Tax Structure Dictating Sports Betting Growth

the word tax on top of a pile of money

The US sports betting movement is growing more with each day. More states are cozying up to the idea of legal sports betting and several have already passed legislation on it. Each state has their own protocols in place regarding revenue share, tax percentages, etc. Tax, in particular, is pivotal for the rollout of more sports betting and could end up being a proponent of growth or something that slows down any sort of progress.

Rhode Island is a perfect example of how tax will affect their sports betting. There are only 2 venues able to host betting options currently, the Twin Rivers properties in Tiverton and Lincoln. These casinos will likely not be able to turn a profit under the existing revenue scheme, which puts most of the money back towards the state.

The American Gaming Association, an organization that has lobbied aggressively for gambling reform in the US for years, noticed a potential issue with Rhode Island. According to their tax structures, it makes it hard for these small-but-legal enterprises to compete with the existing black market of sports betting that many Americans have grown accustomed to. The whole point of sports betting legalization is to help drive traffic away from offshore corporations, whether legal or not, and bring it back to domestically based ventures. The AGA thinks that states should focus more on empowering their licensed betting vendors instead of hindering their growth with harsh tax schemes.

So how is Rhode Island’s sports betting revenue split up? 51% goes back to the state. 32% goes to IGT, the state’s official vendor in administering betting options (sports betting technically functions under the state lottery). The remaining 17% goes back to the 2 casino locations with regulated wagering options available. Basically, for every $100 in sports gambling revenue, the casinos keep $17. You can see why it will be hard for these brick-and-mortar establishments to grow under these conditions. Rhode Island is already small, so don’t expect much revenue to be generated compared to larger markets like New York, California, etc.

It appears that more states are adopting Nevada’s tax model in hopes of spurring their sports betting industries forward. Nevada has a flat tax rate on all operator revenue of 6.75%. It is the lowest rate in the country. New Jersey has a 8.5% rate for land-based operators,       13% for online/mobile wagering and 14.25% for racetrack betting. West Virginia has a 10% tax, Mississippi has a 12% rate and Pennsylvania has a whopping 36% rate in addition to their $10 million licensing fee. As you can see, the rates fluctuate based on the market size.

While Pennsylvania may be able to support this high tax rate on revenue, small states like Rhode Island most likely cannot. It is particularly damaging in this initial stage of betting. After all, the kinks still need to be worked out. Perhaps the revenue split will work for Rhode Island—only time will tell. The main thing to take note of is the AGA’s vision that states should help their betting operators, not hurt them.

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