Analysis: Senate Bill Denies Massachusetts Bettors But Maximizes Tax Haul

The sports betting proposal approved by the state Senate in Massachusetts would result in a decrease in the total amount of money wagered by bettors in the Bay State. However, it has the potential to significantly boost the state’s revenue share by over 200%.

An analysis conducted by Play MA has provided insight into the various approaches adopted by the Legislature in Massachusetts towards sports betting.

H3993 was finally passed by the MA Senate in late April, ending a nine-month period of stagnation due to the Senate’s rejection of sports betting. If approved by the Legislature and signed into law by the governor, this bill will legalize sports betting in Massachusetts.

Some of the contrasts between the Senate bill and the House bill include provisions related to college sports betting and the taxation methods for operators.

Sports betting bill differences

The proposed bill from the Senate aims to prohibit betting on college sports. Additionally, it imposes higher taxes on sportsbook operators compared to the House proposal and disallows the exclusion of promotional spending when calculating total sports wagering receipts.

The House’s proposition imposes a 15% tax on online sports betting operators and a 12.5% tax on in-person betting. Conversely, the Senate’s version suggests a higher tax rate of 35% for online sports wagering and 20% for in-person wagers.

According to the Play MA analysis, the increased tax rate in the Senate proposal compensates for the decline in state revenue from college sports betting, surpassing the House proposal.

Calculating taxable revenue

The House proposal initially projected a handle of $5 billion, but this estimate decreases to $4.25 billion in the absence of college sports betting. College sports wagering contributes to almost 15% of all bets placed across the country, and this is the basis on which Play MA estimates the $4.25 billion handle under the Senate proposal.

The gross gaming revenue figures for the House and Senate are $375 million and $318.75 million, respectively, obtained by multiplying the handle by the national average hold rate of 7.5%.

According to the House proposal, an operator can calculate their taxable revenue by subtracting the wagers made using promotional gaming credits and the federal taxes paid. Play MA, in this case, deducted $150 million worth of promotional credits (which accounts for 40% of their revenue in comparison to other markets) and $12.5 million in federal taxes (calculated at a rate of 0.25% of the handle).

Under the House proposal, the taxable revenue ultimately amounts to $212.5 million.

Under the Senate proposal, the deduction of promotional credits or federal taxes from gross gaming revenue to calculate taxable revenue is not permitted, resulting in a taxable revenue of $318.75 million.

State taxes paid

Play MA utilizes the online betting tax rate stated in each proposal to calculate the tax liabilities owed to Massachusetts. This approach is based on past data revealing that approximately 90% to 95% of wagers are placed online. However, it is important to note that the actual effective tax rate might be slightly lower when considering the amount of money wagered in person.

Under the House version of the bill, if the proposed 15% tax rate for online betting is applied to a taxable revenue of $212.5 million, it would result in $31.875 million in state taxes.

According to the Senate proposal, a tax rate of 35% on taxable revenue amounting to $318.75 million results in state taxes totaling $111.56 million. This tax revenue represents a significant increase of 250% compared to the amount proposed in the House bill.

Issues facing lawmakers

While Massachusetts legislators strive to resolve discrepancies between the two proposals, they must reflect upon the following question:

• Is the price of limiting the state’s handle worth the potential benefits of restricting betting on college sports?
• Are games’ integrity affected by the permission of college sports betting?
• Could the implementation of higher tax rates discourage sportsbooks from operating in the state?
• Is it valuable to restrict market size by placing a limit on the number of licenses that operators can obtain?
• Do all the bills adequately encourage responsible gambling?

Since the US Supreme Court legalized sports betting in 2018, Massachusetts has been cautious in its approach to implementing this practice. It remains one of the 15 states in the US that have not yet legalized sports betting.

State residents will have to wait longer to place a bet on a Patriots, Red Sox, Celtics, or Bruins game if lawmakers take longer to answer these questions.

What’s next?

On Tuesday, the Massachusetts House made the decision to reject the Senate’s version of the sports betting bill. Additionally, the House voted in favor of establishing a conference committee to address this matter. The committee’s primary responsibility is to draft a mutually agreed-upon bill that will be immune to any amendments.

Three members are appointed by both the speaker of the House and the Senate president to serve on the conference committee. Once a bill is agreed upon, it must be approved by both chambers before it can be sent to the governor.

The House appointments to the committee include State Reps. Jared Parisella, Aaron Michlewitz, and David Muradian. On Thursday, State Sens. Eric Lesser, Patrick O’Connor, and Michael Rodrigues were appointed to the conference committee.