Legal Sports Betting Unlikely to Mean Big Tax Bucks for States

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By Ryan Prete

A U.S. Supreme Court case that could legalize sports betting for states outside Nevada is unlikely to deliver a cash windfall to tax offices, attorneys familiar with the case said.

“There’s just not a lot of money to be made on sports betting,” Marc Dunbar, partner at Jones Walker LLP, told Bloomberg Tax. “Even if the industry captures $100 billion in revenue, states would only be able to tax about 5 percent of that, so we’re talking about $5 billion of taxable revenue, which would then be spread across all the states that permitted sports betting.”

Justices heard oral arguments Dec. 4 in Christie v. NCAA—New Jersey’s attempt to repeal part of its state ban on sports betting in an effort to revive the struggling Atlantic City region—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.

Still, Lisa Soronen, executive director of the State & Local Legal Center in Washington, told Bloomberg Tax that “while there isn’t much money on the table here,” sports betting could “really generate some tax revenue for states.”

She said a high court decision could be handed down as early as March, but near the end of the court’s term is more likely, in mid-summer. The SLLC submitted a friend-of-the-court brief in support of New Jersey.

Mississippi Ready to Pounce

Soronen expects as many as half of the states could legalize sports betting if the U.S. Supreme Court strikes down PASPA.

Dunbar said that in addition to Nevada, where sports betting is legal, Mississippi would also benefit if the court decides in New Jersey’s favor. Mississippi would likely hold a monopoly on sports betting in the south until other states are able to enact similar laws.

In March 2017, Mississippi Governor Phil Bryant (R) passed a fantasy sports law, which included a modification that would allow for the Gaming Commission to regulate sports betting if it were ever to be overturned at the federal level, according to state Rep. Scott DeLano (R).

Don’t Over-Do It

Dunbar said regardless of the high court’s ruling, states should be cautious with the regulation of sports betting and should steer clear of a “jurisdiction-by-jurisdiction” approach, similar to the path taken with fantasy sports regulations.

“If states do what they did with fantasy sports, then they will kill the sports betting industry before it can even take off,” he said. “If sports betting is over-taxed, sports books may not offer enough risk to bettors.”

Dunbar also noted that a significant chunk of any revenue related to sports betting would come from profits and taxes collected on tourism—notably hotel and restaurant revenue.

Similar to Marijuana

Soronen compared the fight to legalize sports betting on a state-by-state basis to the legal-marijuana movement.

“At the end of the day, the parallels between sports betting and marijuana are inescapable—tons of people are already doing it, and they probably aren’t paying taxes on it,” she said.

The case is Christie v. NCAA, U.S., No. 16-476, argued 12/4/17 .

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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