Mississippi, a state that has already legalized retail sports betting, is considering adding a digital component to further increase their tax revenue.
A comprehensive report released by the Mississippi Mobile-Online Gaming Task Force highlighted the advantages of embracing online sports betting and provided valuable insights for states considering digital legalization.
One of the critical factors in the process of legalizing online sports betting is the tax rate. According to the Mississippi report, jurisdictions in the United States that allow online wagering took $246 billion in wagers between fiscal years 2019-2023, resulting in $19.9 billion in gross revenue and $3.5 billion in tax revenue nationwide. These numbers exclude revenue from six retail-only states and do not include the recently launched sports betting markets in Kentucky, Florida and Maine.
The report emphasizes that the tax rate and population play significant roles in determining the revenue a state can expect from legalizing online sports betting. It highlights the example of New York and New Jersey, where more money has been bet on sports in New Jersey ($4.2 billion) than in New York ($3.1 billion). However, due to its higher tax rate of 51 percent on mobile sports betting revenue compared to New Jersey’s 14 percent, New York has generated more tax revenue ($1.3 billion) than its neighboring state.
In Mississippi, the current tax rate for adjusted gross revenue is 12 percent, consisting of an 8 percent state tax and 4 percent local tax. The report suggests that a 2 percent tax on total handle would be the most lucrative taxation model, projecting potential tax revenue of $27 million per year by 2029, compared to $5 million using the current model. Tennessee is currently the only state that taxes sportsbooks based on total handle, with a 1.85 percent tax rate.
Aside from tax rates, population and various growth factors also play essential roles in determining the revenue potential of legalized online sports wagering. The adoption of online sports betting, the addition of retail sports betting locations near new population centers, the interest in new sports to place bets (e.g., esports), and federal efforts to combat illegal sports betting can all contribute to significant growth.
The Mississippi task force considered multiple ways for the state to capitalize on digital betting. The report assumes 20 percent growth in each of the first five years of digital wagering and estimates that the total handle could double between a 2025 launch and 2029. This growth projection is based on the assumption that Mississippi would experience increased interest in sports betting, the addition of new population centers, and the availability of online platforms.
Given the number of commercial and tribal casinos in Mississippi, it is crucial to consider the support for digital betting among operators. The state boasts 26 commercial casinos, with some owned by major gaming companies like PENN Entertainment, Caesars Entertainment and Boyd Gaming. These operators have the potential to launch their own digital betting platforms or form partnerships with existing online sportsbooks.
Market access is another important aspect to consider. Two of the largest wagering operators in the nation, DraftKings and FanDuel, already have market access in Mississippi through deals with Golden Nugget-Biloxi and Boyd Gaming, respectively. However, if tethering to a casino is required, smaller or independent casinos might have limited options when selecting online sportsbook partners.
One concern raised by the task force is the potential cannibalization of casino revenue if legal digital sports betting paves the way for the legalization of online casinos (iCasino). The report cites a net 10 percent decrease in casino revenue in states with legal online casinos between 2019 and 2022. However, it suggests that integrating online casinos with retail casinos could help minimize this decline.
Many operators employ cross-promotions to attract digital sportsbook consumers to brick-and-mortar casinos. These promotions often include loyalty points that can be exchanged for meals or hotel stays. By encouraging online bettors to visit physical casinos, operators can create a synergy between the two platforms and mitigate the potential negative impact on casino revenue.
