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Colorado Gambles on Proposition DD, to Legalize Sports Betting
Photo-illustration by Jay Vollmar; photos from Getty Images

Colorado Gambles on Proposition DD, to Legalize Sports Betting

“Who are you betting on?” Representative Leslie Herod asked House Majority Leader Alec Garnett at a House Finance Committee hearing in April.

“Thank you, Madame Chair. Luckily — and I hope everyone’s listening, and I know they’re in the crowd — Joe Flacco is the quarterback of the Broncos, and I think the future on whether or not the Broncos are going to be in the Super Bowl in the AFC West are pretty high…,” Garnett replied, before Herod jumped back in.

“Mr. Quarterback, are you here today?” she asked. “Mr. Quarter...no? Okay, please proceed.”

“Is Mr. Flacco here to testify? Is Mr. Flacco here? No he’s not,” Garnett continued, as laughter echoed through the chamber.

The lawmakers’ banter — and Garnett’s highly questionable Super Bowl prediction — came during a committee hearing where legislators were assessing the merits of legalizing sports betting in Colorado. With bipartisan support, the bill soon made it through the full House and Senate; Governor Jared Polis signed it at the end of May. Now voters will have the final say on Proposition DD in November — not because the legislature thinks that the people should have the right to decide whether sports betting is allowed in Colorado, but because the Taxpayer Bill of Rights, the 1992 voter-approved constitutional amendment known as TABOR, requires that any proposed new taxes be authorized by the people, and there will be a tax on these bets.

In this case, though, the tax won’t be paid by all the people of Colorado. Instead, it will come from a 10 percent tax on the revenues generated by sports bettors at casinos and through mobile-app companies authorized to allow such bets. But the vast majority of the tax money collected will go to the state’s water plan.

If DD passes, that plan will be one of the big winners in the push for legalized sports betting. But, as with all bets, there will be losers, too.

Alec Garnett, a Broncos fan, championed the sports-betting bill in the legislature.EXPAND
Alec Garnett, a Broncos fan, championed the sports-betting bill in the legislature.
Wikipedia Commons/Jeffrey Beall

In the United States, sports and betting go hand in hand. Fans love to bet on both the favorite and the competitors likely to knock out a champion, whether Jack Dempsey or Seabiscuit. But the government hasn’t always been as fond of betting.

In 1910, states across the country banned almost all forms of gambling during an economic downturn.

According to Sports Betting Dime, a website used by bettors to increase their odds of winning, the ban came at a time when populism was on the rise, so “many developed a strong distaste for activities associated with the super-rich, including horse racing.”

Betting didn’t disappear, though. Instead, a black market developed.

In 1919, the Black Sox Scandal rocked the sports world. Eight Chicago White Sox players were charged with throwing the World Series against the Cincinnati Reds. Although the players were eventually found not guilty in court, the lifetime ban they received from the commissioner of Major League Baseball and their alleged connections to East Coast mobsters left an indelible stain on both professional sports and sports betting.

In 1931, Nevada’s legislature voted to lift its gambling ban as a way to help the state’s economy during the Great Depression. Then in 1949, Nevada authorized the opening of the nation’s first legal sports book — a place where people can go to bet on sports — in Las Vegas.

Two years later, though, the feds imposed a 10 percent excise tax on all sports-betting operations, and Nevada’s legal books struggled to compete with the black market. In 1961, the Kennedy administration signed the Wire Act and a handful of other pieces of legislation into law to fight against the Mafia syndicates that were running black-market sports-betting operations. In 1974, the Nixon administration dropped the excise tax down to 2 percent, enabling the legal sports books to compete with the remaining black-market operators. A year later, the first sports book opened inside a Las Vegas casino.

In the meantime, many states had legalized betting on horse races within their boundaries. In 1978, Congress passed a bill allowing people to bet on horse races outside their state, too. And sports betting in Vegas got another boost in 1984, when Congress dropped the excise tax down to .25 percent.

But in 1991, two years after Pete Rose was banned from Major League Baseball for life when the league determined that the all-time leader in hits had bet on games when he was a team manager, the Professional and Amateur Sports Protection Act was introduced in the U.S. House of Representatives. PASPA was essentially designed to prohibit legalized sports betting in any more states. By then, Nevada had a robust sports-betting market, while Montana, Delaware and Oregon had limited sports betting; the proposal included exceptions for these states. (Betting on horse races was also exempted.) PASPA passed both the House and Senate relatively easily, and President George H.W. Bush signed it into law in 1992.

