Read Between the Lines: Low Taxes Pay Off for Sports Betting

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Posted by Doug Kellogg on Friday, April 5th, 2019, 1:45 PM PERMALINK

Another Associated Press article on sports betting in the states, another headline that does not do justice to the reality on the ground.

The latest, “Most states’ sports betting revenue misses estimates”, is correct on the surface, but fails to explain how the states that are coming up short have failed to widely authorize sports betting, and also suffer from high tax rates.

Rhode Island and Pennsylvania are two of four states cited for having lower than expected revenues. But these states suffer from absurdly high tax rates on betting, which the article mentions but somehow fails to connect the dots.

Rhode Island’s tax rate is an unbelievable 51 percent.

Pennsylvania has a massive 36 percent effective tax rate, on top of a $10 million initial licensing fee. The state experienced a significant delay in sports betting getting started because it took months for an operator to even apply for a license and pay the massive fee. The state is also right next door to New Jersey, which enacted sports betting in a more efficient, and taxpayer friendly manner. Consumers can head across the border to place bets in New Jersey (in-person or via an app) instead of paying massive tax rates in Pennsylvania.

These huge tax rates completely ignore the success that Nevada has had for decades with a lower 6.75 percent tax rate. Cuts in the federal excise tax rate on bets decades ago were also necessary to open up Nevada’s sports books for significant growth.

It’s no wonder New Jersey has done just fine on revenues, with an 8.5 percent rate on in-person bets and 13 -14.25 percent online. The Garden State has also allowed mobile bets from the start.

Pennsylvania is awaiting legal mobile betting, as is Rhode Island, both states have passed measures legalizing it.

The AP article quotes a West Virginia lawmaker who complains taxes on betting aren’t high enough to bring in revenue. This misses the point, and would only hurt West Virginia. The state has a competitive 10 percent tax rate on bets, but implementation of sports betting has suffered from delays not necessarily related to public policy, and few operators which has limited availability.

Mississippi is also cited by the AP for missing revenue projections. It is another state without mobile wagering, and unlike Rhode Island and Pennsylvania, Mississippi bills to open up mobile betting have failed this session. Mobile betting only works if you’re at an authorized location.

It is 2019, you can’t expect to reach the broadest market possible if you’re limiting betting to in-person, physical locations.

Despite the headline, the evidence shows low taxes, and free markets work in sports betting just like they work everywhere else.  

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