How Ohio, Colorado Promo Write-Off Models Would Look In Massachusetts

Sportsbook promotional write-offs is the next major legislative challenge for sports betting states to solve. The earliest sports betting states didn’t limit promotional write-offs. So sportsbooks have been able to write all of their credits off their taxes.

According to a 2021 Bloomberg Tax report, four states had their potential sports betting tax revenue cut by almost in half by promotional write-offs. In the same report, it noted that Colorado had its taxable sports betting revenue reduced by 62%.

Massachusetts, meanwhile, is currently not allowing MA online sportsbooks to write off promo credits for state taxes. However, during a Thursday meeting of the Massachusetts Gaming Commission, commissioners agreed to gather feedback from interested parties and reconvene to decide if that regulation should change.

With that in mind, Play MA projected possible taxable revenue scenarios to determine which approaches maximize tax revenue. While prohibiting write-offs would create the most tax revenue for states, it’s untenable for sportsbooks in the long run.

Ohio’s approach to phasing in write-off limits offers a feasible compromise between sportsbooks that rely on promotions for customer acquisition and state governments that want to recoup lost revenue. Ohio’s approach also makes more sense for Massachusetts than Colorado’s, whose sportsbooks have become used to over two years of unlimited write-offs.

How promo write-offs work

When sportsbooks report gross revenue, that figure includes money from customers and from sportsbook promo credits.

When sports betting first swept across the US several years ago, sportsbooks and state governments wanted to know how much the sportsbook made from its customers’ money. They didn’t want these figures to include wagers on credits where no money changed hands. So, sportsbooks wrote off all of their promotional credits each month.

RELATED: Here’s How Different States Handle Promo Credit Tax Write-Offs

However, accurately counting the money generated by sportsbooks’ operations had a large opportunity cost. Sportsbooks’ taxable revenues could be halved during regular months, or eliminated during months with major events, such as the Super Bowl.

Increased tax revenue was a main selling point for passing sports betting bills, so lawmakers felt driven to reduce losses.

Around 2022, lawmakers around the country decided to reduce the amount of promotional credits that sportsbooks could write off. The binary choice between unlimited write-offs and prohibited write-offs is untenable.

However, Colorado and Ohio are trying different approaches to limiting promotional write-offs.

Phasing out: Colorado write-offs

Colorado launched sports betting in May 2020 with unlimited promotional write-offs. Then, Colorado passed a bill in May 2022 to limit write-offs in decreasing amounts over time. With Play MA’s rounded estimations and a 3% annual growth rate in handle, promotional write-offs according to Colorado’s policy could look like this:

	Handle	Gross Revenue	Write-Offs	Taxable Revenue
Unlimited Write-Offs	$5.7 Billion	$460 Million	$160 Million	$300 Million
Write-Offs – 2.5% of Handle	$5.9 Billion	$469.7 Million	$146.8 Million	$322.9 Million
Write-Offs – 2.25% of Handle	$6 Billion	$483.8 Million	$136.1 Million	$347.7 Million
Write-Offs – 2% of Handle	$6.2 Billion	$498.3 Million	$124.6 Million	$373.7 Million
Write-Offs – 1.75% of Handle	$6.4 Billion	$513.2 Million	$112.3 Million	$401 Million

Write-offs decrease over time. But taxable revenue ends up over $100 million higher by the time write-off limits fall to 1.75% of handle.

Phasing in: Ohio write-offs

Ohio prohibited sportsbook write-offs from the first day of legal sports betting. However, it will allow sportsbooks to begin writing off up to 10% of gross revenue in promotional credits in 2027 and up to 20% in 2031. If Massachusetts adopts this model, its taxable revenue could follow this pattern:

	Gross Revenue	Write-Offs	Taxable Revenue
2023	$460 Million	$0	$460 Million
2027	$517.7 Million	$51.8 Million	$466 Million
2031	$582.7 Million	$116.5 Million	$466.2 Million
2035	$655.9 Million	$131.2 Million	$524.7 Million

Assuming sportsbook gross revenue grew 3% each year, taxable revenue would increase after the initial bump in write-off limits. Then, taxable revenue would decrease again when the write-off limits increased. After write-off limits hit their ceiling, taxable revenue continues increasing without backsliding.

Since Massachusetts sportsbooks can’t write off promotional credits, the state’s policy could resemble Ohio’s phase in of promotional write-offs over time.

MA tax revenue and handle growth write-off scheme

Massachusetts will likely go from zero promotional write-offs to some limit on promotional write-offs. The MGC will have to decide how to limit write-offs and in what amounts. So, it could follow Ohio’s pattern of easing restrictions over time.

Massachusetts taxes online sports betting at 20% and retail sports betting at 15%. Based on Play MA estimates of 87% of betting handle coming from online activity, tax revenue based on Ohio’s scheme would be as follows:

	Gross Revenue	Write-Offs	Taxable Revenue	Tax Revenue
2023	$460 Million	$0	$460 Million	$89 Million
2027	$517.7 Million	$51.8 Million	$466 Million	$90.2 Million
2031	$582.7 Million	$116.5 Million	$466.2 Million	$90.2 Million
2035	$655.9 Million	$131.2 Million	$524.7 Million	$101.5 Million

As write-off limits slowly increase, taxable revenue increases too. Handle increases over time offset the amount of tax revenue lost with each new promo write-off limit. So, hypothetical Massachusetts has a 14% increase in annual tax revenue despite allowing promotional write-offs at maturity under Ohio’s promo structure.

Massachusetts doesn’t have to use Ohio’s same handle limits. However, Massachusetts should base its write-off ceiling on gross revenue, like Ohio, instead of handle, like Colorado. If sportsbooks have to pay taxes on their promotions, those limits should be based on their financial positions after paying their largest expense. They should not be based on their customers’ overall activity.

No matter how Massachusetts decides how to set its limits, those limits are becoming new legislative best practices in new sports betting states. Massachusetts is fortunate in that it can follow examples set forth by other states.