With 14 states and counting having at least passed legislation to legalize sports betting, most have done a decent job on taxes, and avoiding too much regulation. But that doesn’t mean they all have.
Recently enacted legislation in Tennessee and Illinois flop on taxes, and perhaps more importantly, include government mandates that mess with the market unnecessarily.
With some states, like North Carolina, close to passing legislation, and others thinking about what sports betting may look like in their state, like Ohio and California, now is the time for legislators to learn from the bad examples.
What did Tennessee and Illinois do wrong?
High tax rates. The Volunteer State will impose the second highest tax rate on bets in the nation at 20 percent. Illinois’ rate is 15 percent. Pennsylvania still leads the pack with an absurd 36 percent effective tax rate (Rhode Island has a 51 percent revenue share, a significant burden, but technically different than a tax on bets).
Government mandated usage of league “official” data. Tennessee imposed a mandate that puts government in the role of telling private operators who they must do business with. There are already plenty of services that offer stats and data. Requiring use of official data is a giveaway to sports leagues using government authority. Illinois did not fall as deeply into this trap, but did impose a similar league data mandate for in-play betting, as well as prop bets.
A data mandate also tramples on the long-held precedent that sports statistics are public information, like news. That’s why newspapers can report on sports events without paying royalties.
Legislators who crafted these bills may point to language that requires operators and data providers to come to a “commercially reasonable” agreement. Commercially reasonable agreements happen when there is competition and choice. Illinois and Tennessee have already barred that from happening, and instead put government in the middle as a referee.
The states that are doing best on sports betting have reasonable-to-low tax rates, allow mobile betting, and allow betting statewide. This is how New Jersey has succeeded, and even begun to surpass Nevada’s sports betting market.
Sports books are sensitive to taxes because if they try to pass on costs to customers, it impacts the value of their bet. Too high and betting activity goes down, and government revenues along with it. A Copenhagen Economics study showed this effect: “Denmark, with a tax-rate less than half that of France, has a growth in gambling volumes approximately five times larger.”
In the U.S., high tax sports betting states like Rhode Island and Pennsylvania have seen disappointment with lower than expected revenues, or delays in operations even starting.
As more competition comes online, consumers will have more options. States with high tax rates, and overbearing policies that help leagues at the expense of bettors and in-state operators, risk losing the long game.
The good news is states still working on legislation can learn from these bad examples. Iowa sure did, enacting sports betting with just a 6.75 percent tax rate. Maine's legislation is stalled at the Governor's desk, but it is solid, allowing statewide online betting and a competitive market.
It would be too bad if good policies didn't make it across the finish line while bills that needed more work made it through.