Sports betting is going from strength-to-strength in Pennsylvania with record betting handle being reported in recent months. Of the most recent betting handle reports released by the Pennsylvania Gaming Control Board (PGCB) in September 2020, the Keystone State’s sports betting operators demolished the previous sports betting handle record reporting $462.8 million in sporting wagers.
It’s a huge number, but delving a little deeper, the state is not receiving the tax receipts it had hoped from that enormous handle. In fact, in that record month of September, revenue was down year-on-year from September 2019 (down from $33.2 million to $14.9 million) and significantly less than the $27.6 million of August.
How is that possible?
Where Is The Money Going?
Primarily due to bonuses, free bets and other player incentives revenue numbers are being gorged, and particularly in Pennsylvania we can see those numbers specifically. The Keystone State is the only legal sports betting state that records data on precisely how much money sports wagering operators are paying out to their customers as bonuses and free bets.
Of the revenue numbers once promotional and player incentive credits are deducted, the state government takes another 34% of the handle in taxes. Additionally, another 2% tax goes to the local governments where the physical sportsbooks (or servers in the case of online sportsbooks0 are located.
Partly due to return of sports after the global pandemic hiatus and a number of new operators entering market in Pennsylvania, more and more bonuses and free bets are now available to the state’s bettors than ever have been previously.
That’s great for us as avid sports bettors, but not so wonderful for the online sportsbook operators. Taking a closer look at some of the lifetime numbers in the Keystone State, Unibet has given back 93% of its revenue to sports bettors as bonuses, incentives and promotions, whilst DraftKings also report a high 58% number and BetRivers not far behind at 41%.
Compare that to the estimated 10% of European and Australian sportsbooks. However, those markets have had legal sports betting in place for decades now. Pennsylvania and other recently legalized online sports betting states are only just getting going, and what’s more, the growing pains are coming during the ongoing impacts on sports and the economy in general during a global pandemic.
Operators are reportedly saying that the PGCB is unhappy with the revenue, however, part of the problem is the way in which the regulatory authority built their own reporting model.
Tax After Bonusing Will Ease the Revenue Drift in Pennsylvania
Of course, there is a simple cure to combat the ongoing revenue drift in Pennsylvania, and it is one that the sportsbooks themselves have suggested in the past.
Tax after bonusing will assist in combatting the revenue drift in Pennsylvania. Not only would that assist the Pennsylvanian State Government in collecting more revenue in order to pay for the Keystone State’s state infrastructure, services and welfare programs, but it will assist the sportsbooks to help put an end to black market sports wagering in the state.
Yes, the sportsbooks will need to cut back their extreme levels of promotions and player incentives eventually, however, that was always going to return to some level of equilibrium as the Keystone State’s sports betting market reaches maturity over time.
What may have to change radically long term is that the PGCB and legislators in the State of Pennsylvania work hand-in-hand in the future to shift the level of state taxes to a more sustainable level and analyze at which point (if at all) promotion monies are taxed.