As the Supreme Court has overturned the federal prohibition on sports betting under the 10th amendment, betting companies are rejoicing. New Jersey, the state where the case originated, will be the first to legalize gambling in sports. In fact, a racetrack in the state will be the first to accept this legalized sports betting on Memorial Day. However, even though the federal legalization has cleared a big hurdle for the betting companies, there are still many questions to answer.
The illegal sports gambling industry is estimated to be $150 billion and legalization won’t change the figures anytime soon. This is because the taxes that legal sports betting brings are humongous and several states are yet to finalize their stand on this subject. Pennsylvania has become an example for states that want to work on legal betting. In hopes that the Professional and Amateur Sports Protection Act (PASPA) will be overturned, the state brought its own legalizations in place.
The CEO of Rush Street Gaming, Greg Carlin who operates two casinos in the state wasn’t convinced that this would change anything. He said, “There is a huge black market that pays zero tax. If legal sports betting is going to be a regulated and successful business, the tax rates can’t be so high that it makes it impossible to compete with the black market.”
Pennsylvania is seeking at least $10 million in licensing fee alone. They also have a 34% state tax on gaming revenue in place which will further discourage companies from doing business. All states must also pay a federal excise tax of about 5%. This will make operation impossible in the state. In contrast, Nevada, the only state that had legalized gambling laws pays only 6.75% state tax, followed by the 5% federal tax which helps them survive.
Another company that is shocked at the sticker price of legalized sports betting is Penn National Gaming that operates the Hollywood Casino in Grantville. Jeff Morris, vice president of public affairs and government relations of the company said, “We haven’t made a final determination on whether to pursue sports betting in Pennsylvania. In addition to the high application and annual licensing fees, the challenge will be trying to make the 34% tax rate work – this would be the highest tax rate in the world on sports betting. For comparison, West Virginia recently passed a sports betting law at a 10% tax rate, which is the range most states are considering.”
New Jersey is taking cues from the mistakes Pennsylvania made. It will be keeping the gaming revenue tax between 8% to 10%. Mississippi will also be launching sports betting next week, which could invite a tax of 8%. Rush Gaming, on the other hand, “hasn’t made a decision”. However, Carlin said that if competitors start entering the space, they would also jump into the stream. He said, “There could be circumstances that we would get in, even if it means we aren’t going to make any money and possibly lose money. We are still assessing costs and making projections. We want to see the regulations are completed.”
It could bring free money to the states but legal betting could literally rob the companies, at least in some states.