Following the Money: Sportsbetting and iGaming Tax Appropriations in America [Who Are the Beneficiaries?]

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December 9th, 2019
Back Following the Money: Sportsbetting and iGaming Tax Appropriations in America [Who Are the Beneficiaries?]

We live in interesting times. To be the U.S. sports bettor or iGamer in the 2020s is to play in the post-PASPA era, to witness the expansion of online gambling, to enjoy players’ protection in well-regulated markets, and, of course, to have myriad options to choose from — the environment so far removed from the last decade.

We’re all in — players, operators, affiliates, regulators, legislators — though for different reasons.

Patrons revel in increasing chances to make potential gains, operators embrace the possibilities to grow revenues through diversified offerings, affiliates try to prepare participants to make prudent and well-educated choices, regulators strive to create balanced markets and keep everyone in check, while legislators look to explore all conceivable potentials of legalized gambling.

Regardless of the position or role in this equation, it seems that everybody wins one way or the other.

However…

There is one additional winner here, and perhaps, it’s the biggest one — the society itself.

At first, the notion seems illogical and counterintuitive. How on earth can the public benefit from gambling? It’s the menace to people’s lives, sometimes addictive monster and malicious master; the house always wins, there’s no end to the length casinos will go to lure patrons in, people end being broke all the time. What exactly can be positive in such a picture?

Well, that’s what unregulated gambling is all about.

Legalized one, on the other hand, is a matter of properly set expectations made by educated patrons that responsibly approach their proclivities, governed by professional institutions in highly regulated markets.

The difference between these two is comparable to buying gasoline on the street and the gas station — what you get in the tank are two very different types of petrol. Yet again, people still buy it from roadside canisters in some countries.

The United States opted for the legalization of sports betting and iGaming — a high-octane gambling fuel that, among other things, ensures excellent anti-knocking properties of society’s engine. One of the most significant advantages of such an approach is the possibility to use taxation money in the right way.

Thus, as we roll dices, pull reels, spin wheels, or fill in betting slips, the simple question emerges: where does the gambling taxation money go?

In short, back to society. The appropriations finance either the most important initiatives or under-budgeted projects that improve the lives of people in states with legalized gambling.

In other words…

Legalization tames the gambling monster and transforms it into the crouching tigers and hidden dragons.

Before one jumps to argue that both tigers and dragons can be quite dangerous — which they may, just like chances and choices — please note that the original idiom in Chinese (“wuo hu zhang long”) correlates to the bigger story with significant moral lessons, and directly refers to special and hidden talents. The wording is used as a reminder to never underestimate anybody or anything.

So, who are the social beneficiaries of gambling taxation?

(Note. As a general rule of thumb, all states in America distribute taxes on players’ winnings and operators’ revenues between purpose-made public funds and the gaming industry. The former is what we follow here, focusing on those that opted for legalization in 2018, with a few exceptions; the latter consists of casinos, racetracks, institutions, infrastructure, and other segments of gambling eco-system which use the money to improve overall services and patrons’ experience. The exact share between these two segments is left to states’ discretion, although the significant majority of funds go to service the public needs. Various gambling wins on table games, electronic devices, sports betting, and lotteries are taxed differently on the state-by-state level.)

From Public Services and Natural Resources…

Arkansas, one of the first to legalize sports betting and racinos after the SCOTUS decision to repeal the PASPA, enjoys in record-breaking gambling fiscal year: according to data from the Arkansas Department of Finance and Administration — one of two states’ regulators — tax revenues in the first year are close to $69 million.

More than half of that sum, $35 million, goes to construction or maintenance of The Connecting Arkansas Program (CAP), “one of the largest highway construction programs ever undertaken by the Arkansas Department of Transportation.” Thirty-six different projects — the majority of them completed — improve the transportation system and travelers’ safety, ease congestion, support jobs’ growth, and improve the state’s economy.

The rest of the money is available for schools, social services, prisons, public safety, while lottery surplus by default goes to education.

In Colorado — which launched the regulated offline and online sports betting in November 2019 — the majority of tax money goes toward The Colorado Water Plan. The statewide initiative aims to secure future water needs essential for sustained growth of population that could double by 2060, and supports Colorado’s goal to reach zero emissions by 2030.

The current water trajectory in the state is “neither desirable nor sustainable,” hence the purpose-made policy. Estimations of gambling tax funds support to this initiative are close to $29 million per year.

Delaware, one of only four states exempt from the PASPA in 1992, enjoys in an unconstrained pro-gambling climate similar to Nevada. As such, the Diamond State was the first one to offer online poker back in days, and the first to put forward multi-state games with Nevada and, later, New Jersey. Indeed, the First State.

Not surprisingly, operators pay significant taxes — between 57-58 percent on gross revenue. According to the American Gaming Association (AGA), in 2018, gambling created approximately $207.8 million in taxes; close to $177 million was returned to Delaware’s General Fund.

Those funds are appropriated each year for public and higher education, public safety, and health and social services.

…Via Student Loans and Jobs Creation…

Florida — although technically the state that does not fit the bill of legalized online gambling — has three laws for legalized sports betting submitted to State Senate in November 2019. If passed into the laws, their fate will be decided on the statewide referendum in November 2020.

The existing taxation framework for brick-and-mortar operators gives a glimpse of potential beneficiaries.

