Illegal Super Bowl Bets May Top $4 Billion, State Taxes Next?

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...


By Ryan Prete

Americans are expected to gamble $4.6 billion on Sunday’s Super Bowl LII, which a gaming association is using in the latest call for the U.S. Supreme Court to strike down a 26-year old ban on sports betting.

“The ban on sports betting has been a tremendous failure,” Geoff Freeman, president and CEO of the American Gaming Association, told Bloomberg Tax.

The case at issue is Murphy v. NCAANew Jersey’s attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region. The high court agreed to review the case after a lower court ruled that the partial repeal violated the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits states from “authorizing” gambling related to professional and amateur sports leagues.

“The Supreme Court took an important step by taking up the issue,” Freeman said Jan. 30 during a call discussing the association’s report on Super Bowl wagering. “But until PASPA is found unconstitutional, or Congress repeals it, it will continue to flourish.”

According to a May 2017 Oxford Economics report, an estimated $107 billion was illegally wagered in 2015.

NBA Wants Cut

In Jan. 24 written testimony before the New York Senate, Dan Spillane, senior vice president and assistant general counsel for league governance and policy at the National Basketball Association, announced the league’s support for efforts to end PASPA, but asked that operators “pay each league 1% of the total amount bet on its games.”

Freeman said such a request would both hurt the integrity of the NBA and dwarf any revenue returned to states.

Bloomberg Tax analyzed the breakdown of revenue for a $100 sports bet wager if states granted the NBA’s request, based on Nevada’s 6.75 percent state tax on gross gaming revenue—the only current state with legalized sports betting:

  • $95 goes to winner bettor
  • $1 goes to NBA
  • $0.34 goes to state government
  • $0.25 goes to federal government, as part of the 0.25 percent federal excise tax
  • $3.41 goes to the sportsbook

Because the bettor keeps 95 percent of the bet placed, leaving only 5 percent for revenue division, the NBA’s one dollar fee would equate to 20 percent of the available profit for regulators.

States to Wait?

Currently, there are almost 30 pending pieces of legislation in 15 states concerning sports betting regulation, according to MultiState Associates.

Indiana—one of the most recent states to introduce legislation—is the first to include an “integrity fee” which would set aside 1 percent of each wager for the sports league at play. The bill includes a 9.25 percent tax on betting revenue.

West Virginia introduced legislation on Jan. 29 that would tax legalize sports betting via the state lottery, the bill includes a ten percent tax on gross gaming revenue.

While more states ready frameworks for if the high court reverses PASPA, most will still wait for the high court’s decision, said Ethan Wilson, policy director of commerce and financial service at the National Conference of State Legislatures.

“States that want to legalize and regulate sports betting are being proactive,” Wilson told Bloomberg Tax. “However, despite the significant flurry of recent legislative activity on sports betting, many states will work on this issue after the Court hands down its ruling. This issue will continue to be important in state capitols around the country for some time to come.”

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