Daily Tax Report: State

Legalized Sports Betting Possible in D.C. Before MLB Season

Oct. 17, 2018, 6:34 PM

A proposal to legalize sports betting in Washington is moving forward after the bill sponsor again affirmed he has secured the necessary support.

If passed, Washington would join eight states that have legalized the activity. Five of those states have already begun seeing more tax revenue from sports betting, especially as the National Football League and National Basketball Association seasons get under way.

“Sports betting is going to happen across the country, I would imagine in over 40 states. I want legalized sports betting in the District ahead of Virginia and Maryland, before their legislatures convene in January,” D.C. Council Member Jack Evans (D) said during an Oct. 17 committee hearing devoted to his bill, the Sports Wagering Lottery Amendment Act of 2018.

The hearing comes just five months after the U.S. Supreme Court cleared the way for states to allow bets on sports in its May ruling in Murphy v. NCAA, which repealed the federal Professional and Amateur Sports Protection Act of 1992. That law had prohibited states from “authorizing” gambling related to professional and amateur sports leagues.

Evans’ bill would legalize in-person and online sports bets and levy a 10 percent tax on gross revenue from wagers.

“The mayor, the District’s chief financial officer, and the council are all on the same page here—to get sports betting into the district,” Evans said.

The bill needs to make it through the Committee on Finance and Revenue before receiving a full council vote. Evans said he is hopeful the bill will be sent to Mayor Muriel Bowser (D) by the end of 2018. After her approval, Congress has 30 days to challenge it. If it doesn’t, the measure becomes law.

Uncertainty of D.C. Revenue

What remains to be seen is how much tax revenue sports betting could bring to Washington. Evans previously told Bloomberg Tax that “nobody knows” how much revenue the district could take in from sports betting.

“The estimate in Maryland was $10 million to $200 million, so that tells you nothing,” he said. “We don’t know how much it will be. Hopefully a lot.”

Christian Genetski, chief legal officer at FanDuel, said during the hearing that Washington holds an estimated untapped sports betting black market handle of $319 million.

Beth Bresnahan, executive director of the D.C. Lottery, said she is optimistic that Washington could be taking bets four to six months after legalization. Bresnahan’s estimate could uphold Evans’ original goal of allowing bets by opening day of the 2019 Major League Baseball season, which falls on March 28, 2019.

Evans previously told Bloomberg Tax that betting infrastructure would be installed into sports venues and other brick-and-mortar establishments that would seek a license. Evans’ bill sets a $50,000 initial license and application fee.

“We have major sports venues—look at Nationals Park, Capital One Arena, and Audi Stadium...these are all places where you could have gambling,” he said. “In addition, we have sport bars where you could have gambling, and even some hotels have expressed interest because of the 20 million people a year who visit.”

State Revenue Numbers

Since the Murphy ruling, Delaware, New Jersey, Nevada, Mississippi, and West Virginia have legalized sports betting and begun taking bets, opening new revenue streams in the process. These states are already starting to see millions in tax revenue.

New Jersey, the driving force behind sports betting legalization, has taken in $4.22 million in tax revenue from sports betting.

The Garden State began taking bets June 14, and through the month of September, bettors placed more than $336 million in wagers. More than $126 million of that total came from online betting. Revenue after paying out the winners equates to $15.7 million, and at a 13.5 percent established tax rate, the state took in $2.12 million in tax revenue, according to the state’s lottery.

The remaining $210 million is from in-person betting, which equates to $24.8 million in total revenue, and at an 8.5 percent established tax rate on in-person betting, the state took in $2.1 million in tax revenue.

Delaware, Mississippi, and West Virginia have already collected more than $4 million in tax revenue.

Revenue in Delaware more than quadrupled from August to September, mostly because of the start of the NFL season, which kicked off Sept. 6. Delaware alone has taken in $2.6 million in tax revenue.

New York, Pennsylvania, and Rhode Island have legalized sports betting, but haven’t yet started taking bets.

Revenue to Keep Growing

Richard Auxier, a research associate at the Urban-Brookings Tax Policy Center, told Bloomberg Tax that sports betting revenue figures should only grow through the rest of 2018.

“Sports gambling has been legal in these states for about four months now,” Auxier said. “So part of this is probably more sports books are operating in these states and there is an increased awareness of legal sports gambling.”

Auxier said to look to Nevada’s betting breakdown by sport when understanding the stronghold the NFL has on sports betting turnout.

“Nevada reported that football accounted to 59 percent of its sports betting in 2017, basketball was a distant second at 32 percent, and no other individual sports really registered,” he said. “So betting may increase in November, December, and January as gamblers wager on basketball. But states should be aware of a looming gambling cliff in February with the end of football.”

Federal Attention

The D.C. hearing follows a flurry of attention from federal lawmakers in the past weeks.

On Sept. 27, the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations held a hearing devoted to sports betting. During the hearing, an NFL official and two lawmakers agreed that Congress should create a federal sports betting framework.

On Aug. 29, Senate Minority Leader Charles E. Schumer (D-N.Y.) proposed a “desperately needed” federal sports betting framework, a move that state tax policy experts say could hurt state sovereignty and tax revenue pursuits.

During an Aug. 24 update on the Senate floor, Sen. Orrin G. Hatch (R-Utah) said progress is being made, and he will be releasing a legislative proposal “in the coming weeks.” There is currently a 0.25 percent federal excise tax on all betting handles.

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

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bloombergenvironment.com