Are High Taxes Really an Issue for Sportsbook Success?

Are High Taxes Really an Issue for Sportsbook Success?

Gambling

Are High Taxes Really an Issue for Sportsbook Success?

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In 2018, when the Supreme Court made its decision to strike down the Professional and Amateur Sports Protection Act, the world’s media reported that states would quickly begin to legalize sports betting. 

Two years later, it’s clear to see that this has started to happen. Twenty states now have legal sports betting. One of these states is Pennsylvania where a sports betting tax rate of 36% is in place. 

Jan 19, 2020; Pittsburgh, Pennsylvania, USA; Pittsburgh Penguins goaltender Matt Murray (30) is recognized as a star of the game against the Boston Bruins at PPG PAINTS Arena. The Penguins won 4-3.Mandatory Credit: Charles LeClaire-USA TODAY Sports

Pennsylvania sports betting tax rate initially criticized 

Pennsylvania’s decision to instigate such a high sports betting tax rate was the cause of much derision when it was made. Many experts were critical of such a high rate and referred to it as exorbitant when compared to rates in other rates such as the 8.5% rate applied in New Jersey. So was it a bad idea for Pennsylvania, to try to optimize sports betting revenue in this way?

Good news for sports betting revenue in Pennsylvania at the end of 2019  

The tax rate may have slowed the growth of the sports betting industry in Pennsylvania, but it’s now starting to flourish. This is mostly due to the sheer size of the potential market in the state, which is the largest to legalize sports betting so far. 

Jan 19, 2020; Santa Clara, California, USA; San Francisco 49ers quarterback Jimmy Garoppolo celebrates after defeating the Green Bay Packers in the NFC Championship Game at Levi’s Stadium. Mandatory Credit: Kyle Terada-USA TODAY Sports

For instance, there are more people likely to bet on Jimmy Garoppolo leading his team to Super Bowl triumph than in other states. These high numbers of potential bettors, on major sporting events like the Super Bowl, have lead to significant growth in the industry in Pennsylvania, despite the high tax rate. 

This growth applies across the sports betting and gaming sector. For instance, gaming providers NetEnt have released new games in the state, as reported here

In sports betting alone, this means that the revenue raised is substantial. This can be seen by a comparison between Pennsylvania and New Jersey for November 2019. The revenue raised in Pennsylvania for the period was $5.3 m; $1.3 m above that raised in New Jersey. This is despite the fact that the industry in New Jersey is more developed. 

The future for sports betting in Pennsylvania 

Despite the initial doubts about the decision to implement a high sports betting tax rate in Pennsylvania, it does not seem to have had a detrimental effect on the industry. 

Jan 21, 2020; Villanova, Pennsylvania, USA; Villanova Wildcats forward Saddiq Bey (41) reacts after a score against the Butler Bulldogs during the first half at Finneran Pavilion. Mandatory Credit: Bill Streicher-USA TODAY Sports

There has been significant growth in sports betting in this part of the country, especially in recent months. This growth has resulted in the state obtaining the high levels of revenue that it was aiming for. 

Despite the initial misgivings that experts had, concerning the high sports betting taxation levels in Pennsylvania, they do not seem to have hampered sportsbook success. There is now a real possibility that other states will follow suit, and take the opportunity to raise taxation levels. However, it remains to be seen whether this will be a successful enterprise in less populous states. This will only become clear if and when other states begin to raise their taxation rates in an attempt to secure higher revenues. 

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