Lawmakers Slow to Tax Legal Sports Betting: Must ‘Get This Right’ (1)

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By Ryan Prete

It’s been 17 days since the U.S. Supreme Court ruled that states could legalize and tax sports betting, so why can’t anyone place bets yet?

New Jersey state Sen. Vin Gopal (D) told Bloomberg Tax the Garden State is taking its time with final legislative measures because “it’s important we get this right.”

The high court ruled in favor of New Jersey May 14 in Murphy v. NCAA, repealing the Professional and Amateur Sports Protection Act of 1992 (PASPA), which formally prohibited states from “authorizing” gambling related to professional and amateur sports leagues. Five states—Mississippi, New Jersey, New York, Pennsylvania, and West Virginia—have already enacted legislation to legalize sports betting, but will need time before they start taking bets.

Gopal is a co-sponsor of S. 2602, a measure introduced the same day as the high court ruling. The bill aims to allow sports betting at casinos and racetracks and proposes an 8 percent tax on gross revenue and a 12.5 percent tax on online wagers, according to Gopal. He represents a district of New Jersey that includes Monmouth Park, a racetrack that has built a sports book.

Gopal said he’s confident both the House and the Senate will pass the bill in the coming days.

“I think it’ll be passed on June 7 and then sent over” to Gov. Phil Murphy (D) for his signature, Gopal said.

If Murphy signs the bill on June 8, the state could technically offer temporary betting licenses and take bets on June 9, according to Gopal, who said a fast track to legalized betting is “what we all want to see.”

Delaware is also on the fast track. The state announced May 31 that it will launch full-scale sports betting June 5 at its three casinos.

‘An Industry That Will Grow’

These start dates mean that many practitioners’ predictions were off by weeks. Many lawyers were initially confident that New Jersey and Delaware—a state that has offered sports “parlay” bets for years, leaving a unique window open for full sports-betting legalization follow the reversal of PASPA—would take bets the same week PASPA was overturned.

Delaware’s June 5 start date means wagers can be placed on Game 5 of the National Hockey League Stanley Cup Finals and Game 3 of the National Basketball Association Finals. In New Jersey, a hypothetical June 9 start date would mean wagers could be placed on Game 6 of the NLH finals and Game 5 of the NBA finals, assuming both series—which are both best-of-seven contests—are still being played.

Ethan Wilson, policy director of commerce and financial services with the National Conference of State Legislatures, told Bloomberg Tax that bettors must be patient when it comes to considerable legislative matters like sports betting.

“There’s going to be a buffer period with issues like this,” he said. “This is major stuff we’re talking about here, and legalization isn’t going to happen overnight.”

Wilson aligned with Gopal’s rhetoric.

“Legislators don’t want to mess this up, and everyone in New Jersey and Delaware is under a microscope,” Wilson said. “There’s not a lot of precedent here, there’s not a lot of experience.”

Wilson said that while he expects New Jersey to allow bets in 2018, he doesn’t expect other states that have passed legislation to do so until 2019.

Twenty-four proposals are currently active in eight states, according to the American Gaming Association (AGA).

Federal Action Unlikely

Wilson said he doesn’t think Congress will act on the issue anytime soon.

“I don’t think many members of Congress will want to be seen as taking a stance against state sovereignty during the midterm elections,” Wilson said. “As for next year, we will see the Leagues get even more involved in Washington, but hamstringing states on this is going to be a tough sell, even to Congress.”

Multiple groups have reached out to Congress, sending letters containing policy priorities. In a May 22 letter to Congress, The AGA, a group that fervently supports legalized sports betting, listed out five policy priorities: empower state regulation, place consumers first, strengthen game integrity, promote responsible gaming and responsible advertising, and encourage contracts over statutes.

On May 21, National Football League Commissioner Roger Goodell released a statement that called on Congress “to enact uniform standards for states that choose to legalize sports betting that include, at a minimum, four core principles.”

Goodell’s requested principles are:

  •  Substantial consumer protections;
  •  League ability to protect content and intellectual property from those who attempt to steal or misuse it;
  •  Fan access to official, reliable league data; and
  •  Necessary resources and tools for law enforcement to protect fans and penalize bad actors at home and abroad.

