Sportsbooks Shouldn’t Pay Taxes On Promotions

A Look At Why Free Bet Tax Deductions Benefit States

Colorado lawmakers pass HB 22-1402 in both the Senate and the House and the bill now awaits Gov. Jared Polis’ signature.
A big section of the bill would reduce the tax deductions given to sportsbooks for promotional free bets given throughout the year.
Free bets are actually very beneficial to Colorado and other states.

DENVER – The Colorado House and Senate have advanced HB 22-1402, a bill that aims to restructure the funding from gambling entities including sportsbooks.

One of the clauses in the bill would regulate free bets by limiting tax deductions. Currently, sportsbooks offset taxable revenue with deductions from free play promotions, lowering the total required payments to Colorado.

With this bill likely to be signed by Gov. Jared Polis in the coming days, this bill could become a precedent for other legal sports betting markets going forward.

Colorado Bill A Potential Game Changer

While HB 22-1402’s initial intent is to increase the funding gained from gambling and sports betting in Colorado, another result of this bill could be the decrease in free bets offered by sportsbooks.

The added funding is to be used primarily for problem gambling efforts. Lawmakers are aware that a by product of this, however, would be an overall decrease in free bets being offered and are fine with this.

“It’s not for lack of desire amongst former legislators,” said Peggi O’Keefe, executive director of the Colorado Gaming Association. “But it just seems like this is the year that we really got attention from legislators wanting to fund additional programs for responsible gaming. Probably sports betting added to the whole high profile of it, but it’s been a high priority for our association and we’re thrilled that it looks like we might get something over the finish line — knock on wood.”

Lawmakers are actually hoping for the reduction in promotions and believe that the increase in taxable revenue far outweighs any benefit from free bet promotions from sportsbooks.

Other states have done similar, creating legislation to limit the tax deductions on free bets. What Colorado and other markets seem to not understand, however, is the importance of free bets to the overall sports betting market.

Benefits To Free Bets

Free bets are one of the biggest incentives to new gamblers. There is a direct correlation to how popular a sportsbook is to how much promotional spending is pushed by said sportsbook. A prime example of this is Caesars Sportsbook in New York. When the New York mobile sports betting market launched, Caesars quickly rose to being the biggest sportsbook in the Big Apple.

However, once Caesars began to scale back from the free bets and promotions, the sportsbook was dethroned by FanDuel in New York.

Free bets lead to more wagers which subsequently leads to higher revenue numbers. The taxes lost through deductions does not equate to the gross gaming revenue (GRR) that would be gained from more residents wagering.

Colorado runs the risk of seeing an overall decrease in bets, and thus less revenue from sportsbooks. This would actually work against the bills intent to increase funding. The same reason department stores run buy-one-get-one sales or discounts constantly is the same reason why sportsbooks run free bets.

Promotions bring in customers.

The lack of promotions could deter a consistent sports bettor as free bets benefit everyone.

News tags: BetMGM | Caesars Sportsbook | Colorado | Colorado Water Plan | Denver | FanDuel | HB 22-1402 | Peggi O’Keefe | Responsible Gaming Grant Program

Giovanni Shorter

Coming from a background in narrative-based writing, Giovanni strives to write stories that will keep the reader engaged. Although he does pride himself in being accurate, how the story is told is also very important to him. When he’s not keeping readers up to date on sports betting laws and legislation, you can find him writing and recording music, playing videogames, or engaged in heated sports debates with his friends.

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Author: Jeffrey Fisher