Sportsbook operators spent millions in promotional fees to attract bettors when New York launched its mobile system. At the end of the day, most sports betting companies lost a ton of money to sign up new customers. Unfortunately, the state did not allow the promotions to be deducted as an expense.
Still, nationwide, firms saved $120 million in potential tax liabilities, according to a recent report by Vixio GamblingCompliance. State governments lose out as a result of the savings.
The report identified ten jurisdictions that permitted operators to fully deduct free bets and other promotions used to sign up gamblers. For example, sportsbook companies in Michigan and Pennsylvania deducted almost $337 million from their taxable revenues in 2021, saving more than $76 million.
“The full deductions have helped to make Pennsylvania a major sports betting market despite a headline-grabbing 36 percent tax rate that operators once scoffed at, with promo deductions lowering the effective tax rate in the Keystone State to a more reasonable 24 percent in 2021,” the report says.
On the other hand, New Jersey allows limited promotional deductions; $90 million a year for all types of gambling, Vixio said.
“Legislation in 2021 that would have permitted New Jersey online betting operators to deduct any promotional play over $12 million annually was vetoed by Gov. Phil Murphy, who instead allowed the deductions exclusively for retail sports wagering,” the report said.
Legislation passed this year is aimed at scaling back the deductions in Colorado and Virginia.
Arizona and Ohio inserted “sunset clauses” into the sports-betting bills they passed last year to slowly eliminate the deduction claims.
“Provisions allowing deductions in the early days of a sports betting market that phase out over time have recently become a popular move for states, enabling operators to acquire customers early on with the state benefiting in the long run from a full amount of taxable revenue,” the report says.
New York is one of nine states that does not allow the deduction.
“The result has been several operators slowing their customer acquisition efforts in recent months after a brief explosion of inducements offered after the state’s January launch,” VIXIO’s report states. “Other major markets that do not permit bonus deductions include Illinois, Indiana and Tennessee, all of which passed bills legalizing sports betting in 2019 before the promotional play clause became a more popular item to include in any new legislation.”
