The Legal Sports betting industry experienced a boom following the 2018 Supreme Court decision recognizing the federal ban on sports betting as unconstitutional. To date, nearly 40 states have created legal sports betting markets, with nearly $ 150 billion in Paris estimated in 2024. States have implemented a variety of taxA tax is a payment or compulsory costs collected by local, state and national governments of individuals or companies to cover the costs of general services, goods and government activities.
Designs, but a stable element over this whole period was the federal tax on sports betting. A recent call to increase the federal tax on sports betting does not fully take into account the way in which this would considerably change the landscape of sports betting.
Legal sports betting is subject to a federal tax 0.25% of sports betting handleA term meaning the total quantity of Paris. During the first introduction in 1951, the tax was 10% of all bets with a main objective of fighting organized crime and illegal game. The Congress gradually reduced the tax over a period from 1974 to 1982 at its current rate and added a distinct 2% tax on illegal bets. While initial estimates in 1951 have provided annual federal income of $ 400 million, real collections fell very short. Only six months after the entry into force of the law, the estimate was adjusted to $ 9 million. The exact figures of tax revenue is not available because IRS do not report, or apparently even knowthe amount collected. Industry estimates, however, we can glean that income changes from 1951 to 2018 were relatively minor.
While more and more states have started to exploit the legal markets and players passing from unregulated and not accelerated illegal operators in the new regulated markets, the income from this tax has developed considerably. Although IRS federal data are not available, we were able to aggregate state reports to estimate the federal tax collections.
In 2019, 13 states had legalized federal sports betting, and estimated income from the Federal Handle of Sports betting of 0.25% totaled $ 33 million. By 2024, 34 states had legal markets and federal tax revenue increased by more than 11 to 373 million dollars. The existing markets continue to grow, and if more states, in particular of stands, as California And TexasEstablish legal markets, then these figures will probably continue to grow considerably.
The growth of the federal collections of sports betting, timed with very active tax reform discussions on Capitol Hill, reopened the discussions to reform the tax on sports betting. A important recommendationFrom the Bipartisan Policy Center, must increase the tax rate by 0.25%to 5%, a tax increase to 1,900%.
This reform has double motivations, similar to most excise taxes. A higher tax rate would disinpicate certain sports games, thus reducing the societal damage received from the activity, and it could generate additional income, perhaps within the framework of a wider Federal tax reform fillet.
In 2024, manipulations of 0.25 percent generated $ 373 million in income. This is not a significant amount in the context of the federal budget exceeding 7 billions of dollars. A higher tax rate could potentially increase more income for a period of time, but it would constitute a poor fiscal design and such an increase in drastic tax on the legal game would hinder, even vice versa the recent trend of consumers to safer legal markets. A more in -depth analysis of the data suggests that the significant increase in the 0.25% Channel Tax would oblige sportsbooks to consider different legal ways to offer their sports betting products to consumers.
Consider the following hypothetical bet. Two teams are likely to win a competition. The chances of reading -110, which means a better one must bet $ 110 to earn $ 100. The Sportsbook receives $ 1,100 in Paris placed in each team, for a total handful of $ 2,200. In addition, $ 45 of this handful occurred due to promotional Paris, so the Sportsbook took only $ 2,155 at cash.
It doesn’t matter that team 1 or team 2 wins the event, the Sportsbook will pay $ 2,100 to winning bettors, which lifts their $ 1,100 for $ 1,000 in winnings. This gives a gross turnover (GGR) of $ 100, or 4.5% of the $ 2,200 conducted. By subtracting the $ 45 in promotional Paris, the Sportsbook remains only $ 55 as net income income (NGR), and this is before all operational costs, compliance, marketing and other costs associated with the management of the company are covered.
Federal and state sports bets can be combined for heavy tax charges
Hypothetical pares, income and tax calculations
Source: author’s calculations.
Under current policy, Sportsbook would give $ 5.50 to the federal government for the management tax of 0.25%. This tax alone represents 10% of net revenues of play.
A management tax of 5% would be $ 110. It is more than double what the sportsbook does on the bet, 200% of its net revenues of play! Sportsbook would be lose Money with each bet of this type. At least, sportsbooks would be forced to offer games with much worse dimensions for consumers and adopt the new tax burden to consumers. The more likely result, if the tax is so significantly increased, would be the death of the legal industry of sports betting that it exists today.
When you consider changes to the federal excise taxAn excise tax is a tax imposed on a specific property or activity. Increasing taxes are generally collected on cigarettes, alcoholic beverages, soda,, essenceInsurance premiums, attraction activities and Paris, and generally constitute a relatively small and volatile part of the state and the premises and, to a lesser extent, federal tax collections.
On sports betting, analysts and decision -makers must remember that the federal taxes of sports betting are hidden in addition State sports betting taxes Also. The states apply a wide range of sports betting taxes, from 6.75% GGR to 51% GGR. The combination of state taxes with federal taxes increases the taxpayments of Sportsbooks in NGR percentage to 22.3 and 92.7%, depending on the state in which a sports book operates.
Given that many goods are attracted to higher and worst-ODD bets that would produce the size of the lottery, we estimate the average socket In all the activities of Paris nationally, it is around 7.83%. This margin would not almost cover the combined and federal tax burden with a 5%federal tax. The main thing: exorbitant taxes could easily kill the legal market for American sports betting.
Alternative policy options
A fairly different political approach comes from long -standing Bipartite efforts of the co -chairs of the Congressional Gaming Caucus, which repeal The tax on legal bets entirely (HR 1440 in 119th Congress). Similar legislation was introduced in 118th Congress of Senator Hyde Smith (R-Mi) and Senator Cortez Masto (D-NV). An abrogation would also equalize the treatment of sports betting with that of more traditional game methods such as state lottery, poker and slot machines, which are exempt.
Given that the tax revenues of federal sports betting excise is currently intended for public spending related to the game (the problem which ostensibly justifies an excise tax on sports betting in the first place), another approach –The Grit Act—Ant the maintenance of the accurate excise tax, but it is to devote 50% of all the income generated by the tax to finance subsidies for problem games.
If legislators are looking for additional income, a more neutral tax treatment could also be obtained by widening the base to include other playing activities. There would probably be political and legal challenges to the debit of state lotteries, but this could be more logical for tax lottery than sports betting, as lottery tend to come back 60 to 65% From betting to bettors, against an average estimated at 91% of betting returned to players by sports books.
Federal decision -makers could also consider an increase in the tax illegal Sports pars. The tax on illegal bets was 10% before being reduced to 2% in 1974. Although we have practically no data on the amount of income that the tax currently generates, it is possible that an increase in the tax will generate more income while simultaneously increasing the incentives for play activities to go to the legal markets.
The unique complexities of tax design for sports betting excise taxes make the design of optimal taxes particularly difficult. Any reform of the federal tax on sports betting should guarantee that bettors and operators find legal markets more attractive than illicit markets.
Stay informed of the tax policies that involve you.
Subscribe to obtain information from our trusted experts delivered directly in your reception box.
Share this article