passage of Proposition DD on Election Night in November 2019, a measure that passed narrowly by a 51.4% to 48.6% margin, paving the way for licensed operators across the state to now accept bets on sports.
The passage of the referendum came months after the Senate passed HB 1327, by a 27-8 vote. After the House offered concurrence in May 2019, the bill went to the desk of Gov. Jared Polis. Under state law, Polis was given 30 days to sign, veto or take no action on the bill. Polis, a one-term Democrat, signed the bill into law on May 30, 2019.
With few options for sports bettors west of the Gateway Arch, Colorado is set to emerge as one of the most robust sports betting markets nationwide.
- Inside the provisions of HB 1327
- Colorado gambling legislation timeline
- Colorado’s land-based casino history
- Major gambling referendums since 2000
- Sporting betting policy in Colorado since PASPA ruling
- Smooth sailing
- TABOR Cap
- Tortured language
- Regulatory developments
- Immense challenges from 2020 global pandemic
- Daily fantasy sports
- Online poker and iGaming
- Robust sports betting market
Inside the provisions of HB 1327
The terse 37-page bill authorizes the state to collect taxes from licensed operators on the net proceeds of legalized sports bets. The bill also authorizes the state to direct revenues from the tax collection to a variety of public projects, specifically the implementation of the Colorado Water Plan, an initiative approved in 2015. The tax is expected to generate around $10 million for the state in Fiscal Year 2020-21, according to legislative estimates, with roughly $6.35 million apportioned to fund the Water Plan Implementation Cash Fund.
Here are the main takeaways from HB 1327 that bettors should know:
- Prohibits individuals under the age of 21 from engaging in mobile, online and in-person sports betting.
- Limits Master License application to the state’s existing casinos in Black Hawk, Central City and Cripple Creek. The 33 casinos, according to the law, are the only entities eligible to apply for a master license.
- Allows remote registration for account sign-up, so customers may register for a sportsbook account from their computer or mobile device
- Sets no upper limits on sports wagers. A May 2019 amendment that aimed to set a cap of $100 per bet was rejected by an overwhelming margin.
Relevant for operators to know:
- Allows licensed operators to offer retail, mobile and online betting.
- Establishes a new division within the Colorado Department of Revenue to regulate sports betting, with supervision from the Colorado Limited Gaming Control Commission (LGCC).
- Creates at least six classifications for sports betting licenses: Master Sports Betting Licenses (for existing casino properties), Sports Betting Operator Licenses (brick-and-mortar partners), Internet Sports Betting Licenses, Vendor Major Licenses, Vendor Minor Licenses and Manufacturer/Distributor licenses.
- Requires each Master Sports Betting Licensee applicant to pay a sum of $10,000 at the start of the application process, plus a $125,000 licensing fee upon approval.
- Sets the maximum license fee at $125,000.
- Calls for renewal of a license every two years.
Relevant for taxpayers to know:
- Sets a tax of 10% on the net proceeds of sports betting activity.
- Is accompanied by estimates that the licensing fees will generate around $5 million in revenue in Fiscal Year 2019-2020.
Key areas not covered in HB 1327:
- Daily Fantasy Sports
- Online Poker
- Other forms of iGaming
- Statutory mandates for “official league data”
Colorado gambling legislation timeline
The Colorado General Assembly in March approves HB 439 which sought to bring live, pari-mutuel horse racing to the state. Months later, a successful referendum creates the three-person Colorado Racing Commission (CRC), an entity responsible for overseeing pari-mutuel regulation statewide.
The Senate passes a bill, SB-82-119, that creates the State Lottery as a division under the Department of Revenue.
The Colorado Lottery’s first ticket, a scratch-off, is sold in January. The Colorado Lottery held its first draw in organization history on April 23.
Colorado approves a significant gaming expansion initiative, allowing casino gambling in several historic mining communities.
Voters approve a controversial amendment, the Colorado Taxpayer Bill of Rights (TABOR), by more than 100,000 votes. Authored by Douglas Bruce, a former member of the Colorado General Assembly, TABOR restricts state and local governments from raising taxes without approval through a statewide vote. Under TABOR, Bruce designed a complex formula that restrains government spending if the revenues collected by the entities grow faster than the rate of inflation and population growth.”
“Shall there be an amendment to the Colorado Constitution to require voter approval for certain state and local government tax revenue increases and debt; to restrict property, income, and other taxes; to limit the rate of increase in state and local government spending; to allow additional initiative and referendum elections; and to provide for the mailing of information to registered voters” — Colorado Initiative 1 (TABOR).