Virtually all of the tax revenue from commercial casinos in Florida goes to the Educational Enhancement Trust Fund, established in 1986, which funnels the funds to school districts, public colleges, and universities, in addition to providing financial aid to state’s students.

The exact programs and volume of tax money are determined each year by the Florida Legislature.

In Indiana — which kicked off online and offline sports betting in September 2019, in addition to existing land-based and riverboat casinos — taxation money goes to the state’s General Fund. From there, it’s used for general budgetary purposes and distributed towards local cities and counties’ governments.

In 2018, commercial casinos paid close to $600 million to improve Hoosiers’ lives.

Iowa, another long-time pro-gambling state — which also legalized online and offline sports betting in May 2019 — allocate 86% of total gaming tax revenues to the Rebuilt Iowa Infrastructure Fund, the Iowa Skilled Worker & Job Creation Fund, and the Environment First Fund.

Additional resources are used to service state debts incurred by projects such as flood rebuilding and mitigation, bridge safety, and prison construction.

Mississippi, a member of the lawful sports betting league since July 2018, uses roughly half of all gambling tax revenue to support budgetary needs which include social welfare initiatives, education programs, transportation, and local public safety programs.

An extra $3 million per month is allocated to pay for improvements to state roads and bridges.

…To Senior Citizens and Healthcare

New Jersey, veteran gambling state in the league on its own — which even increased sports betting taxation last year — generated close to $277 million in all taxes in 2018; almost $232 million of that money was deposited to the state’s Casino Revenue Fond.

The exclusive beneficiaries of that fond are senior citizens and disabled residents. Each year, appropriations address the specific needs of these groups; in 2018, the choice fell to home assistance programs as well as home-meal and transportation services for elders.

Furthermore…

New Jersey’s gambling operators funneled an additional $40 million to support economic development and community projects in Atlantic City, as well as local municipalities and county administration hosting racinos that operate sportsbooks.

New Mexico, which is an interesting case since no law explicitly prohibits players to gamble online while interactive sports betting operations are on without the state law, has a modest gambling scene that consists of land-based slots and poker gaming devices operated by casinos on Indian reservation territory.

Regardless, Land of Enchantment’s operators generated close to $109 million in taxes in 2018. Approximately 60% was allocated to the New Mexico General Fund and appropriated to the state’s budgetary expenditures. Almost $600,000 was used to fund problem gambling services.

Pennsylvania legalized offline and online sports betting last year and added it to the existing brick-and-mortar landscape. Having one of the highest gambling tax rates in America, the state collected a whopping $1.48 billion from casinos in 2018 — more than Nevada.

The tax revenue is principally used to reduce school taxes paid by the state’s property owners.

Seventy-five percent of gambling taxation in 2018 ($1.11 billion) was sent to Pennsylvania Property Tax Relief Fund; the remaining money was used to boost economic development, tourism, the municipalities that host casinos, and to support horse racing industry.

Rhode Island, which allowed for sports betting in two casinos in 2018, generated $322.1 million in tax revenue last year and funneled it to the state’s General Fund. The money is used to fund numerous state services, including healthcare, education, and public safety programs.

West Virginia — which legalized interactive sports betting and online gambling — is a somewhat declining market, the consequence of growing regional competition. If it wasn’t for sportsbooks revenues, the state’s casinos would not break even in 2018.

Casinos’ tax revenue, in the vicinity of $290 million (down one percent from 2017) was remitted to the state government and merged with the West Virginia Lottery funds. From there, they went to public schools, state parks, services for senior citizens, promotion of tourism, and back to counties and municipalities.

The Real Kicker

2019 also witnessed states that have passed sports wagering bills or enacted laws — and compounded existing land-based markets — but remained operationally inactive, such as Illinois and Maine.

While legal sportsbooks might be only the question of time, it is fair to assume that gambling taxation beneficiaries will fit into the existing patterns: in the Land of Lincoln, tax money goes to the state’s Education Assistance Fund, while the Pine Tree State use it to fund higher education scholarships to state and community colleges.

The next year might see the District of Columbia, Montana, Tennessee, North Carolina, New Hampshire, perhaps even California, Connecticut, Ohio, Kansas, Kentucky, Michigan, and Missouri to join the legalization overdrive — all of them are on the brink.

But…

The true revelation about gambling taxation potentials in America comes from the AGA’s estimations about the volume of offshore sportsbooks and street bookies black market, which is projected to be close to $150 billion in the annual handle.

Indeed, it’s not that difficult to envision the proper use of those taxes when you take into consideration customary social awareness of American society which used gambling proceedings to fund public needs since colonial times.

For now, though, it’s just a food for thought.

Speaking of which…

If we were to scale this whole elaboration to worldwide level, effective and efficient taxation of well-regulated gambling markets could contribute to anything between significant improvements of human lives up to climate change mitigation efforts.

Notwithstanding all other benefits of widespread gambling legalization — increased players’ responsibility and safety, suppression of behavioral problems, fairness and transparency in casinos’ operations — the positive impacts on society are unquestionable and evident just as a high-octane fuel performances reign supreme in comparison to those of roadside canisters.

And, that’s exactly what crouching tigers and hidden dragons are all about — empowering special and hidden talents of people and their proclivities which should never be underestimated.

Particularly when they come with positive effects and serve greater good which we so often simply overlook.

“the positive impacts on society are unquestionable and evident”

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