Voters Consider Missouri Sports Betting Proposal Amid Revenue Concerns

Missouri voters will soon decide on a ballot measure to legalize sports betting, a move that promises substantial tax revenue directed toward education. However, despite ads promoting the potential for millions in new tax dollars for schools, state officials warn that exemptions for certain betting promotions might reduce that figure.

Promotional credits — incentives offered by sportsbooks to encourage betting — would be largely exempt from state taxes. As a result, the revenue earmarked for educational may be significantly lower than anticipated.

Growing Debate Over Sports Betting Tax Structures

Missouri’s proposed measure has spotlighted a broader, ongoing debate among policymakers about the optimal tax structure for the rapidly expanding sports betting industry. Since the 2018 U.S. Supreme Court decision that paved the way for legalized sports betting, the practice has surged from Nevada to 38 states and Washington, D.C. “It’s a fledging industry,” remarked Brent Evans, an assistant finance professor at Georgia College & State University, adding, “So nobody really knows what is a reasonable tax.”

In response to fluctuating revenue expectations, several states, including Illinois, Ohio, Tennessee, and Washington, D.C., have recently restructured or raised their tax rates on sports betting. Colorado and Virginia have also modified their laws to limit initial tax deductions permitted for promotional bets.

Tax rates across the country range significantly, from as low as 6.75% in Iowa to 51% in New York. Adding to the complexity, some states, like Iowa, allow promotional deductions from taxable revenue, while others, such as New York, do not. Nationwide, about half of U.S. states permit deductions for promotional expenses as a way to entice new bettors. While effective in boosting participation, this approach reduces immediate tax revenue for government initiatives, such as public education.

Missouri’s measure proposes a 10% tax rate on sports betting revenue, which is lower than the national average of 19% paid by sportsbooks last year. Due to allowable deductions for “free play” promotions, Missouri sportsbooks could theoretically owe no taxes during certain months, particularly if negative revenue balances are carried over, as permitted under the proposed amendment.

Missouri’s proposed measure caps promotional deductions at 25% of all wagers, although industry analysis suggests this limit is unlikely to be reached. A report by Eilers & Krejcik Gaming estimates that promotional bets will for around 8% of Missouri’s total wagers during the first year, with a decline in subsequent years. Jack Cardetti, spokesperson for Winning for Missouri Education, the group advocating for the amendment, stated that the measure aligns with other states’ effective frameworks.

Colorado’s Shift Toward Capped Deductions Boosts Revenue

When Colorado legalized sports betting in 2020, it implemented a 10% tax rate with full deductions for promotional bets. This led to a robust $2.7 billion in wagers during the first fiscal year but resulted in just $8.1 million in tax revenue, a bit below expectations. In response, Colorado legislators moved to cap deductions in 2023, limiting them to 2.5% of total bets and planning a gradual reduction to 1.75% by mid-2026.

This change has led to an increase in Colorado’s sports betting tax revenue, which recently topped $30 million in the latest fiscal year. The state’s success has prompted a proposal on this November’s ballot to remove the original $29 million cap on sports betting revenue. Richard Auxier, of the Tax Policy Center, commended Colorado’s approach to limiting promotional deductions but questioned the rationale for tax exemptions on such credits. “We don’t give out free samples of cannabis when a state legalizes cannabis,” he noted. “Is this something you want to be subsidizing through your state tax policy — to encourage people to gamble?”

The Missouri amendment made it to the November ballot through an initiative petition following several unsuccessful attempts to similar legislation in the state Senate. The proposal’s campaign has seen an unprecedented $43 million in funding, sourced entirely from prominent sports betting firms DraftKings and FanDuel. If ed, the measure would allow these companies to apply for two statewide licenses for online sports betting, while also providing additional licenses to Missouri’s casinos and professional sports teams.

Conversely, opposition funding has been driven by Caesars Entertainment, which operates three of Missouri’s casinos and has contributed $14 million to campaign against the measure. Though Caesars s legalized sports betting generally, the company objects to “the way this measure is written,” said Brooke Foster, a spokesperson for the opposing group, Missourians Against the Deceptive Online Gambling Amendment.

Some analysts have noted that casinos may experience declines in traditional gambling revenue with the rise of online sports betting. Brooke Foster pointed out that people may prefer the convenience of betting from home over visiting physical casino locations. “There will definitely be a shift from placing bets in a physical space with a Missouri incorporated casino versus hopping on an app in your living room,” she explained.

Tax Rate Disparities Across States Shape Betting Revenues

The impact of different tax approaches can be seen when comparing Illinois and New Jersey, two early adopters of legalized sports betting following the Supreme Court’s ruling. With annual bets between $11.5 billion and $12 billion, both states saw significant revenues. However, Illinois generated $162 million in tax revenue, about 25% more than New Jersey’s $129 million, due to its 15% tax rate and lack of promotional deductions.

Despite Illinois’s higher revenue, officials recently increased its tax rate, imposing a progressive scale starting at 20% for sports betting revenue below $30 million and reaching up to 40% for revenue above $200 million. Some industry representatives had hinted that sportsbooks might leave Illinois in response to the tax hike, though no operators have followed through on that suggestion.

Industry expert Joe Weinert, of Spectrum Gaming Group, emphasized that sports betting companies remain competitive regardless of varying tax rates, saying, “The sports betting operators compete vigorously for bettors, and how you compete vigorously is to offer attractive odds and good promotions.”

Source:

”Missouri sports betting ballot measure highlights national debate about gambling tax rates”, cdcgaming.com, October 27, 2024.