Analysis: Senate Bill Denies Massachusetts Bettors But Maximizes Tax Haul

The Massachusetts sports betting proposal passed by the state Senate would reduce the amount of money bettors wagered in the Bay State but could increase the state’s share of the revenue by more than 200%.

This is according to an analysis from Play MA that broke down the Legislature’s different approaches to sports betting in Massachusetts.

After collecting dust for nine months because of the Senate’s refusal to take up sports betting, the MA Senate passed H3993 in late April. The bill legalizes sports betting in Massachusetts if passed by the Legislature and signed into law by the governor.

Among the differences between the Senate version of the bill and the House version are betting on college sports and how operators are taxed.

Sports betting bill differences

The Senate proposed bill bans betting on college sports. It also taxes sportsbook operators at higher rates than the House proposal and does not allow promotional spending to be excluded when determining gross sports wagering receipts.

The House proposal taxes sports betting operators 15% for online wagers and 12.5% for in-person betting. The Senate version taxes online sports wagering at 35% and 20%, respectively.

A Play MA analysis shows the higher tax rate in the Senate proposal more than offsets the loss of college sports betting from a state-revenue standpoint compared with the House proposal.

Calculating taxable revenue

A handle projection of $5 billion wagered under the House proposal drops to $4.25 billion without college sports. College sports betting accounts for nearly 15% of all bets made nationally, which is how Play MA arrives at the $4.25 billion handle estimate under the Senate proposal.

Using a hold of 7.5% – the national average is 7.1% – and multiplying it by the handle produces gross gaming revenue figures of $375 million and $318.75 million in the House and Senate, respectively.

In the House proposal, an operator is allowed to subtract wagers made from promotional gaming credits and federal taxes paid to determine taxable revenue. In this scenario, Play MA subtracted $150 million in promotional credits (40% of revenue based on other markets) and $12.5 million in federal taxes (the tax rate is 0.25% of the handle).

The end result is $212.5 million in taxable revenue under the House proposal.

The Senate does not allow for subtracting promotional credits or federal taxes from gross gaming revenue to determine taxable revenue. The end result is $318.75 million in taxable revenue under the Senate proposal.

State taxes paid

In this analysis, Play MA uses each proposal’s online betting tax rate to determine taxes owed to Massachusetts since history shows 90%-95% of wagers are made online. The true effective rate would be a little lower based on the amount of money wagered in person.

Applying the House’s proposed 15% tax rate for online betting to taxable revenue of $212.5 million produces $31.875 million in state taxes under the House version of the bill.

In the Senate proposal, a 35% tax rate on $318.75 million of taxable revenue generates $111.56 million in state taxes. That state tax haul is a 250% increase in the Senate bill compared with the House proposal.

Issues facing lawmakers

As Massachusetts legislators work to iron out differences in the two proposals, they must ask themselves:

• Will restricting betting on college sports be worth the price of limiting the state’s handle?
• Does allowing college sports betting have any impact on the integrity of games?
• Will higher tax rates scare sportsbooks from doing business in the state?
• Is it worth limiting market size by limiting the number of licenses available to operators?
• Does each bill do enough to promote responsible gambling?

Massachusetts has been deliberate in making sports betting legal since the US Supreme Court allowed sports betting in 2018. The Bay State is one of 15 US states that have not made sports betting legal.

The longer it takes lawmakers to answer these questions, the longer state residents will have to wait to place a bet on a Patriots, Red Sox, Celtics or Bruins game.

What’s next?

The Massachusetts House voted Tuesday to not concur with the Senate version of the sports betting bill. The House also voted to form a conference committee on the issue. That committee’s job is to form an agreed-upon bill that can’t be amended.

The speaker of the House and the Senate president appoints three members each to the conference committee. The agreed-upon bill then has to pass both chambers before heading to the governor.

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