As a result, for twenty years, most people who wanted to place sports bets either traveled to Las Vegas or found local bookies or offshore sites that allowed illegal bets.

Then in 2012, New Jersey’s legislature passed a bill to allow sports betting at casinos in Atlantic City and at the state’s racetracks. The NCAA and major sports leagues were quick to react and sued the state, citing PASPA. New Jersey battled against PASPA in court for the next six years. But in May 2018, the U.S. Supreme Court had the final word, declaring PASPA to be unconstitutional.

“The Supreme Court blew up the dam,” says Kevin Braig, an Ohio lawyer who’s an expert on the legal aspects of sports betting.

One by one, other states started looking into legalizing sports betting. A handful of them, including New Hampshire, Indiana and Pennsylvania, have already passed laws allowing it, while many more are planning to follow suit. “New Jersey has generated significant revenue for the state through sports betting, and it’s a copycat world,” Braig explains. “All the other states are copying that expansion, with their own unique tailoring to what works.”

If Proposition DD passes, fans will be able to place bets in casinos.EXPAND
If Proposition DD passes, fans will be able to place bets in casinos.
Anthony Camera

Following the Supreme Court’s landmark ruling, Representative Alec Garnett, a Democrat who was elected to the Colorado House in 2014 and represents central Denver, started exploring the possibility of a sports-betting legalization bill for Colorado.

“I don’t think it’s any secret — I’m a huge Broncos fan,” Garnett says. “I like sports, and I had worked on other legislation that had to do with money in sports, and I wasn’t afraid of the issue.” In fact, Garnett had co-sponsored a bill passed in 2016 that regulated fantasy sports in Colorado, allowing fantasy-sports operators to become licensed in this state.

Colorado already allowed other forms of betting. In 1990, voters had approved legalizing “limited stakes gaming” in three mountain towns: Black Hawk, Central City and Cripple Creek. Initially, bets were limited to under five dollars, but in 2008, Colorado voters approved raising the maximum bet to $100 and allowing casinos to operate 24/7. A percentage of the revenues were already going to the three towns and two counties where the casinos were located, as well as the State Historical Fund; some of the additional revenues from this expansion in both size and hours was now earmarked for community colleges.

The state has continued to allow betting on horse racing in Colorado (betting on dog races was also legal, but this state’s tracks have closed), and horse and dog racing outside of Colorado. People can also participate in bingo games and raffles sponsored by nonprofit organizations, as well as the Colorado Lottery.

None of these legitimate gambling operations were allowed to host sports books, however.

In August 2018, then-Colorado Attorney General Cynthia Coffman penned a formal opinion on the path forward for sports-betting legalization in Colorado. She determined that sports betting could be legalized in this state with a statutory, rather than a constitutional, change. Coffman based her conclusion in large part on the theory that sports bettors can increase their odds of success using skill. In other words, sports betting doesn’t rely solely on chance, like a lottery.

Ben Cary, a Denver resident who runs CapWize, a website designed to help bettors put themselves in a position to win, agrees with Coffman. “It’s definitely a game of skill when somebody is putting the research in and following the statistics,” Cary says.“But 95 percent of sports bettors are recreational bettors.”

But Coffman’s opinion didn’t depend on the percentage of people who use skills when they bet. And it cleared the way for legislators to move forward with a bill. Because it would involve a new tax, the proposal would still have to go to the voters, but because it would be statutory and not constitutional, it would require a simple majority, not two-thirds of the vote, in order to pass out of both houses of the legislature. A simple majority would also be enough to get it approved by voters, rather than the 55 percent of votes required for a constitutional amendment.

The Colorado Department of Revenue also weighed in. After studying legal sports betting in other states, it issued a memo in December 2018 that suggested the casinos in Black Hawk, Central City and Cripple Creek, where gambling was already legal, should be allowed to apply for sports-betting licenses; it also recommended that the Arapahoe Park racetrack and off-track betting sites be eligible for licenses. The memo mentioned the possibility of adding a mobile betting application component, too, so that people could still bet on their phones when they weren’t at a licensed sports-betting facility.

