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
All six of those companies have some sort of backstop to help them manage changes in market conditions , whether that be money in the bank , physical property they can leverage , or a wildly successful sports merchandising brand . gross revenue .
out cutting back . Anything above that , and gaming companies have to rethink their business plans .
“ I think anything above 15 percent hurts the consumer and hurts innovation ,” Bussmann says .
Bussmann , a gaming consultant who works across the world with operators , suppliers , vendors and tribes , also says gaming is the only industry he can think of that “ willingly pays taxes on its product ” in addition to the fees and taxes required to get licensed , handle payroll , and the like .
For comparison , hotels sell rooms , and collect a tax in addition to the room rate that goes to state governments . Whatever money they earn after taxes , fees , payroll and operational costs is profit . Gambling companies pay all of the same costs plus a tax on their profit .
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
Operator Pushback
Politicians sell the idea that a higher tax will equate to higher tax revenue for a state . While it seems likely that the governments in Ohio and Illinois will take in more tax revenue , they may not bring in as much more as projected .
“ Of course , as a legislator , you want as much money as you can get for the state ,” says West Virginia Rep . Shawn Fluharty . “ But it can become diminishing returns . If the rate is too high , the operators start pulling back on advertising and promotions , and then you ’ re not getting the whole player pool , so you ’ re getting less tax revenue .” Wyman agrees and goes a step further . “ This is the same question as , how does any expense increase affect any company ?” he says . “ It ’ s like , how would this affect Red Lobster ? They have to find the money somewhere . But they maybe don ’ t make enough money to find money somewhere else . They have to say , ‘ We rob Peter to pay Paul .’
“ At some point , you have to raise prices . ( In sports betting ,) for example , -110 might become -115 .”
Everyone interviewed for this story agrees that tax increases will hurt the smallest operators the most . Like McDonald ’ s or WalMart , the biggest operators are better equipped to absorb changes in the cost of doing business . In online sports betting , DraftKings and FanDuel own 73 percent of the market across the U . S . More than a dozen other operators are left to fight for the rest .
In online gambling , DraftKings and FanDuel combine for 61 percent market share . The next three biggest operators in online sports betting are BetMGM , Caesars , and Penn Entertainment ’ s ESPN BET . The newly launched Fanatics Sportsbook continues to make gains .
All six of those companies have some sort of backstop to help them manage changes in market conditions , whether that be money in the bank , physical property they can leverage , or a wildly successful sports merchandising brand . gross revenue .
But what about Circa Sports , the smallest operator by handle and adjusted gross revenue in Illinois ? Or hyper-regional players like betJack or betParx in Ohio ? “ If you are a smaller company , ( an increase ) disproportionately hurts your business ,” says institutional analyst Joe Stauff of Susquehanna . “ All of a sudden , your operational profitability is negatively affected . And it ’ s hard to adjust without retention and acquisition spend . If you cut too much , you fall out of share voice , the media metric that shows you exist .”
Unplanned Taxes Cause Fear
Raising taxes after a market has launched — whether that is online sports betting or casino — also creates what Bussmann calls the “ fear factor .”
“ This goes largely for the blue states out there — how many times are they going to go back to the golden goose for more eggs when it doesn ’ t have anymore to give ?”
Bussmann calls the Illinois tax hike “ regressive ” versus “ progressive ,” because , he says , like personal income tax brackets , it will make operators want to limit profit to avoid entering the highest tax bracket .
What happens now ? Stauff expects more consolidation , which means fewer competitors in the online gambling world . Bussmann also sees less choice as smaller or less competitive operators are forced to shutter . This has already started to happen : Churchill Downs , Fubo , Maxim , SI Sportsbook and Wynn are among the companies that have already exited the market or downsized .
‘ I Could Get a Better ( Tax ) Rate from Putin ’
And the states that have the highest tax rates might not see the kind of growth they hope for as the biggest bettors , VIPs , leave the market in favor of better odds . Operators , Bussmann says , encourage such behavior , and already offer limo service from New York City to the New Jersey border so their highest-value players can bet where the odds are better and the taxes are lower . Operators , Bussmann says , are “ saving three times the tax cost .”
“ There is not a way on God ’ s green earth that you can make money ,” Bussmann says of New York ’ s 51 percent tax rate . “ I could get a better rate from Putin .”
According to gaming management consultant Gali Hartuv , VIPs comprise up to 10 percent of all sports bettors , but account for up to 80 percent of revenue .
Neighboring New Jersey taxes sports betting operators at 13 percent , though there is a bill in the state legislature that would increase the rate to 30 percent . Illinois borders legal digital betting states Indiana ( 9.5 percent tax ), Iowa ( 6.75 percent tax ) and Kentucky ( 14.25 percent tax ).
JULY 2024 www . ggbmagazine . com 15