By: Ryan Prete of Bloomberg

The three states that have recently opened their doors to legalized sports betting have already collected slightly more than $3 million in tax revenue.

Delaware continues to see a steady flow, while Mississippi and West Virginia are grappling with their first revenue figures since offering the activity. Policy specialists expect revenue totals to grow as the National Football League season continues.

“Gambling and football are intertwined like no other sport. Even non-gamblers know the point spread for their games. All the pregame shows do [game] picks with Vegas lines,” Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center, told Bloomberg Tax.

Amid all the state-side activity, federal lawmakers have scheduled a Sept. 27 hearing on sports betting.

Tax Revenue Totals

Delaware was the first state to take bets, opening its doors to the activity on June 5. From June 5 through July 29, the state took in nearly $23 million in wagers, according to its lottery record. Delaware’s law allows the state to keep 50 percent of the proceeds from the activity, which means about $2.04 million for the state after winning bets were paid.

Mississippi began offering bets Aug. 1, and through Sept. 3 the Magnolia State had issued $9.8 million in wagers. Mississippi has a 12 percent tax on sports betting, which equates to $1.2 million in state revenue through the five weeks.

West Virginia opened its door to legal betting on Aug. 30, and has released totals through only the first week of legalized betting. From Aug. 30 through Sept. 2, West Virginia took in $320,631 in wagers; taxing those bets at 10 percent, the state yielded $32,063 in revenue.

New York, Pennsylvania, and Rhode Island have legalized sports betting, but haven’t begun taking bets.

The U.S. Supreme Court cleared the way for states to allow bets on sports in its May ruling in Murphy v. NCAA, which repealed the federal Professional and Amateur Sports Protection Act of 1992 (PASPA). That law had prohibited states from “authorizing” gambling related to professional and amateur sports leagues.

NFL Season Will Boost Revenue

The NFL’s influence is visible in Mississippi’s sports betting totals. Of the state’s $9.8 million wagered from Aug. 1 through Sept. 3, $3.5 million was wagered in just the first three days of September, during the NFL’s last week of preseason games. The $3.5 million wagered in three days is nearly half of all bets placed during August.

“Betting revenue will obviously increase during the NFL season, and more states will legalize it, but they must realize that this is a low-margins business and should not be looked at as a way to fill budget holes,” Sara Slane, senior vice president of public affairs at the American Gaming Association, has told Bloomberg Tax.

In 2018, 19 states proposed legislation to legalize sports betting, and Slane said she expects at least the same number to push for the activity during the upcoming session.

A Short-Term Trend?

Auxier said states should be worried about competition.

“For example, Delaware and West Virginia would probably see a dip in revenue if the District of Columbia legalizes sports betting. And when we get to the point where sports gambling is near-universal, you might also see tax rates come down a little—further reducing revenue,” Auxier said. “Sports gambling is all about trends, right? This is a positive trend. But it’s a short-term one.”

District of Columbia council member Jack Evans (D) introduced a bill Sept. 18 that would allow bets and levy a 10 percent tax on gross revenue from wagers.

In gauging a state’s potential revenue numbers, Auxier pointed Bloomberg Tax to 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.

Federal Spotlight on Sports Betting

Sports betting has been an area of focus for federal lawmakers in the months following the high court’s reversal of PASPA.

The House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations is set to host a Sept. 27 hearing titled “Post-PASPA: An Examination of Sports Betting in America.” It remains unclear what lawmakers will focus on during the hearing, as there hasn’t yet been a federal proposal introduced in either chamber of Congress.

Slane will be among those testifying before the subcommittee. She will be joined by:

  • Jocelyn Moore, executive vice president of communications and public affairs at the NFL;
  • Becky Harris, chair of the Nevada Gaming Control Board;
  • Jon Bruning, counselor at the Coalition to Stop Internet Gambling (CSIG); and
  • John Warren Kindt, professor at the University of Illinois.

A spokesperson for Rep. Jim Sensenbrenner (R-Wis.), who chairs the subcommittee, told Bloomberg Tax Sept. 24 that the chairman “looks forward to hearing from these witnesses who represent a wide variety of positions on sports betting.”

The upcoming hearing follows recent calls for federal intervention from Senate leadership.

On Aug. 29, Senate Minority Leader Charles E. Schumer (D-N.Y.) proposed a “desperately needed” federal sports betting framework, a move that state tax policy specialists say could hurt state sovereignty and tax revenue pursuits.

Schumer also published a memo that included three principles he deems necessary in a framework: protecting young people and those suffering from gambling addiction, protecting the integrity of the game, and protecting consumers and individuals placing bets.

During an Aug. 24 update on the Senate floor, Sen. Orrin G. Hatch (R-Utah) said progress is being made, and that he would release a legislative proposal “in the coming weeks.” There is currently a 0.25 percent federal excise tax on all betting handles.