The department recommended that the state set a tax rate of between 6.5 and 16 percent of the net revenue that a license owner pulled in from sports betting.

In the final bill, legislators settled on 10 percent, which guarantees that sports-betting operators can make some profit while also taking out a sizable chunk for the state. They had to guess at how much revenue would be generated by the tax, setting a TABOR cap at $29 million annually. Anything more, and money would be refunded to state taxpayers.

Under the language of the bill, a portion of the taxes collected will go toward repaying the $1.74 million required for setting up the DOR’s sports-betting enforcement operations. Six percent of the annual tax revenues will go toward organizations that may be negatively affected by sports-betting legalization, such as off-track betting sites. There’s also $130,000 designated for services related to gambling addiction, which is one reason that gambling-addiction associations registered as neutral on the bill. The federal government will also take .25 percent out of the net proceeds of sports-betting operations at casinos, since that’s the current federal excise tax rate on sports bets.

Lawmakers had worked out the language; now they needed to decide where the bulk of the tax money would go.

One group in particular thought it had a winning bet for that.

David Farahi is one of the initiative's biggest proponents.EXPAND
David Farahi is one of the initiative's biggest proponents.
Anthony Camera

“You can’t send a measure to voters that is just a blank check to government,” says Brian Jackson of the Environmental Defense Fund. “It has got to go somewhere.”

In August 2018, Jackson met with Garnett at a cafe near the Capitol, where he made his pitch that most of the tax money should be allocated to the state’s water plan, which had gone largely unfunded since it was completed by the Colorado Water Conservation Board and approved by Governor John Hickenlooper in November 2015.

“Garnett was looking for something that had bipartisan support, something that had statewide appeal, something that needed money. And we fit all those,” Jackson recalls.

Early in Hickenlooper’s tenure, his administration had recognized that if the state didn’t change its approach to water, it would be looking at a shortage in the future; the Colorado Water Plan was created to ensure that the state would have water for decades to come. It focuses on river health, drinking water, agriculture and recreation, and is designed to both keep up with Colorado’s population boom and balance the needs of the more heavily populated Front Range and Western Slope.

The plan also created a mechanism for funding water projects. For example, if municipalities along the Front Range are considering a water-reuse project, they can apply for funding from the Colorado Water Conservation Board, explains Jackson: “The more water you reuse, the less you pull from the Western Slope or from other river sources. But it costs money. This is the type of activity that could benefit from dedicated resources.”

The kind of dedicated resources that would come from a sports-betting tax.

While the state has put some money into the plan, Jackson estimates that it would need something in the range of $100 million a year to make a true, long-lasting impact. Right now, he says, “it changes year to year. In the last four years, it’s been as low as $5 million and as high as $15 million.” He thinks that sports betting could pour another $5 million to $15 million into the plan every year to start, and maybe more once the market matures.

Garnett recognized that water was a concern for both sides of the legislature, and making the Colorado Water Plan the beneficiary of much of the sports-betting tax could be a winning proposition for Democrats and Republicans alike.

“We actually know where the revenue is going,” points out Representative Patrick Neville, a Republican who sponsored the bill with Garnett. “This can’t be a honey pot for politicians to steal money from.”

The bill’s sponsors cautioned lawmakers that sports betting wouldn’t be the entire solution for the state’s water woes, but every drop helps.

“It’s not sufficient to satisfy all of the water demand and projects across the state,” says Gaspar Perricone, a lobbyist for Freestone Strategies who worked on the bill. “It’s a good down payment.”

A popular beneficiary wasn’t the only perk that the bill’s sponsors pushed. They also argued that legalizing sports betting would help bring bettors onto the right side of the law.

According to Stanton Dodge, the Colorado-based in-house counsel for mobile sports-betting application operator DraftKings, there are an estimated 1.2 million bets placed annually in Colorado, resulting in over $2.5 billion in illegal wagers placed online through offshore websites.

Black-market betting on sports is common in Denver, too, according to CapWize’s Cary. “You could walk into any sports bar downtown right now, and I would say over 50 percent of the people there have placed a bet in the last month,” he says.

Most people who engage in illegal sports betting do so quietly, the better to avoid attention from law enforcement. But in 2011, Daniel Dinner and Michael Elick were arrested after undercover Colorado Bureau of Investigation agents found that the two were running a large illegal sports-betting operation in metro Denver. Both eventually took plea agreements to avoid possible lengthy prison sentences.

