A Harbinger In The Pelican State

Louisiana has reignited the very contentious idea of states raising sports betting tax rates after the industry has launched. Here's what to expect moving forward.

“But in this world nothing can be said to be certain, except death and taxes.” ~ Benjamin Franklin

Any hope that states would take sports betting tax rate increases off the table in 2025 is out the window. Online casino legalization is in for another tough year more and more states are in desperate need of money to fill budget shortfalls, and negative press around “the plague” that is sports betting continues to dominate the headlines.

We’re not even into 2025 yet, and Louisiana has already broached the topic during its current special session. A bill introduced by State Rep. Roger Wilder sought to increase Louisiana’s sports betting tax rate from 15% to 51% and eliminate the current $5 million in promotional deductions operators can claim annually.

The good news is that Rep. Wilder voluntarily deferred the bill during a hearing on Wednesday. Wilder said he plans to learn more about the industry and come back with an amended bill that increases the tax rate to something less than 51%.

That makes Louisiana’s 15% tax rate safe… at least for now.

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A Looming Threat

Public comments from the industry paint the threat of other states following in the footsteps of Ohio and Illinois and increasing taxes as negligible to minimal.  

Rush Street Interactive CEO Richard Schwartz recently downplayed the threat of states following the lead of Ohio and Illinois on sports betting tax policy, with Schwartz believing cooler heads will prevail.

“Protecting consumers is the goal,” Schwartz said during the company’s earnings call. “Governments raising taxes on regulated operators like us really just simply drives more volumes at unregulated sites like the Sweepstakes casinos where no one benefits.”

Schwartz’s comments echo those of others, like DraftKings CEO Jason Robins, and what I’m hearing privately, although the level of concern is slightly elevated behind the scenes.

I would argue that this issue isn’t going away.

Gambling tax raises aren’t a common occurrence, but they’re not exactly rare either, and they have become more common in recent years. Even if they never get out of the proposal stage, several states will continue down this path, and the threat of the issue gaining momentum will be a constant overhang that is likely to bubble to the surface whenever progress is made on an online casino bill —more on that nexus in the final section of this column.

Put bluntly, there is zero downside for a lawmaker pushing for higher taxes on a “sin” industry. Outside of a tiny sliver of bettors who are concerned high tax rates will lead to worse odds and fewer promotions (not exactly a winning argument for the masses), the general public is not going to cry over gambling firms paying a higher tax rate. Especially if that money is earmarked for essential services.

The industry can scream “BLACK MARKET” until it’s blue in the face, but as I’ll describe in a minute, that yelling isn’t getting them anywhere.

As I’ve said about advertising restrictions, no one will cry about fewer sports betting advertisements, and no one is going to cry about sportsbooks having a bigger tax burden.

“… Sportsbooks will pout about advertising restrictions and point to the black market bogeyman as the beneficiary, but no one is going to go to bat for the sportsbooks and say they want the same or more sports betting advertisements.”

States Alter Tax Rates

As noted above, reopening a gambling law to raise the tax rates used to be a Haley’s Comet-level event. It happened but was rare, and the increase was usually small. That is no longer the case, and it’s becoming a more common practice.

Tax policy changes began in 2022 when states began revisiting promotional deduction policies. Three states, Louisiana, Colorado, and Virginia, have all reduced the amount of promotional deduction operators can claim.

On the tax rate front, Ohio and Illinois have revisited their tax rates on sports betting operators, with Ohio going from 10% to 20% in July 2023 and Illinois going from a flat 15% to a tiered model between 25% and 40% earlier this year.

In addition to Louisiana, New Jersey and Massachusetts lawmakers proposed increasing their sports betting tax rates this year.

As an aside, I would point out that the industry attempted to do the same thing in New York in the opposite direction, which may have emboldened states to do the same, as operators first brought up the idea of lowering New York’s 51% tax rate in 2022 and pushed for it in early 2023.

Nobody Cares About Your Feelings

When lawmakers discuss this topic, you get the feeling that they are working backward from an already-held conclusion that gambling causes harm and should “pay its fair share” to borrow the language of the proponents of rasing taxes on the top 1% or .1% of earners.

Consider the comment from Louisiana House Speaker Pro Tempore Rep. Mike Johnson during this week’s hearing. Johnson favors a tax hike to cover what he said are mounting social costs of gambling: “If the product causes more social ills that require taxpayer dollars to treat, should not then the industry be responsible and have a part in taking up some of those costs?”

The industry countered with the legitimate but cliched argument that any extra burden on the licensed industry is a gift to the black market. And to once again put it bluntly, the industry’s cautionary tales about the Black Market Bogeyman just aren’t hitting home.