One of the primary reasons state lawmakers across the United States have so willingly embraced legal sports gambling is the potential tax revenue. Republicans and Democrats both have a proven affinity for spending money, particularly when it comes from new sources, such as regulated sports betting.
So, why haven’t officials in Annapolis been celebrating a cash windfall following the launch of legal online sports betting in Maryland last year? Well, because there isn’t any money.
Not really. At least, not yet.
A temporary tax break for online sportsbooks in Maryland is costing the state millions of dollars. More specifically, the state’s education fund is being deprived of money earmarked for schools and students.
Since the statewide launch on Nov. 23, 2022 through January, online sports betting has generated less than $2 million in taxes, according to public data from Maryland Lottery & Gaming. The state’s 15% tax rate on sports betting revenue would have generated nearly $20 million during the same period.
Oh, what could have been
Online sportsbooks in Maryland can deduct 100% of promotional spending from taxable gambling revenue for a full fiscal year. So, even as internet sports gambling numbers are exceeding most pre-launch projections, the state is not yet reaping the tax benefits.
In December, January and nine days in November, more than $1.08 billion has been legally wagered online. The seven Maryland sports betting apps reported more than $166.2 million in revenue over that time, according to the MLG data.
At the base tax rate of 15%, Maryland would have collected $24.9 million thus far.
The temporary tax break will eventually give way to a permanent monthly deduction of promotional play that cannot exceed 20% of the prior year’s taxable revenue.
Applying that standard to the available data, online sportsbooks would have netted about $133 million in revenue and paid just under $20 million to the state since November.
Explain these tax breaks to me again
Promotional spending is a significant part of the online operators’ playbook during the early days in a new market. By “giving away” millions in promotional play, operators hope to attract new customers and gain player loyalty.
According to MLG, online sportsbook operators have given out more than $156.5 million in promotional play since November. Most of that figure is deposit matches or “free” play given to users in the form of non-withdrawable bets or bonuses.
As a result, online sportsbooks have been able to claim taxable revenue of $12.9 million. Maryland has collected exactly $1,936,973.25 in taxes from online sports gambling.
DraftKings Sportsbook, the second-largest online operator in Maryland, has paid $0 in taxes. FanDuel, the national and statewide online sports betting leader, has paid just under $1.5 million, largely due to a recent reduction in promotional giveaways.
Breaking down monthly online sports betting taxes
In December, Marylanders gambled more than $478 million using mobile sports betting apps. Online operators kept a little over $82.3 million, or 17.2%, of that total. After deducting promotional play and “other deductions,” the seven sportsbooks paid $44,791.36 in taxes. Four books — BetMGM, DraftKings, FanDuel, and PointsBet — did not pay a single dime in taxes in December after deductions.
During November’s nine days of legal online sports gambling, six of the seven operators avoided paying taxes. BetRivers paid a total of $4,261.65.
By comparison, January was a more favorable month for the state’s tax coffers. The roughly $1.89 million in taxes represents 97.5% of the total collected since November 2022.