The measure amended Article X of the Colorado Constitution. Bruce appears to have met his goal of “reasonably restraining” the growth of government, as stated in the amendment. Since the passage of TABOR, Colorado has returned more than $2 billion to taxpayers.
Colorado rules against online gaming authorization, months before the passage of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).
The Colorado Limited Gaming in Central City, Black Hawk, and Cripple Creek Initiative, also known as Initiative 50, passes by more than 300,000 votes. The measure allows the casinos in the three towns to expand operations for limited casino gaming full-time to a period of 24 hours a day, seven days a week.
The Colorado Gaming Association helps draft a bill on online poker, but the effort gains little traction.
An expanded gaming referendum that would have brought casino gambling to state racetracks is defeated in one of the most costly campaigns in state history.
Rep. Alec Garnett (D-Denver), the House majority leader, on April 18 introduces HB 1327, a measure to place sports betting on the November ballot.
Polis signs HB 1327 into law on May 30.
Proposition DD passes in a highly contentious battle, marred by a state law that prevents the authors from articulating the tax structure of the measure. The proposition is adopted after the “YES” option prevails by a mere 43,982 votes.
FanDuel, DraftKings, BetMGM and BetRivers all go live online in Colorado, ushering a new era of legal and regulated sports betting.
Colorado’s land-based casino history
Colorado opened its doors to casino gambling in October 1991 courtesy of the Colorado Limited Gaming Act of 1991. It came months after voters overwhelming approved Initiative 4, a measure that allowed limited-stakes gambling in three mountain cities — Black Hawk, Central City and Cripple Creek. The act amended Article XVIII of the state constitution and legalized casino gambling in the three communities. The law prohibited the casinos from offering gambling activities between 2 a.m. and 8 a.m. daily.
The law stipulated that limited gaming could only take place in buildings that conformed to the “architectural styles and designs common to the areas prior to World War I” and were in line with the “requirements of applicable respective city ordinances, regardless of the age” of the structures. Furthermore, the amendment prohibited establishments from devoting more than 35% of the square footage from any building, as well as 50% of the square footage from a single floor for limited gaming activities.
The act limited casino activity to poker, slot machines and blackjack with single wagers of $5 maximum. The law also capped gaming taxes at 40% of a casino’s adjusted gross gaming proceeds, on top of any applicable licensing fees. Individuals under the age of 21 were prohibited from placing casino bets.
While a wave of mom-and-pop shops moved quickly to open their doors in Central City and Cripple Creek, the casino boom in Black Hawk took longer to materialize. Within a year of legalization, about 30 casinos opened in Central City with a combined total of about 4,200 slot machines. By comparison, Black Hawk had about half that total among a handful of casinos.
Major gambling referendums since 2000
Nearly 20 years after the Limited Gaming Act went into effect, voters were asked to decide on a major gambling expansion initiative in 2008. The measure, Amendment 50, sought to increase limits on single bets to $100 and extend casino hours to allow properties to offer gaming activities beyond 2 a.m.
In 2014, a group led by the owners of Arapahoe Park endorsed another measure that would have expanded casino gaming to thoroughbred racetracks across the state. With more than 2 million votes cast, Amendment 68 failed by an overwhelming 70.38% to 29.62% margin. The crushing defeat underscored Coloradans’ extreme antipathy to expanding casino gaming beyond the three mountain communities.
Arapahoe Park, located in suburban Aurora, pledged to spend $25 million upfront to foot the initial costs of the casino expansion plan. The amendment intended to expand limited gaming, through the use of video lottery terminals, to racetracks in Arapahoe, Mesa, and Pueblo counties. The measure also intended to establish a new K-12 Education Fund financed through the expanded gaming initiatives. In addition, Amendment 68 would have allowed the racetracks to offer an expansive menu of casino gambling, featuring craps, roulette, slot machines and a variety of card games.
Owned by Twin River Worldwide Holdings, the Arapahoe County track hosts two lucrative quarter horse stakes annually, the Mile High Futurity and the Mile High Derby, each with purses above $100,000. Two proposed racetracks in Mesa and Pueblo counties banked on the casino profits for significant revenue streams. The amendment allowed the tracks to add casino gaming five years after each facility opened its doors. Both projects eventually collapsed.
Sporting betting policy in Colorado since PASPA ruling
Following the U.S. Supreme Court’s historic PASPA decision in May 2018, former Colorado Department of Revenue director Michael Hartman issued a memo to the Colorado Attorney General’s office. The high court’s ruling gave the Colorado General Assembly the option to pass a statute or offer a public referendum to bring sports betting to the Centennial State.
