Sportsbooks are a low-margin business and one of the least profitable for Nevada casinos. According to the UNLV Center for Gaming Research, Nevada sportsbooks haven’t won more than 8% of wagers placed.
Typically, sportsbooks win just over 5% of wagers. Every penny the sportsbooks can keep is meaningful for their operators.
The co-chairs of the Congressional Gaming Caucus, Dina Titus (D-NV), and Guy Reschenthaler (R-PA), introduced bipartisan legislation to remove the federal “handle tax” for sportsbooks. Regulated US sportsbook operators currently pay a 0.25% federal excise tax on all wagers (aka handle).
Additionally, sportsbook operators pay a $50 annual tax (aka “head tax”) for every employee who engages in receiving bets. Yes, Nevada sportsbook operators pay a tax for everyone responsible for taking wagers. The legislation also seeks to remove this “head tax.”
Rare bipartisan legislation for federal sports betting tax
The proposed bipartisan legislation would remove these taxes which seem more bothersome than necessary. In 2019, the government collected less than $33 million from these taxes. President and CEO of the American Gaming Association (AGA) Bill Miller released the following statement:
“The federal excise and head taxes levied on legal US sportsbooks generate little meaningful revenue for the government. Instead, they place legitimate businesses at a significant competitive disadvantage against illicit gambling operations which skirt taxes and licensing fees. Though originally enacted in the 1950’s as a tool to curb illegal gambling, these antiquated federal taxes now give illegal operators a leg up.
“To absorb the unnecessary burden of these taxes, legal sportsbooks are forced to offer worse odds and payouts or reduce investment in promoting legal betting channels to the public. Furthermore, the head tax serves as an impediment to hiring at a time when providing jobs is critical.”
Other gaming taxes remain outdated as well. Earlier this year Miller urged the government to look at the $1,200 W2G threshold for video poker and slot machine players. The government hasn’t changed this tax since 1977. If that number was adjusted for inflation, the W2G threshold should be at least $5,000.
Good time to look at gaming taxes
This is a good time to look at gaming taxes. This legislation to remove the handle and head taxes comes at an important time for the casino business. Casinos in Nevada and around the country are being forced to furlough or lay off employees. Easing the sportsbook taxes might help some casino and sportsbook operators keep workers.
Changing the W2G threshold could encourage gamblers to spend more money on visits to the casino. Anecdotally, a video poker player might not play a game above a quarter per credit to avoid paying taxes on a nominal Royal Flush winner above $1,200.
This is also a good time to address the head tax for sportsbooks around the country. States continue to legalize sports betting since the repeal of PASPA.
The added expenses can force sportsbook operators in new markets to offer worse odds than illegal bookies and offshore sportsbooks. Evidently, sports bettors outside of Nevada have a difficult time telling the difference between legal US sportsbooks and illegal operations.