The Push for Sports Betting in Missouri: A Closer Look at the Ballot Measure
As Missouri gears up for a pivotal vote on a ballot measure to legalize sports betting, the air is thick with promises of new tax revenues earmarked for education. The advertisements promoting this initiative are hard to miss, emphasizing the potential influx of millions of dollars that could be directed toward schools. However, beneath the surface of these optimistic projections lies a complex web of tax implications and promotional strategies that could significantly impact the actual revenue generated.
The Allure of Promotional Offers
If voters approve the measure, they can expect a surge of advertisements from sportsbooks, enticing potential bettors with special promotions and bonuses. These promotional offers, often presented as cash-like credits, are designed to attract new customers and keep existing ones engaged. However, a significant aspect of this strategy is that many of these promotional costs will be exempt from state taxes. This exemption raises questions about the true financial benefits of legalized sports betting for Missouri’s educational system.
The National Landscape of Sports Betting Taxation
The Missouri ballot measure is part of a broader national conversation about how to effectively tax the burgeoning sports betting industry. Since the U.S. Supreme Court’s landmark decision in 2018, which opened the floodgates for legalized sports wagering, the landscape has changed dramatically. Today, sports betting is legal in 38 states and Washington, D.C., each adopting different tax structures and regulations.
Brent Evans, an assistant finance professor at Georgia College & State University, notes that the industry is still in its infancy, making it challenging to determine what constitutes a reasonable tax rate. States like Illinois, Ohio, and Tennessee have already adjusted their tax rates since legalizing sports betting, while others, such as Colorado and Virginia, have modified their initial tax deductions.
A Wide Tax Rate Spectrum
Tax rates for sports betting vary significantly across the country, ranging from as low as 6.75% in Iowa to a staggering 51% in New York. This disparity is further complicated by the fact that some states, like Iowa, allow sportsbooks to deduct promotional bets from their taxable revenue, while others, like New York, do not. Approximately half of the states permit tax deductions for promotional costs, a tactic that can entice bettors but also diminishes the tax revenue available for public services, including education.
In Missouri, the proposed tax rate of 10% on sports betting revenue is notably lower than the national average of 19%. The measure acknowledges the potential for sportsbooks to report negative balances due to promotional deductions, allowing them to carry over these deficits until they generate sufficient revenue to owe taxes. While Missouri’s amendment caps promotional credits at 25% of total wagers, early projections suggest that promotional bets will only account for about 8% of total wagers in the first year.
Learning from Other States
Missouri’s approach mirrors strategies that have been effective in other states. For instance, Colorado launched its sports betting market in 2020 with a 10% tax rate and full deductions for promotional bets. Initially, this led to $2.7 billion in total bets, generating $8.1 million in tax revenue—slightly below expectations. However, Colorado’s lawmakers later revised the law to cap promotional tax deductions, resulting in a significant increase in tax revenue, which exceeded $30 million in the most recent fiscal year.
Richard Auxier from the Tax Policy Center argues that while capping tax deductions for promotional bets is a positive step, the rationale behind exempting these costs from taxes in the first place is questionable. He draws a parallel to the cannabis industry, questioning whether states should subsidize promotional betting as a means to encourage gambling.
The Political Landscape
The Missouri amendment made it to the ballot through an initiative petition after legislative efforts to legalize sports betting stalled in the state Senate. The campaign backing the measure has raised a record $43 million, entirely funded by major players in the sports betting industry, namely DraftKings and FanDuel. If the measure passes, these companies could apply for licenses to conduct online sports betting in Missouri, alongside additional licenses for local casinos and professional sports teams.
On the other side of the debate, a $14 million opposition campaign funded by Caesars Entertainment has emerged, voicing concerns about the measure’s structure. While Caesars generally supports sports betting, they argue that the current proposal is flawed.
The Shift in Betting Habits
As sports betting continues to evolve, the dynamics between online platforms and traditional casinos are becoming increasingly pronounced. Research indicates that as online sports betting gains traction, revenue from physical casinos may decline. This shift raises questions about the long-term viability of brick-and-mortar establishments in a landscape dominated by mobile betting apps.
Tax Revenue Comparisons
The impact of varying tax rates can be observed in states like Illinois and New Jersey, which were at the forefront of the legal sports betting movement. Both states reported between $11.5 billion and $12 billion in sports bets last year, generating substantial revenue for their respective governments. New Jersey collected $129 million in tax revenue, while Illinois surpassed that with $162 million, despite having a slightly higher tax rate.
In response to initial revenue figures, Illinois has implemented a progressive tax scale that increases rates based on revenue thresholds. This move reflects ongoing efforts to optimize tax revenue from the sports betting industry, even as some sportsbooks express concerns about the potential for higher taxes to drive them out of the state.
The Competitive Landscape
Despite the varying tax rates, experts suggest that sportsbooks remain competitive regardless of the tax burden. Joe Weinert from Spectrum Gaming Group emphasizes that operators are motivated to attract bettors through appealing odds and promotions, regardless of the tax environment. This competitive spirit may mitigate concerns that higher taxes will lead to worse odds for consumers.
As Missouri prepares for its vote on sports betting legalization, the implications of the proposed measure extend far beyond the immediate financial projections. The ongoing debate over taxation, promotional strategies, and the future of gambling in the state will undoubtedly shape the landscape for years to come.