Per the request, Hartman asked former Attorney General Cynthia Coffman to offer a formal opinion on whether any constitutional barriers under §24-31-1O1(1)(b), C.R.S. prevented the state from moving forward with plans to legalize sports betting.
Coffman, a Republican, published a formal opinion on Aug. 2, 2018. In essence, the attorney general determined that sports betting is constitutionally admissible since it does not conflict with existing provisions that dealt with standards on limited gaming.
“Although commercial sports betting is not subject to state constitutional restrictions, it falls within the definition of prohibited gambling under Colorado’s criminal code, making it unlawful. Consequently, to legalize commercial sports betting in the state, a statutory change- but not a constitutional amendment- would be required.” — Former Colorado Attorney General Cynthia Coffman.
Garnett crafted HB 1327 with the intent of curtailing the influence of the underground black market, he explained upon its introduction. Patrick Neville (R-45th District), the House minority leader, joined his counterpart from the other side of the aisle as a co-sponsor. Although the bill enabled Colorado’s 33 casinos to apply for a Master Sports Betting License, the legislation cut out Arapahoe Park and the state’s 11 off-track betting facilities.
The bill sailed through both chambers with minimal opposition. While Garnett received some criticism from the thoroughbred industry for preventing tracks from seeking licensure, the majority leader countered that the bill intended to grow economic activity by limiting in-person sports betting to the historic mining towns. The authors also received little pushback on the mobile component given the proliferation of online sports betting across the country.
The legislation allows licensed sportsbooks to offer wagers on professional and collegiate sports, sanctioned
motor sports, and Olympic sporting events, but prohibits them from accepting bets on high school sporting events. Additionally, licensed books are prohibited under HB 1327 from accepting proposition bets on wagers involving collegiate athletes.
Colorado has taken steps to impose strict conflict-of-interest restrictions. The following groups are not allowed to “hold an ownership interest” and are restricted from being employed by a sports betting operator or licensee:
- An athlete, coach, referee, employee, or the director of a sports governing body or any team
that is a member of a sports governing body;
- A sports governing body or any of its member teams;
- An agent, union, or union representative who advocates for players, referees or other
personnel involved in sporting events;
- A person who holds a position of authority that may exert influence over participants in a
- A person with access to nonpublic information about any sports event overseen by that person’s
sports governing body; or
- A person identified by the sports governing body to have potential conflicts of interest.
Professional and collegiate athletes residing in Colorado are also prohibited from placing a sports wager at a licensed sportsbook.
More than 25 years after the passage of TABOR, the amendment played an integral role in the fate of sports betting in Colorado. Since the enactment of legalized sports betting sought to amend a section of the state’s tax code, the bill needed to go before voters before it could be approved, based on the parameters of TABOR. In a twist of irony, the sports betting measure, Proposition DD, went on the ballot on the same day that voters decided on a separate proposition regarding the repeal of TABOR.
As required by law, Proposition DD implemented a TABOR cap of $29 million. By law, any tax revenue collected by the state government that exceeded the $29 million cap would have to be returned to taxpayers. At one point, legislators considered setting a tax rate as high as 16% on casinos’ net sports betting proceeds. An alternative measure contemplated a more progressive tax structure with a rate below 7%. Ultimately, the authors of HB 1327 settled on a 10% rate due to the TABOR constraints.
Fraught with abstruse language that confused voters on Election Day, the construction of Proposition DD contributed to a tense evening for sports betting proponents. Asked to vote “yes” or “no” on whether state taxes should be increased to finance a state water project and pay for the regulation of sports betting, the proposition omitted a critical phrase. The proposition didn’t call for an increase in state taxes, but rather state tax revenue. The wording is required under TABOR, which sets stipulations on how tax-related initiatives can be worded.
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?
“(The) results, while by a slim margin, were a pleasant surprise for a ballot measure that had horrible language and a lackluster campaign,” said Brendan Bussmann, director, government affairs at Global Market Advisors. “It provides a cautionary tale for other states that plan to or have to take sports betting to the voters that you need clear language and a solid campaign or you end up in a close one.”
Voters rejected a separate measure, Proposition CC, by a wide margin. The proposition sought to discontinue guaranteed TABOR refunds to taxpayers.
Weeks after the election, the Department of Revenue’s Division of Gaming held a series of stakeholder working group meetings aimed at assisting the division in developing fair rules, sound regulation and an implementation plan for legalizing sports betting. The working groups covered five pertinent topics, as the division set out to craft permanent rules on sports betting: General Rules, Compliance, Technology, Integrity and Information and Responsible Gaming.
At a public hearing in February 2020, the Colorado Limited Gaming Commission (LGCC) approved nine sports betting rules for permanent adoption. The commission set regulations on taxes and fees, duties of licensees and responsible gaming guidelines.