Neville isn’t a gambling man; in fact, he doesn’t particularly like gambling. But he approves of ending illegal sports betting. “The best course of action is to bring it into light and get rid of the black market,” he says.

If DD passes, sports fans will be able to legally place all kinds of bets in Colorado, wagering on professional, college, international and Olympic games, as well as certain motor sports. There will be straightforward bets on one team beating another, somewhat more complicated bets on the number of total points that two teams produce, and quirkier bets that focus on whether Beyoncé or Coldplay will come out first during the Super Bowl halftime show.

Bets on the in-game performance of college players will not be allowed, however; Garnett worries that unpaid collegiate athletes are more susceptible to being influenced by bettors than are professional athletes. “We want to make sure that the games that are being played aren’t being rigged, and allowing one individual, who could be living on ramen and might be more susceptible to fraud, the opportunity to swing those lines,” he explains.

Betting on high school sports and unsanctioned video-game competitions will also be forbidden in Colorado.

The bill that Governor Polis signed had some definite winners, including the casinos that are the only places that will be able to apply for licenses. The city councils of Black Hawk, Central City and Cripple Creek have all put measures on their November ballots asking voters to approve sports betting in the towns; all are expected to pass.

The sports-betting licenses granted to casinos will cover both in-person betting and mobile betting, so sports-betting operators like DraftKings and FanDuel will profit from the initiative. Bettors will be able to set up mobile accounts with the casinos and then bet using their phones, regardless of whether they’re sitting on a couch, drinking at a bar, or sitting at Mile High Stadium watching a Broncos game.

How the casinos and mobile-application operators will work out paying the tax hasn’t been determined. If DD passes, the Department of Revenue’s Division of Gaming will hash out those rules.

The bill created some losers, too, starting with the state’s eleven off-track betting facilities (places outside of a racetrack that allow betting on horses). Although the Department of Revenue’s memo suggested that they be allowed to apply for licenses, that wasn’t in the final proposal. “To not include the off-track betting facilities is just a slap in our face. It’s very disrespectful to us, being the small-business owners of Colorado that we are,” Dan Kelliher, who operates two off-track betting books in the metro area, said at the April House Finance committee hearing.

“There’s going to be a bunch of guys sitting in our off-track betting site playing DraftKings, and we have zero ability to benefit from it,” he added. “Why not give us the ability to benefit from it? That’s all we’re asking. ... Why does everybody always just want to begrudge the little guy their opportunity?”

Arapahoe Park, Colorado’s famous racetrack, is also ineligible for a license.

“I think there are some people that would prefer the convenience of going to a race book on the Front Range rather than having to drive up to the mountains,” says John Taylor, chairman of Twin River Worldwide Holdings, which operates casinos in various states across the country and owns Arapahoe Park.

But David Farahi, chief operating officer of Monarch Casino & Resort in Black Hawk and president of the Colorado Gaming Association, rejects the arguments of racetrack and off-track betting site owners. “Many different groups have tried to bring slot machines or slot machine-like devices to the Front Range,” he says. “Over and over again, Coloradans have said, ‘We don’t want that. We like having gaming in the state, but we want to keep to the three towns.’”

Numerous attempts to expand gambling in Colorado have failed over the past twenty years. Some involved allowing limited-stakes gaming in other towns beyond the three mountain communities; others wanted to expand the kinds of gambling allowed. In 2003, for example, voters rejected an initiative to approve video gambling terminals at racetracks. In 2014 they rejected another ballot initiative that would have allowed Arapahoe Park to offer various forms of gambling beyond betting on horse races, with some revenue from the expansion earmarked for K-12 education in Colorado. It was an expensive campaign — totaling over $35 million — for both the opposition, which was largely funded by mountain town casinos, and proponents like Taylor.

While the three casino towns have fought hard against most attempts to expand gambling, Farahi notes that many of the efforts to push expansion have their own well-funded supporters. In response to Kelliher’s plea for the little guys, he points to Twin River’s April SEC filing, which shows that the company owns all of the off-track betting licenses in Colorado. “I think it was a complete farce that they say it was big guys versus little guys,” he adds.

