As the rapidly growing online sportsbook and casino industry spreads its wings from coast-to-coast driven by new technologies that were unimaginable in the 1950’s, gaming industry leaders have made it known that they consider the Federal Gaming Tax to be outdated and harmful to the cause in the battle with unlicensed illegal sportsbooks.
The tax was first implemented by Congress when the world was a much different place back in 1951, as a 10% tax on sports revenue plus an additional $50 ‘occupational stamp’ for every employee employed in the operations of the sportsbook. The tax was meant to be confrontational to the only sportsbooks in the land (in the Silver State of Nevada at the time), and it was successful in its aim to close down Nevada’s fledgling sports betting industry. All 13 of Las Vegas’ sportsbooks closed their doors upon the imposition of the tax, while just 4 of the other sportsbooks existing in Nevada in 1951 survived.
“Great. Nice Story” I hear you say, ‘but what does it have to do with now?”. That same excise duty was cut to 2% by the early 1970s, and by the time the calendar ticked over to 1982, Congress further reduced the sports betting excise tax to 0.25% of the total gross sports betting handle. Nevada and Las Vegas bounced back almost instantly and the rest is history.
However, its best to remember that sports wagering as a business is a game of low-margins where sportsbooks usually only report a return of around 5% on investment, which may have great in 1951, but by today’s standards, makes most sportsbooks vulnerable to closures, and with that, naturally goes job losses.
Today, most sportsbooks usually only turn a profit in the range of $50 000 for every $1 million wagered, and they are already giving $2500 back to the government in the form of the 0.25% excise tax.
Federal Gaming Tax Affects Legal Sportsbooks Ability to Compete
While legal online sports betting has provided a windfall for those states that have chosen to adopt the practice, they could be given more incentive and ability to fight-off competition from illegal off-shore sportsbooks that don’t experience the same tax burdens.
“The common enemy remains these illegal offshore sportsbooks that don’t have these tax obligations,” American Gaming Association (AGA) President and Chief Executive Officer Bill Miller remarked recently. “We should do everything we can to support the legal system that still is competing with both the illegal corner books and the offshore illegal sites”, Miller continued.
Republican Congressman Guy Reschenthaler of Pennsylvania (who co-sponsored a bill to eliminate the Federal Gaming Tax with Nevada’s Dana Titus in April) seconded Miller’s words recently;
“The industry is hindered by an outdated tax code and burdensome regulations that penalize legal, regulated operators while providing illegal operations with an unfair advantage,” the Congressman said. “Gaming has a $6.34 billion economic impact in Pennsylvania and supports over 33,000 jobs,” he continued, alluding to the fact that those jobs and the economic growth generated by sportsbooks is at threat if the situation continues unabated with the illegal sportsbooks given free rein at the expense of the legal providers.
Perhaps most pertinent to the argument is the U.S. Supreme Court said when finding for the repeal of the PASPA Act in 2018, that sports betting is a state matter, and not a Federal one.
To sum up, Bill Miller the AGA Boss, put it succinctly;
“We always remember that [gambling] is a state-regulated industry, and everybody likes it that way. Having an overlay of [federal] government oversight and taxing is not welcome news — and a fireable offense, if you are the CEO of the AGA and it happens on your watch.”
Watch this space as the story continues to evolve.