Sport Leagues Want Recognition

The NBA and Major League Baseball have both outwardly supported sports betting, but the leagues want a taste of the profits.

Sports leagues have lobbied for “integrity fees” on a percentage of all wagers placed. The leagues have, in part, argued that the fee protects the integrity of the game, and that teams should benefit from the revenue created by bets.

Some states have attached the integrity fee to their sports-betting legislation. New York and Kansas have proposed a 0.25 percent integrity fee. Indiana, Kansas, and Missouri have lobbied for a 1 percent integrity fee.

Revenue Projections

How much revenue is really at play for the first states to offer betting? Wilson says revenue will be low in the beginning.

“This is an industry that will surely grow, but revenues won’t be significant for some time,” Wilson said. “We really won’t have revenue figures on sports betting for a while.”

Gopal said it’s “hard to say” how much New Jersey could make from sports betting. “This is just something that hasn’t happened before,” he said.

In gauging New Jersey’s and Delaware’s potential revenue numbers, Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center, cited Nevada’s 2017 sports betting revenue, which was nearly $250 million. However, Nevada’s 6.75 tax rate means the state only saw about $17 million in tax revenue from the activity.

Auxier said that $17 million only equates to 0.01 percent of Nevada’s total state general revenue.

“Sports betting revenues in New Jersey and Delaware would for sure be less than 1 percent of total state revenue,” he said.

Massachusetts: House Speaker Wary

In Massachusetts, the state Senate approved the addition of Amendment 870 to an appropriations bill ( H. 4401) on May 25. The amendment includes a proposed yearly 12.5 percent tax on gross revenue and a $15,000 annual renewal fee.

The bill would also impose an initial fee “equal to the lesser of $50,000 or one and one-half percent of the gross revenue generated by the registrant in the previous calendar year; provided, however, that if the registrant did not generate any gross revenue in the preceding year, the registrant shall be required to pay an initial registration of $25,000.”

The May 25 Senate approval came just two days after House Speaker Robert DeLeo (D) said it would be “difficult” to see the House taking up a bill this session, and that it isn’t a decision he wants to rush into.

Negotiations in Connecticut, Rhode Island

In Connecticut, Gov. Dannel Malloy (D) is negotiating with the Mashantucket Pequot and Mohegan tribes, the owners of Foxwoods Resort Casino and Mohegan Sun, respectively, over whether the state or the tribes control the rights to sports betting.

A spokesman for Malloy’s office told Bloomberg Tax May 29 that those negotiations are ongoing. The governor previously said he will call a special legislative session to address sports betting, but only when negotiations with the tribes are complete.

In Rhode Island, Gov. Gina Raimondo (D) included a provision in the fiscal year 2019 state budget to launch sports betting at two state-run casinos by Oct. 1. The state lottery, however, received only one bid on its request for vendors. The lone bid, from International Game Technology PLC, is currently under review, according to a lottery spokesman.

Colorado: Not So Fast

In Colorado, the road to legal betting will be a bit longer than in other states, as statutory and constitutional barriers must be overcome before bets can be placed. Lawmakers looking to legalize sports bets in the Centennial State will first need to repeal the state law ( Title 18, Art. 10) that prohibits sports gambling and imposes criminal penalties for violations, Michael S. Hartman, executive director of the Colorado Department of Revenue, told Bloomberg Tax.

Since 1991, a voter-approved constitutional amendment has allowed limited-stakes gambling—including slots, blackjack, roulette, poker, and craps—at casinos in three mountain towns—Black Hawk, Central City, and Cripple Creek, Hartman said May 25.

“It could happen on the ballot in 2019,” Rep. Alec Garnett (D), a state legislator who is interested in sponsoring a bill to legalize sports gambling, told Bloomberg Tax. But it would take time to develop the regulatory framework, and so it’s unlikely betting would begin any earlier than 2020, he said.

Still, Garnett said, sports gambling will eventually come to Colorado—it’s only a matter of time. “If somebody wants to bet on the Broncos in the Super Bowl, they shouldn’t have to fly to Vegas to do it.”

With assistance from Tripp Baltz in Denver and Aaron Nicodemus in Boston

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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