But the majority of the licenses owned by Twin River are sub-licensed to small business owners like himself, Kelliher counters. “The entire bill is written from the perspective of the mountain casinos,” he says. “I don’t have anything against them. But for the benefit of the State of Colorado, it seems like it left a ton on the table.”

Garnett has no problem defending the exclusion of off-track betting sites and the horse track from the bill.
“There would be more likeliness for fraud and abuse in a ton of brick-and-mortar windows,” he explains. “It would’ve been an extreme expansion of the Division of Gaming and the enforcement mechanisms that they have to make sure there wasn’t bad behavior happening.”

Garnett was also concerned that opening sports betting up to off-track betting sites would result in the sprawl that some towns have seen with marijuana dispensaries. “There was a fear that this is going to be like marijuana, where physical ticket windows on every corner can, in a way, lead to more falling into the negative impacts of gaming,” he says.

Too, Arapahoe County’s Board of Commissioners had expressed strong opposition to the racetrack being allowed to get a sports gambling license. In a letter sent to legislators in March, the board said its stance stemmed in part from past opposition from nearby residents to adding more gambling at the racetrack.

Representative Tom Sullivan was the only member of either the Senate or House finance committees to vote no on the bill, and it wasn’t because he’s anti-gambling. “I love to bet. I was born in Las Vegas,” he says. “I’ve gone to watch the last 28 Super Bowls in Las Vegas.” Instead, Sullivan was concerned about only allowing casinos to apply for licenses.

“We should have local places that can do it,” he says. “I’m just a little worried about everything being online. My whole aspect of it is going with friends and having a beer and eating some wings and watching the games. That’s what the whole thing is about.”

He and Kelliher suggested that the bill also provide for a retail license, which would allow only in-person betting, rather than just a master license, which also comes with the option of a mobile-application component. But they were unable to sway the bill’s sponsors.

Although they all said they generally support the idea of sports betting, major professional sports leagues and Colorado’s top sports franchises also opposed parts of the bill as it made its way through the legislature. (Lobbyists representing the leagues and teams declined to comment for this article.)

The leagues had two primary concerns, including the lack of “deference” given to them. “No matter which professional sport you’re referencing, we’re going to know our games better and are going to be in a better position to say, ‘This is the risk of corrupt influence.’ And again, when we say “deference,” in the model language we’ve provided, the request should be granted by the regulator unless it’s found to be arbitrary and capricious,” said Marquest Meeks, a sports-betting legislation lawyer with the Office of the Commissioner of Major League Baseball, at a committee hearing in Colorado last spring. If the Division of Gaming gave deference to the leagues, sports-betting operators could still challenge the league’s attempts to nix a bet, albeit with a higher burden of proof.

But the legislature was unwilling to add deference to the leagues to the bill’s language.

The second major issue concerns the use of league data. During both the Senate and House finance committee hearings, Meeks suggested that the bill’s sponsors add language that would require betting operators to use official league data for all bets and pay the leagues for the data. But the sponsors declined, saying that operators shouldn’t have to pay for league data. In its memo on sports betting, the Department of Revenue had also advised against paying the leagues for data that it deems in the public sphere.

“I think that this is just a money grab by the leagues,” says Farahi. “I don’t agree with any of the arguments they’re trying to make. I think the position that the leagues are taking is totally inconsistent with federal case law.”

Professional sports teams in Colorado also lost out when lawmakers refused to allow sports-betting windows in or near stadiums, as they are in the U.K.

“The sports teams wanted us to explore that,” says Garnett. “In the end, it was some of the other sponsors that I worked with and talking to the regulators who said this is something that is unusual for the state and would require a pretty big expansion on the enforcement side.”

Neville was the main opponent of having betting windows in stadiums. “I wasn’t comfortable with that,” he says. “I think our constitution lays that out pretty clearly, that [sports betting] has to happen in one of these three places. I didn’t want to spread it out any further.”

Besides, Garnett points out, bettors don’t need windows when they can simply use their phones. “If you can do it online, do you really need physical access to a window at a sports game?” he asks. “And we all came to the conclusion that the answer was no.”

While sports teams were definite losers, there was no bigger winner than the state’s water plan.

