- Revenue figures begin pouring in for Delaware, New Jersey
- Mississippi governor wants to use tax revenue for infrastructure, AGA official calls it “dangerous”
- Rhode Island, Pennsylvania expected to be next states to offer betting
States are welcoming hundreds of thousands of dollars in tax revenue from sports betting just ten weeks after the U.S. Supreme Court deemed the activity legal on a state-by-state basis.
But officials are warning lawmakers not to get carried away with the windfalls.
Delaware, New Jersey, and Mississippi are now accepting sports betting wagers and beginning to get a grasp on state tax revenue figures from the activity, and other states are on the cusp of implementation after the May 14 high court ruling in Murphy v. NCAA. The decision repealed the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibited states from “authorizing” gambling related to professional and amateur sports leagues.
New York, Rhode Island, Pennsylvania, and West Virginia— which have already legalized the activity—are on a path to be the next states to offer wagers. But officials say that states must keep realistic revenue projections in mind.
“States must understand that sports betting revenue is very volatile; as more states begin to offer legalized betting, individual state tax revenues will surely diminish,” Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center told Bloomberg Tax.
Auxier doubled-down on the need for a realistic approach, citing recent comments by Mississippi Gov. Phil Bryant (R)—who said he hoped sports betting revenues could solve the states infrastructure problems—as “very troubling.”
“This revenue must be understood as a nice bump for states when revenues are low; not as a budget balancer,” Auxier said.
Sara Slane, senior vice president of public affairs at the American Gaming Association, said the language used by Bryant is “dangerous.”
“Tax revenues from sports betting will be of razor thin margins for states,” Slane told Bloomberg Tax. “There has certainly been an incredible amount of action since the Supreme Court handed down its ruling, but states will still need to ask themselves if the revenue juice is worth the squeeze.”
Early Tax Revenue Figures
Delaware was the first state to take bets, opening its doors to the activity on June 5. Between June 5 and June 24 the state issued over $7 million in wagers, according to the state’s lottery record. Delaware’s law allows the state to keep 50 percent of the proceeds from the activity, which meant about $875,000 for the state after winning bets were paid.
New Jersey, the driving force behind sports betting legalization, began taking bets June 14, and through the month of June, the state brought in $3.5 million in wagers, according to the state’s Department of Law and Public Safety. The state administers two different tax rates for sports betting—8.5 percent on in-person bets and 13 percent on wagers placed online.
The state’s wager total doesn’t specify the share of the bets that were placed online, so at an 8.5 percent tax rate, New Jersey would have raked in $297,500 in tax revenue in the two week span.
Mississippi, the newest state to the sports betting world, will begin offering bets Aug. 1, after sports gaming legalization went into effect July 22. Allen Godfrey, executive director at the state’s Gaming Commission, told Bloomberg Tax the first revenue figures would be released in about a month.
In gauging state’s potential revenue numbers, Auxier cited Nevada’s 2017 sports betting revenue, which was nearly $250 million. However, Nevada’s 6.75 tax rate means the state only saw about $17 million in tax revenue from the activity.
Auxier said that $17 million only equates to 0.01 percent of Nevada’s total state general revenue; he predicted that sports betting revenue won’t surpass 1 percent of total state tax revenue in any jurisdiction that legalizes it.
Rhode Island is on track to offer betting on Oct. 1 after Gov. Gina Raimondo (D) legalized the activity through a budget signed on June 22. Similar to Delaware, Rhode Island will retain 51 percent of sports betting revenue. Sports betting is expected to generate $23.5 million in new revenue for Rhode Island in FY 2019, according to a June 20 legislative news release.
In Pennsylvania, temporary sports betting regulations were approved July 18 by the state’s Gaming Control Board. However, the board will likely adopt more regulations during a meeting scheduled for August 15, a spokesperson told Bloomberg Tax. Public comments on the regulations are due August 27.
The Pennsylvania board has up to two years to figure out the regulations before betting goes live. The state’s tax rate on sports betting is 34 percent.
New York and West Virginia are trailing behind, and because both state’s legislatures are currently out of session, it appears there won’t be further action until 2019.
Forty States With Casinos
Looking ahead, Slane says she expects most states that have a casino will begin offer sports betting.
“There are currently 40 states with casinos. I’d bet 10 to 15 of these move to offer sports betting by the next legislative session,” Slane said. “At the end of the day, states are going to do everything they can to boost tax revenues.”
Auxier agreed with Slane, stating that adding sports betting to an already established casino “just makes sense.”
“Everyone expects this activity will continue to grow in the coming months and years,” Auxier said. “States will never turn down free money.”
California to Let Voters Decide
During the National Conference of Legislatures’ 2018 Legislative Summit in Los Angeles, California Assemblyman Adam Gray (D) said the state would only legalize sports betting through a ballot initiative, and that the soonest it could be considered would be in November 2020.
“We’ve looked at what some of the other states are doing, and that’s one of the benefits we’re going to have, being the largest market. Some of the other states are working ahead of us.”
California has a major world economy, so it’s important to weigh the viewpoints of all the various stakeholders and do it right, he said, adding that one of the influencing factors is “tax rates, obviously.”
Gray added that California legislators will be “watching to see how successful” these other states are, including when it comes to setting tax rates.
“We’re going to get educated on the issue and hopefully learn from the lessons of other states as we move toward that potential November 2020 opportunity to put something before the voters in California,” he said.