Opinion: Unprofitable public companies have gambled away more than $200 million in California and lost a lot in the process

After Uber Technologies Inc. and Lyft Inc. spent a record amount on a California nomination two years ago and initially won, other public companies thought they had the key to writing laws in the Golden State.

They gambled and spent huge sums in the recent primaries for the world’s fifth largest economy. And they lost. Big.

Public companies spent a total of $217 million on two failed proposals in the California election last week, with the bulk of that money going into a massive failure to legalize online gambling. According to data from the California Secretary of State’s campaign post website, the largest spends came from online gambling companies, which spent a total of $169 million on Proposition 27.

Proposal 27, which aimed to legalize sports betting in California, was such a disaster that the online gambling industry shelled out about $108 apiece for 1.6 million “yes” votes. The measure, which lost by an 83% no vote, will go down in history as one of California’s most spectacular election blunders. The Mercury News first calculated this amazing per-vote spending data.

Most of the money behind Proposition 27, which aimed to legalize online and mobile sports betting for those 21 and older and to regulate the mobile sports betting industry, came from, you guessed it, online gambling companies. DraftKings Inc. DKNG,
+0.74%
spent a total of $34 million, including $17 million in 2022. During the third-quarter earnings conference call earlier this month, executives said the company stopped spending on the measure after the survey results became clear that this was the case will not succeed in California.

Other companies that helped fund the failed operation were FanDuel, which spent $35 million, BetMGM, a unit of MGM International MGM,
-1.57%
$25 million, FBG Entertainment, $25 million, Penn Entertainment Inc. PENN,
-0.88%,
$25 million, casino operator Bally’s Corp. BALY,
+0.49%
$12.5 million and WSI, part of Wynn Resorts Ltd. WYNN is
-2.63%,
$12.5 million. The measure provided for a 10% tax on betting, with funds going to homelessness and gambling programs and 15% to Native American tribes not involved in sports betting.

However, online gambling concerns were not alone. After Lyft LYFT,
-1.72%
managed to pass Prop. 22 with the help of rival Uber UBER,
-0.43%,
It decided to undertake another hack in California’s enactment of its own legislation with Prop. 30, which proposed an additional 1.75% tax on those earning at least $2 million annually. The tax would have been used to fund EV subsidies, create more charging stations and fund wildfire efforts, which would benefit Lyft as the ride-sharing company seeks to electrify its fleet by 2030.

Lyft spent $45 million out of a total of $48 million spent on Prop. 30, which had a decent catch as a “millionaires tax” that promised its funding would focus on climate change-related issues. But the ride-sharing company’s millions met an unexpected enemy: Gov. Gavin Newsom, who launched a campaign against the measure that focused on Lyft being one of its biggest supporters.

Also Read: More on Trying “Millionaire Taxes” in the Primary Elections

Newsom called the measure a “Trojan horse that puts corporate welfare ahead of tax welfare” by the state of California, and many voters viewed Proposition 30 as a way to help Lyft and other ride-hailing companies pay for any necessary transition to electric vehicles. The state of California has banned the sale of gas-powered vehicles after 2035, and ride-hailing app companies must cover 90% of their EV mileage by 2030.

Prop. 30 lost with 58.4% no votes. Curiously, the only California county that voted in favor of Proposition 30 was San Francisco, the hometown of Lyft and Newsom. The city also voted on an additional CEO tax in the last election.

Separately DaVita Inc. DVA,
+0.45%,
a kidney dialysis treatment company, spent $51 million in the second and third quarters to defeat Proposition 29, which aimed to regulate kidney dialysis clinics. Her non-deductible electoral expenses eventually paid off for the Denver-based company. Motion 29 lost with 69% no votes.

It’s important to note that the vast sums of money spent by two grossly unprofitable tech companies trying to draft legislation were a huge waste of money. Both Lyft and Draftkings have not been profitable since their IPO, and spending heavily on voting is a risky game.

Tech companies may have suffered huge losses this election year, but that probably won’t stop them from trying to use their wealth and influence to change the law in their favor. Executives at the DraftKings conference told analysts they remain confident that states, which make up 65% of the US population, will eventually allow legalized online sports betting, and executives seem to think they’ll be back with another bite in 2024 a potentially huge market for sports betting.

Even Lyft and Uber’s Prop. 22 victory was hollow, as an appeals court ruled that the law — which would have allowed gig economy companies to treat workers as contractors instead of employees — was unconstitutional. These two unprofitable companies are still fighting the verdict and are likely to face non-compliance charges if they fail.

When an unprofitable company has to spend millions of dollars every election year to adapt state laws to its business model, investors should think twice about owning those stocks. The tech motto of moving fast and breaking things doesn’t always work, and it looks like it won’t work in California anymore.

MarketWatch senior reporter Levi Sumagaysay contributed to this article.

Source