US senators want sports betting excise tax out

The sports betting landscape in the United States is changing at a rapid clip. As operations sprout and fold, and companies are resorting to new business models, most recently with DraftKings surcharge on net winnings, federal legislation is trying to keep pace with those events.

Excise tax on sports betting must go, senators in the US say

The latest move comes from Nevada Senator Catherine Cortez Masto and Mississippi Senator Cindy Hyde-Smith who want to lift the federal sports betting excise tax, a 0.25% applied to sports betting handle which they believe has been harming the industry, making it less competitive to the offshore and black market, and generally suppressing job creation.

The bill, Withdrawing Arduous Gaming Excise Rates (WAGER) Act, is not the first crack to try and get rid of the tax levy that many see as an impractical and harmful shibboleth. Last year, Pennsylvania Representative Guy Reschenthaler and Nevada Representative Dina Titus proposed a similar bill to overturn the 70-year-old legislation that has far outlived its utility in most observers’ opinion.

That includes the American Gaming Association (AGA) which has thrown its support behind both the Reschenthaler-Titus draft law and the now newly-minted WAGER Act. The American Gaming Association has welcomed the latest attempt to overturn what many see as an anachronism and unfit to operate in the modern regulatory framework.

AGA CEO Bill Miller has welcomed the opportunity to see another attempt to take on the contentious piece of legislation in a bid to overturn it. In a statement, Miller and AGA said:

"The AGA is grateful to Senators Cortez Masto and Hyde-Smith for their commitment to providing a safe, responsible sports betting market and to continuing to help migrate bettors out of the illegal market, which is bereft of consumer protections and a haven for bad actors and tax evaders. The AGA will continue to work with policymakers to enact legislation to address this harmful tax."

The tax’s abrogation could be a hard sell, however, unless economic benefits can be demonstrated. For one, the excise tax is calculated based on the sports betting handle, the biggest figure that operators pull in.

Strong economic imperative to keep the tax rate as is

In 2023, this figure stood at $119.8bn meaning that the 0.25% tax generated this way stood at $299.6m, a substantial windfall that the government might be reluctant to relinquish.

Businesses are definitely feeling the pinch. A highly controversial surcharge by DraftKings was floated last week, with one of America’s biggest wagering companies saying that it would scoop up a small bit of players’ net winnings. The move has come under a lot of criticism, but it also demonstrates how competitive the sector has become.

DraftKings, which operates across most of the 40-odd regulated and launched sports betting states, would definitely find relief in the news that the excise tax could go, especially in places such as New York where the sports betting handle in the first half of 2024 hit $11.03bn and where operators have to pay 51% on their sports betting income.

For the excise tax to go, lawmakers and the gambling industry would have to demonstrate that the resulting benefits in economic activity would far surpass the loss of the $299.6m in tax revenue generated right now.

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