Arapahoe Park in Aurora won’t be getting a sports-betting license.EXPAND
Arapahoe Park in Aurora won’t be getting a sports-betting license.
Anthony Camera

Josh Penry and Curtis Hubbard, the two main lobbyists behind the Yes on Proposition DD campaign, are pushing the water messaging hard. They’re pitching DD as similar to Great Outdoors Colorado, also known as GOCO, a 1992 ballot initiative approved by voters that designated that money gathered from a tax on the state’s lottery be used “to help preserve and enhance the state’s parks, trails, wildlife, rivers, and open spaces,” according to the GOCO website.

“GOCO is arguably one of the most important things this state has ever done,” Penry notes. “It’s forward-looking, thoughtful, bipartisan. All the things that Colorado likes to be, and Proposition DD is the same on all counts.”

Television advertising for the campaign, which Penry says will be funded by the mountain-town casinos, mobile betting-app companies and water-industry stakeholders, will begin soon; the vote is just two months out. In the meantime, Penry and his team have been meeting with influential people who may not care for sports betting, but understand the urgency of Colorado’s water woes.

“We’re out busy talking to groups, organizations, influencers across the state,” Penry explains. “They could take or they could leave sports betting. But they know that water, now more than ever, is a critical issue for Colorado, and this is the beginning of a solution for the state’s water challenges.”

Pro-TABOR voters might at first be confused by the somewhat convoluted legalese of the ballot question, but Penry is confident they’ll ultimately recognize that the tax only relates to gambling revenue and will be paid by the casinos and their mobile-betting operators. “Voters in this state are hyper-sophisticated. They’re very discerning,” says Penry. “These are voters who voted for John Hickenlooper and Cory Gardner on the same night.”

But while the Colorado Water Plan seems a non-controversial choice as the beneficiary of the tax, so far the only registered opposition to the ballot initiative has focused on this plan. “I have opposed the Colorado Water Plan for years now because it supports new dams and diversions. It’s that simple,” says Gary Wockner, an environmentalist and writer who registered the Coloradans for Climate Justice issue committee to oppose Proposition DD.

Wockner is working with other environmentalists who object to the plan.

“Dams are the dinosaurs of the water world. They are a 19th-century solution to a 21st-century problem,” says Dan Beard, who served as commissioner of the Bureau of Reclamation under the Clinton administration.

“That’s a very black-and-white view,” counters Jackson, who has his own crew of environmentalists pushing DD. “We’re absolutely going to say no to bad projects. If a dam project is a bad project, we’ll be right there opposing it. But there are smart ways to do projects. Reuse and alternative transfer methods, leasing of water — you might be able to do that with more storage, and that could be a good thing. But it’s got to be holistic.”

Wockner says he doesn’t have any position on sports betting, but definitely believes that fossil fuel corporations should pay for environmental-restoration issues in Colorado. “I fully realize that this tax is on sports betting,” he says, “but it sets the precedent that the taxpayer and the public should have to pay for climate damage, and that is completely unjust.”

Beard has specific suggestions for dealing with water issues. He thinks prices should be raised so that water-industry stakeholders start to use water more efficiently. And he’d also like to see a free-market form, rather than have stakeholders continue to rely on government subsidies. “If you want water, you develop it,” he says. “Go ahead — you figure out how to pay for it. You don’t need government assistance to pay for it. I don’t see any reason why the taxpayers of Colorado, certainly those engaged in sports betting, ought to be the people who are financing the water dreams of the water aristocracy.”

Other than Wockner’s campaign, DD faces no organized opposition. Not from major professional sports leagues, not from local sports franchises, and not from Kelliher, who says that he and the other off-track betting-site operators don’t have the money to wage such a campaign. Taylor, whose company owns Arapahoe Park, has agreed to buy three casinos in Black Hawk, so he’ll end up getting in on some of the sports-betting action himself.

Ultimately, whether DD is victorious at the polls will depend on whether voters are concerned about Colorado’s water situation, whether they understand that the tax is simply a sin tax that won’t affect most Coloradans, how they feel about sports betting...and perhaps how they feel about sports in general.

If DD does pass, Coloradans should be able to start placing bets next May. And which sports team will be the focus of the most bets?

“I would say, for sure, the Broncos number one,” says Braig.

And just maybe, at the end of the season, Garnett will collect on that bet that Joe Flacco and the Broncos win the Super Bowl.

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