Connecting state and local government leaders

Sports Betting Not Proving to Be a Tax Bonanza For States

Gamblers line up to place bets on the NCAA men's college basketball tournament at the Borgata casino in Atlantic City N.J., on March 21, 2019.

Gamblers line up to place bets on the NCAA men's college basketball tournament at the Borgata casino in Atlantic City N.J., on March 21, 2019. AP Photo

 

Connecting state and local government leaders

Revenues have largely been modest and in some places have fallen far short of projections.

Sports betting so far hasn’t generated game-changing sums of tax revenue for seven states that allow for it, although two states where options for online wagering are more widely available are seeing stronger tax collections.

Those are some of the findings presented in a research brief published this week by The Urban-Brookings Tax Policy Center. The report comes about one year after the U.S. Supreme Court struck down a federal restriction that blocked sports betting in most states.

“Sports gambling is real revenue,” Richard Auxier, the report’s author said by phone Wednesday. “But it’s not going to solve your budget problems and you shouldn’t expect too much out of it.”

New Jersey collected about $20 million in the first 10 months of sports betting in the state, beating annual revenue projections of $12 million to $17 million, according to the report.

The only other state with tax revenues close to that amount was Nevada, where collections totaled $20.3 million for all of 2018. But sports betting was legal there prior to the court ruling.

In both states gamblers can place online sports bets outside of casinos. And the majority of New Jersey’s reported revenue from last June to March, about $13.8 million, came from online bets.

Pennsylvania, Rhode Island and West Virginia permit online sports gambling, but the report notes that there have not been any operators offering it in those places. In Mississippi online sports bets are only allowed when a person is at a casino.

“If the state’s goal is to raise money, to raise tax revenue, online gambling is a no-brainer,” Auxier said. But for policymakers, he noted, it’s important to remember that what’s yielding that additional revenue is more residents who are gambling on sports and losing.

“The easier you make it, the more they’re losing, the more you’re getting,” he added.

Rhode Island, which projected $23.5 million of annual sports betting tax revenues, saw only $700,000 during a five-month time period. West Virginia reported about $900,000 over six months, off the pace for meeting tax collection estimates of $5 million per year.

Delaware was in the ballpark of its projections, taking in $6 million in 10 months, compared to an annual projection of $5 million. And Mississippi saw $3.1 million over eight months, approaching the lower end of yearly estimates in the $5 million to $10 million range.

Pennsylvania, meanwhile, collected $4.5 million in five months, nearly reaching its entire annual revenue projection of $5 million. The report says that the state also collected $80 million in licensing fees from eight gambling operators that opened sportsbooks.

So far sports betting collections are a fraction of the $18.9 billion in revenues that 44 states collected from lotteries in 2017, the brief says.

The report notes that other states are moving toward allowing sports wagering.

It says Arkansas and the District of Columbia are setting up their systems. And that Indiana, Iowa, Montana and Tennessee all approved sports betting legislation during their 2019 legislative sessions.

Higher hopes for how much state revenue legalized sports gambling could raise could be partly due to confusion over what portion of money actually gets taxed, the report says. This taxable amount typically falls far short of the total sum of wagers that are placed.

Auxier stressed that it’s important for lawmakers with an interest in sports betting policy to understand the mechanics of how the wagering works—this involves concepts like the “handle,” “gaming revenue” and the “hold,” which he explains in detail in his report.

Sports gambling tax rates range from 6.75% in Nevada and Iowa, to 51% in Rhode Island. New Jersey has a two-tiered rate that taxes online wagering at 14.25% and in-person betting at 9.75%.

Washington, D.C. could be an interesting place to watch in the months ahead as its sports betting program ramps up. Online wagering will be available in the District. But private operators will only be able to offer it within their brick-and-mortar locations.

The only other online option will be offered through an application run by the District’s own Office of Lottery and Gaming.

“I am curious how successful that program will be,” Auxier said. “If they go first and do well, a lot of states might copy what they did.”

Something else to keep in mind he said is the availability of new gambling options, like casinos, in a state typically results in a one-time surge in revenues, which later flattens, and sometimes declines as similar offerings become available in neighboring states.

A full copy of the Tax Policy Center report can be found here.

Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.

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