Taxing
Problem
Wagering tax hikes could shrink markets , have unintended consequences
By Jill R . Dorson
In the last year , Mike DeWine and JB Pritzker have proven to the gambling industry that they can ’ t be trusted , and have generated a fair amount of angst in the legal sports betting world . Both governors pushed through tax hikes in existing markets . Some say the likely fallout out will be that consumers get a raw deal while politicians revel in increased cash flow .
Such is the state of legal sports betting in the U . S . Legal and live in 40 jurisdictions , operators entered agreements to offer wagering from Wyoming to Florida since 2018 , when the U . S . Supreme Court overturned the Professional and Amatuer Sports Protection Act ( PASPA ). Six years on , trust has been broken .
Last July , DeWine , the Ohio governor , spearheaded legislation to double the wagering tax in his state . Operators entered the state January 1 , 2023 , and six months later had to rejigger their business plans to manage a 20 percent tax .
In Illinois , Pritzker earlier this year asked for an increase from 15 percent to 35 percent . Legislators did him one better , and the biggest operators in the state will pay close to 40 percent on adjusted gross revenue . As of early June , a new sliding-scale tax — 20 percent at the bottom and up to 40 percent at the top — was awaiting Pritzker ’ s signature .
Operators said little when DeWine pushed through his increase . At 10 percent tax , Ohio was among the lowest-taxed U . S . jurisdictions in which to do business . While not optimal , 20 percent , stakeholders say , is manageable for many operators .
In Illinois , the biggest operators pushed back hard against any increase .
The Sports Betting Alliance , comprised of BetMGM , DraftKings , Fanatics Sportsbook and FanDuel , sparked 53,000 Illinois residents to send emails decrying the proposed hike to lawmakers . It made clear that advertising spend and promotional offers would decline . Some of its members threatened to leave the state if the tax increase was approved . The proposed increase would make Illinois the second most expensive competitive-market state behind New York in terms of wagering tax .
“ If the rules of the game are volatile , and everyone is waiting for the ‘ other side ’ to do something different , that ’ s not a good way to do business ,” says Brian Wyman , a partner with The Innovation Group . “ You ’ re going to see a backlash as other states come on .”
The Sweet Spot
Legal sports betting operators in the U . S . currently pay two taxes — a quarter of a percent federal excise tax plus state tax . On the state side , wagering taxes range between 6.75 percent in Iowa and Nevada to the aforementioned 51 percent in New York , New Hampshire and Rhode Island . The rate in New Hampshire and Rhode Island , along with Delaware ’ s 50 percent rate , come with a caveat . All are single-operator markets , and in New Hampshire , DraftKings willingly offered that rate in exchange for a monopoly .
Operators have long contended that 10 percent is the sweet spot for a sports betting tax rate . It allows them to reinvest in their product , offer attractive promotions , and make a profit . Consultant Brendan Bussmann of B Global says 15 percent is really the highest rate operators can weather with-
14 Global Gaming Business JULY 2024