It was supposed to be a windfall for states, but sports betting hasn’t gone the way many had hoped.
One tax policy expert says sports betting is not — and never will be — a major source of tax revenue for states, and states are now starting to figure that out.
“Windfall? Boon? These are all things that should raise red flags,” says Richard Auxier, research associate in the Urban-Brookings Tax Policy Center at the Urban Institute.
Sports gaming is a $150 billion dollar business, and the American Gaming Association says 39% of adults in the U.S.– or about 100 million people – are either current or potential future sports bettors. The AGA expects that number to grow. The Urban-Brookings Tax Policy Center at the Urban Institute says about $10 billion has been wagered so far in 2019.
But as Auxier points out it’s not about volume or dollar amount. “Some of [those who wager] actually win their bets, and the taxes are on the losses, what the casino takes in,” he says, not how much is spent.
“Billions turns into hundreds of millions for the sports books. And then the states will typically tax like 10% to 15% of that,” he says. “So now we're only talking about a couple of million dollars.”
For decades, Nevada was the only state where gamblers could legally wager on a sporting event. But in May 2018, a Supreme Court ruling ended federal restrictions on state sports betting. States were lined up to cash in by collecting taxes on beets. By the end of 2018, Delaware, New Jersey, Mississippi, New Mexico, Pennsylvania, Rhode Island and West Virginia authorized sports wagering. Right now you can place a legal sports bet in 13 U.S. states.
New Jersey is a winner
Auxier says if anyone is winning on sports betting, it is the state of New Jersey. New Jersey was ready to capitalize on sports betting when it became legal. Infrastructure in the form of casinos in Atlantic City and racetracks in other parts of the state were already in place. Gamblers in New Jersey bet more than $293 million on sporting events in August 2019 alone, allowing Atlantic City’s casinos to rake in 13% more than they did the previous August.
Another win for the Garden State? Allowing online betting and rolling out a welcome mat for companies like FanDuel and DraftKings. Online gambling now accounts for about 80% of all legal sports bets in New Jersey. According to the New York Times, New Jersey passed Nevada as the sports betting capital of the U.S.
But in other states, it’s been less of a win. In the District of Columbia and Tennessee for example, according to Auxier, there wasn’t a gaming-friendly infrastructure in place so the start wasn’t as smooth. Other states like Pennsylvania had issues with their licensing fees. Still others like Rhode Island decided not to allow online gambling.
While Auxier says revenues from sports gaming in any U.S. state won’t do anything big like erase a budget deficit, there are some benefits.
“Can this go to help fund some worthwhile public service programs? Yes,” he says. “But can this money fix your budget deficit? Can it fund your Medicaid and education programs? No.”