As more states are launching legalized sports betting, some are having a little buyer’s remorse when it comes to their promotional deduction agreements with operators.
Virginia and Louisiana have attempted to alter agreements, while Colorado appears to be the first state to amend its promotional deduction policies.
Don’t expect Michigan to join that group any time soon.
With tax revenue numbers surpassing original projections, Michigan lawmakers are content with their current policies toward promotional deductions for operators.
What are Michigan’s promo deduction policies?
Michigan has two different policies when it comes to online casinos and online sports betting.
The policies fall under the Michigan Lawful Internet Gaming Act and the Michigan Lawful Sports Betting Act.
MI Lawful Internet Gaming Act
When looking at monthly revenue numbers, operators report Gross Receipts and Adjusted Gross Receipts.
According to the MGCB policy, adjust gross receipts means receipts less a deduction equal to the amount of free play provided and wagered by authorized participants as an incentive to place or as a result of placing internet wagers under this act.
Over time, the amount that operators are able to deduct will reduce. The deduction rate is as follows
- Years 1-3: Can’t exceed 10% of gross receipts
- Year 4: Can’t exceed 6% of gross receipts
- Year 5: Can’t exceed 4% of gross receipts
- Years 6 and on: no deduction is allowed
“So we have a pretty healthy agreement here in Michigan that we negotiated. There are some write offs for advertising and those things, but they actually go away over time if you’re looking at it,” Michigan Sen. Curtis Hertel Jr., D-East Lansing, said. “Michigan has taken in more dollars than we projected originally. So, it would be hard to argue that our system isn’t working.”
MI Lawful Sports Betting Act
Unlike Internet gaming, the Lawful Sports Betting Act does not phase out freeplay deductions when determining tax revenue.
Colorado’s proposed amendment
Colorado lawmakers have recently passed legislation that will limit the amount of promotional deductions sports betting operators can claim.
Bill HB 22-1402 is expected to be signed into law by Gov. Jared Polis.
Colorado’s tax rate for sports betting is 10%. However, the anticipated tax revenue has been lower than anticipated due to the provision that allows operators to deduct promotional credits pre-tax.
Since launching, Colorado sportsbooks have generated more than $408 million in revenue. However, the state has collected just $17.7 million, which works out to a rate closer to 4% than 10%.
Colorado’s proposed law will lower promotional deductions to 2.5% starting in 2023 and eventually phase that down to 1.75% by July 2026.
Why Michigan isn’t facing the same problem
Michigan isn’t concerned with its promotion rates due to the success of online casino tax revenue.
As we looked at last week, Michigan’s tax revenue from online gaming is 2,700% higher than online sports betting.
Michigan is just one of six states with legalized online casinos, with Colorado not being included in that group.
Since both online sports betting and online casinos were legalized in January of 2021, more than $300 million in state tax revenue has been generated in Michigan. Nearly $120 million in local taxes has also been generated.
“I think we did better than most states in terms of our structure of how we did the taxes, and what’s coming in,” Hertel said. “When you look at Michigan, we’ve been able to invest more money in our schools, but we’ve also paid for a permanent fund to help firefighters who get cancer.”
Promos and free wagers have been a big part of online sports betting and gaming.
Operators have claimed nearly $254 million in promotional deductions since online sports betting launched in January of 2021. Internet gaming operators have claimed more than $160 million in promo deductions thus far.
“I certainly don’t want to do anything that’s going to hurt players. Obviously, a lot of people have benefited from the opportunity to have deposit matches and those things,” Hertel said. “We understood the need to build client bases and those things in Michigan, but we also know that long term we want to maximize tax revenue for our schools.”