MarketWatch First Take: Big business spent millions to sway Californians’ votes, and received billions in return

Uber Technologies Inc. UBER, +14.59%, Lyft Inc. LYFT, +11.28% and other “gig economy” companies like DoorDash Inc. created and funded the most expensive ballot campaign in California history, spending more than $200 million to back Proposition 22 in Tuesday’s election, which would exempt them from California law forcing the companies to classify their drivers as employees instead of independent contractors. Proposition 22 got 58% of the vote, and Uber and Lyft added about $8 billion in combined market value during trading Wednesday, easily recovering their share of the hefty campaign spending, and much more.

Uber and Lyft, which together spent about $100 million, were not the biggest-spending companies individually in the 2020 election cycle, however. That title belongs to DaVita Inc. DVA, +3.32%, which operates low-cost kidney dialysis clinics often found in strip malls, and spent more than $66 million to fight Proposition 23, California’s second attempt to regulate such clinics. The initiative would have required an on-site physician while roughly 80,000 kidney patients are treated each week in California, and other patient protections, such as a requirement to report data on dialysis-related infections to the state health department and not refusing to provide care on the basis of who is responsible for paying for treatment.

DaVita was joined by a rival clinic chain, Fresenius Medical Care FMS, +6.12%, in raising approximately $105 million to fight the measure, according to Ballotpedia, with $66.8 million from DaVita and $29.8 million from Fresenius Medical. After winning with 64% of the vote — likely a large enough margin to spook the labor unions backing the measure from trying a third time — the dialysis chains added roughly $2 billion in market cap Wednesday, with the bulk of that going to Germany-based Fresenius.

The companies used the standard tactics of consumer advertising on TV and YouTube, as well as endless mailers, but Uber and Lyft even went as far as using employee time to create messages sent to customers and ads when consumers opened up the app to order a service. In San Francisco, a few Uber drivers and non-profits sued Uber, contending that “Uber has taken advantage of its raw economic power and its exclusive control over communications through its driver-scheduling app by wrongfully pressuring its drivers to actively support Proposition 22.”

Read more about the aggressive campaign spending on Prop. 22

Voters rescued the companies from having to properly compensate their California-based employees in the gig companies’ case, and properly staff their facilities to protect customers in the other. In exchange, California gets … well, not much, to be honest. Proposition 22 guaranteed drivers minimum earnings and some health-care benefits, but avoids other basic parts of employment, including paying into unemployment insurance so that drivers can be protected if something like a pandemic comes along and ruins their livelihood.

In both cases, the companies involved showed that funneling hundreds of millions of dollars into fighting the attacks on their business models can pay off, which is a troubling precedent. As California attempts to regulate the technology companies that were largely born and grew dominant from within the Golden State, these failures have shown a clear path to beating back such attempts.

More from Therese: How California is trying to regulate tech companies

In hindsight, Alphabet Inc. GOOGL, +6.08% GOOG, +5.99% and Facebook Inc. FB, +8.32% must be kicking themselves for not paying up to fight Proposition 24, which creates a new regulatory board that will seek to regulate the privacy practices of internet companies and enforcing the state’s privacy act (CCPA) passed into law in 2018. There are some loopholes in Prop. 24, which privacy advocates such as the Electronic Frontier Foundation did not support, but it will lead to greater scrutiny of the Silicon Valley giants no matter what.

Other states should now expect similar moves from Uber and Lyft, and President Donald Trump’s Labor Department is expected to give the gig economy a gift soon no matter if he stays or goes. The Independent Drivers Guild, a large gig-worker organization, said it is calling on state legislatures in New York, New Jersey and other states to act quickly to empower gig workers with collective bargaining rights.

These companies are willing to pay royally to protect their low-cost business models, because they know investors will reward them. California voters had the chance to punish them for a relentless focus on the top line at the cost of not treating employees and customers as they deserve. Instead, the money won again.