At the same time, the commission amended three sections while removing a hotly debated section on source data rights. The commission struck Section 8.4, which would have given the division the right to disapprove the source of data used by an operator. Prior to the amendment, the division had the option of disallowing a data source for any reason, including data collection methods and the licensing status of the data provider.
Although Colorado does not have a statutory mandate on the use of “official league data,” or data for in-game wagering provided strictly by a league’s governing body, the state is one of the first nationwide to craft regulations on independent integrity monitoring. According to regulations, sportsbook operators will be required to submit an annual report to the division summarizing their integrity monitoring protocols, as well as providing documentation of instances of suspicious activity.
The regulations also call for the designation of an independent integrity monitor, tasked with assisting the division in identifying anomalous cases. Representatives from Major League Baseball urged the division to craft rules that would require the monitor to alert pro sports leagues as expeditiously as possible when potential cases of fraud arise. Conversely, several sportsbooks cautioned regulators on the conflicts that could occur if third-party data providers that maintain commercial relationships with the league were designated as independent monitors.
The commission also reserves the right to reinsert the section on source data rights back into the permanent sports betting rules.
Immense challenges from 2020 global pandemic
Despite the unprecedented challenges brought by the spread of COVID-19, Colorado regulators worked assiduously to complete the administrative tasks needed for rolling out sports betting by a May 1 target. As every Colorado casino and the majority of casinos nationwide remained closed due to coronavirus concerns, the commission approved 16 licenses at a March 2020 hearing, including the Temporary Internet Sports Betting Operator Licenses of Fox Bet, FanDuel Sportsbook and PointsBet.
At a subsequent hearing in April, the commission approved 18 additional sports betting licenses, completing formal actions that brought Roar Digital, Penn Sports Interactive, William Hill U.S. and Rush Street Interactive into the marketplace. The LGCC held the meetings via video conference while the nation adhered to widespread stay-at-home guidelines. Within six months of the passage of Proposition DD, all 33 Colorado casinos applied for a master license.
During the crisis, Rev. Al Sharpton cautioned that low-income, service industry workers from communities of color could become the most vulnerable from an economic standpoint. Sharpton warned that out-of-state hedge funds with extensive records of firings could look to capitalize on mobile sports betting. As a result, Sharpton noted that the hedge funds’ forays into mobile should be monitored closely.
Daily fantasy sports
Colorado became the fifth state to enact legislation regulating fantasy sports when former Gov. John Hickenlooper signed H1404 into law in June 2016. Daily fantasy sports activities are currently overseen by the Colorado Department of Regulatory Agencies (DORA), Division of Professions and Occupations.
DORA completed a sunset review in early 2020 whereby the agency recommended transferring the regulation of DFS to the Division of Gaming. Once the transition is made, there are strong indications that DFS activities will be regulated through the gaming division, not the Department of Revenue’s sports betting division, according to Suzi Karrer, communications manager for the Colorado Department of Revenue.
A section in the Department of Revenue, Division of Sports Betting’s proposed rules initially placed fantasy sports on a list of prohibited sports events. Although high school sports and club-level equivalents remained on the list of prohibited events before a February 2020 LGCC meeting, the division removed fantasy sports.
Online poker and iGaming
In August 2005, former Colorado Attorney General John Suthers issued a memo cautioning Colorado residents against participating in illegal gambling activities, specifically online poker. While tournaments without a fee or buy-in are permissible in Colorado, state law prohibits the “transmission or reception” of gambling information by any means, the attorney general’s office explained in the memo.
“Not only is internet gambling illegal, it is risky,” Suthers wrote. “The player has no idea if the games are being conducted fairly or whether they will even be paid. Plus there are no regulatory controls prohibiting children from accessing the sites and playing.”
Former U.S. President George W. Bush signed UIGEA into law on Oct. 13, 2006. The law prevents “the use of certain payment instruments, credit cards, and fund transfers for unlawful Internet gambling.”
As Colorado leaders crafted legislation on sports betting, there was hardly any mention of online poker. Any online gaming bill passed by Colorado will likely be subject to TABOR.
Robust sports betting market
As one of the select states with franchises in all of the four major North American professional leagues, Colorado has been on the radar of large, global sportsbooks since the PASPA ruling. Look for a bevy of major sportsbooks to continue pursuing sportsbook partnerships with the Nuggets, Avalanche, Broncos, Rockies and possibly the Colorado Rapids of MLS as the market expands.
With or without online poker and other forms of iGaming, Colorado appears primed to develop into one of the nation’s most vigorous sports betting markets.
The top sportsbooks are certainly wagering on it.