As states across the country are discussing legal sports betting, there has been much ado about sportsbooks operating on thin margins, which is news to a lot of lawmakers. By most accounts, a sportsbook earns between $1-$2 in net revenue from every $100 bet after all the money is divvied up. So where does the money go?
Much of it goes back to the winning bettors and there are the obvious expenses — paying employees, buying software and equipment, purchasing or renting space. And then there are taxes. The seven states that have legalized sports betting so far* apply wildly different tax rates on gross sports wagering revenue, from 6.75 percent in Nevada to more than 50 percent in Rhode Island.
In states currently seeking to become a legal sports betting states, some lawmakers are looking to earmark tax revenue for specific programs. In Kentucky, legislators hope it will help alleviate the state’s (humongous) pension-fund issue and in Illinois lawmakers are hoping sports betting revenue will put a dent in the state’s budget shortfall, which is $1.2 billion for fiscal year 2019. Others like Washington D.C. are eyeing Arts and Humanities, and early childhood education programs.
Now on to the states where revenues have begun flowing in as we explore in this article: Where does the money go?
Seven States Have Legalized Sports Betting and They All Spend, or Will Spend, The Taxation Proceeds a Bit Differently. How?
As for those states that already have legal sports betting, here’s what we found ut:
Delaware: According to the Lottery, lottery revenue is not dedicated, but is contributed to the state’s general fund that the legislature uses it to fund the state budget. In the First State, the lottery and state casinos or racinos have a partnership wherein any revenue derived through licensed sportsbooks at casinos/racinos (such as Dover Downs) is first used to pay winning players and 12.5 percent is designated to pay vendor fees. The remaining revenue is divided 50 percent to the general fund, 40 percent to casinos and 10 percent to supplement purses at standardbred and thoroughbred racetracks.
The state also has retail sports betting, and any revenue derived at retailers is first used to pay winning sports betting tickets, 25 percent is designated for vendors’ fees and 5 percent is paid in commissions to the retailers. Of the remaining dollars, 90 percent (less administrative expenses) is sent to the general fund and 10 percent is used to supplement horse-racing purses.
Mississippi: The Magnolia State set its sports betting tax at 12 percent. Taxes for all gaming in the state are collected by the Department of Revenue, which then funnels the monies to different accounts, as dictated by law. By state law, a percentage of sports betting revenue (and other revenues) are to be placed in a special fund for the Department of Transportation to repair or maintain infrastructure for roads, water and sewer systems. Revenue may also be used for state, country or municipal projects.
New Jersey: A new 1.25 percent tax added this month will go directly to New Jersey’s Casino Reinvestment Development Authority. The new tax brings the total tax on sports betting revenue to 9.75 percent and will go info effect in December. Other revenue collected by the state for land-based and internet sports betting (a 13 percent rate for online) goes into the state’s Casino Revenue Fund, which funds myriad programs for the elderly and disabled, mostly through the state’s Department of Human Services. Any sports betting tax revenue collected from New Jersey’s racetracks goes into the State of New Jersey General Fund, and the new 1.25 percent additional tax will go the municipalities in which the racetracks are located.
Nevada: The Silver State has the lowest tax in the nation on gaming and sports betting — 6.75 percent. This rate evolved after earlier tax rates (namely, federal taxes) proved onerous and unattractive. Sports betting started in Nevada alongside other gaming, all of which is treated as general gaming revenue and is sent to the state’s general fund, which is used to finance most state programs. The key programs that receive money from the general fund are Health and Human Services and Education, according to the most recent Guinn Center Nevada Budget Overview. According to the 2017 Nevada Resort Association Nevada Gaming Fact Book, gaming revenue in 2017 represented 42.6 percent of all revenue for the state ($10.76 billion in 2016).
Pennsylvania: The Keystone State passed a law in 2017 applying a 36 percent tax rate — 34 percent state and 2 percent local. According to state law, the 34 percent state tax will be funneled to Pennsylvania’s general fund and the 2 percent local tax will go into a pool of dollars from which grants will be awarded to Pennsylvania’s 67 counties for different projects. Pennsylvania has approved two casinos so far for sports betting licenses, though neither has opened for business yet. Soon.
Rhode Island: Rhode Island’s sports betting tax structure is set up a bit differently than other states in that the state and its two casinos agreed to a partnership through which the state gets 51 percent of net revenue, the vendor (sportsbook operator) gets 37 percent and the casino gets 17 percent. When Governor Gina Raimondo signed the enabling legislation last summer, she did so, in part, by including a projected $23.5 million in sports betting revenue in her budget. It appears that sports betting revenue will be funneled to the state’s general fund, and then used for projects relating to transportation and education. Rhode Island’s two casinos are looking at opening sportsbooks before the end of 2018.
“Sports wagering provides the state with a revenue stream that supports critical priorities, such as investing in roads and schools, without increasing the tax burden on citizens,” state Senate president Dominick J. Ruggerio said in a statement in July. “Legal sports wagering in Rhode Island will provide revenue for critical state services while offering a new entertainment option for Rhode Islanders.”
West Virginia: The Mountaineer State applies a 10 percent tax rate on sports betting revenue, and according to law, it will be deposited into the state’s Sports Wagering Fund. Fifteen percent of the gross receipts are earmarked for running the fund. The remainder will stay in the fund until $15 million has accumulated, at which point anything above $15 million will be deposited West Virginia’s General Revenue Fund for distribution by the state legislature.
As more and more states legalize sports betting, Sports Handle will continue monitor how the funds get used.
*We excluded New Mexico, where one sportsbook so far is operating on tribal land in accordance with an existing compact; the state legislature has not yet passed legislation on the matter or established a sports wagering revenue tax rate.