According to the UNLV Center for Gaming Research, sportsbooks in Nevada have not made a profit of more than 8% on placed bets. This makes them one of the least profitable businesses for Nevada casinos, as they operate on low margins.
Sportsbooks usually win just above 5% of bets. Every cent retained by the sportsbooks is significant for their operators.
Dina Titus (D-NV) and Guy Reschenthaler (R-PA), the co-chairs of the Congressional Gaming Caucus, have proposed a bipartisan bill to abolish the federal “handle tax” for sportsbooks. At present, US sportsbook operators under regulation are required to pay a federal excise tax of 0.25% on all bets, also known as the handle.
Moreover, sportsbook operators are required to pay an annual tax of $50, also known as “head tax”, for each employee involved in accepting bets. Indeed, those who operate sportsbooks in Nevada are taxed for each individual in charge of handling wagers. The proposed legislation aims to abolish this “head tax”.
Rare bipartisan legislation for federal sports betting tax
The suggested bipartisan bill aims to abolish these taxes, which appear to be more troublesome than essential. In 2019, these taxes contributed less than $33 million to the government’s revenue. Bill Miller, President and CEO of the American Gaming Association (AGA), issued the following statement:
The federal excise and head taxes imposed on legal US sportsbooks do not significantly contribute to the government’s revenue. Instead, they put legitimate businesses at a major competitive disadvantage against illegal gambling operations that evade taxes and licensing fees. Although these federal taxes were initially introduced in the 1950s to curb illegal gambling, they now, ironically, benefit illegal operators.
Legal sportsbooks are compelled to offer less favorable odds and payouts or cut back on promoting legal betting channels to the public due to the heavy load of these taxes. Moreover, the head tax hinders hiring, which is crucial during this time when job provision is vital.
Miller also highlighted the outdated nature of other gaming taxes earlier this year. He urged the government to reconsider the $1,200 W2G threshold for video poker and slot machine players, a tax that hasn’t been updated since 1977. With inflation adjustments, the W2G threshold should ideally be at least $5,000.
Good time to look at gaming taxes
This is an opportune moment to review gaming taxes. The proposed legislation to eliminate handle and head taxes is crucial for the casino industry. Casinos in Nevada and across the nation are compelled to either furlough or dismiss employees. Lightening the burden of sportsbook taxes could potentially assist some casino and sportsbook operators in retaining their employees.
Adjusting the W2G limit might prompt gamblers to spend more at the casino. For instance, a video poker player may choose not to play a game that costs more than a quarter per credit to dodge taxes on a modest Royal Flush win exceeding $1,200.
It’s also an appropriate moment to discuss the head tax for sportsbooks nationwide. With the repeal of PASPA, states keep on legalizing sports betting.
The increased costs can compel sportsbook operators in emerging markets to provide less favorable odds than illegal bookies and offshore sportsbooks. Apparently, sports bettors outside Nevada struggle to distinguish between lawful US sportsbooks and illicit operations.
