While gambling can be a tax revenue generator, sports betting historically has fallen short

Posted at 2:04 PM, May 22, 2018
and last updated 2018-05-22 14:04:58-04

In state legislatures around the country, there is a likely gleam in the eye of lawmakers anxious to grab a piece of the $150 billion the American Gaming Association estimates is wagered illegally each year. While gambling can be a tax revenue generator, sports betting historically has fallen short.

In traditional gambling, the odds favor the house. It's why they can operate big buildings with lights, bells and whistles and still have a veritable license to print money while in many states like Ohio pay a third of their winnings after all bets are paid in taxes.

Sports betting in simple terms is different. In most cases, you are betting between one of two games in a given contest with the line, the number of points one team gets over the other, is there to keep the balance of bets on both sides close to even.

So, say you have $100 you're going to gamble. If you're playing slots at an Ohio casino, the casino will win $8 after all winning bets are paid. For table games, the odds are more in the house's favor winning roughly $23 of that $100. But based on Las Vegas numbers for sports betting last year, the casino's take on that $100 would only be about $5.

In terms of tax revenue based on Ohio's current 33 percent tax on casino winnings after all bets are paid, the tax from that $100 wagered would be $2.64 for the slots, $7.59 for the table games and only $1.65 on sports betting.

In Nevada, where the tax on gambling is 6.75 percent, the tax on that $5 profit from the $100 wagered would only be 33 cents.

That's why even though roughly $4.9 billion was wagered on sports betting last year in Nevada, the casino's profit was $249 million which accounted for only 2.2 percent of the state's gambling revenues.

So why then are states looking at sports betting? Well, it is a revenue stream no doubt, but it also is a driver of foot traffic that may bring someone to casinos looking to bet on a game who might not normally go and while they're there they may gamble or spend money elsewhere.

The questions for states going forward is what kind of taxes and fees will they look to impose on the industry? Will be a tax rate in the Las Vegas 6.75 percent range or one like Pennsylvania's looking at which is 36 percent with a one-time $10 million operator fee.

A week later the legislature waits for any concrete proposals about where sports betting would be offered, how much the state would be looking to get back in taxes and fees and just who would be able to offer it.