TAX POLICY
Although this deduction prevents a favorable opportunity for operators within the state, New Jersey may pay the price in millions of forfeited tax revenue as a result. The consequences of unlimited promotional credit deductions have been felt in states that allowed uncapped deductions like Colorado, Pennsylvania, Michigan, and Virginia, where taxes make up a significantly lower proportion of revenue when compared to other states with legalized gambling that do not allow such deductions. New Jersey’s bill is not quite as generous as these other states: promotional credits that brick-and-mortar sportsbooks may deduct have to exceed US$8 million per year, and for online sportsbooks, the deduction kicks in after US$12 million in promotional credits are issued. 12 While New Jersey will not miss out on revenue at the same magnitude as states that allow uncapped deductions, the state is nevertheless leaving valuable revenue untaxed. New Jersey collected more tax revenue than initially projected with the legalization of sports betting, but the sources of that revenue proved to be the most illuminative of where the state’s revenue lies. 13 In the first ten months of legalized sports betting, the state collected US$4.2 million from in- person betting and US$13.9 million from online betting, even though online sports betting was not available during the first two months of legal gambling in the state. In February 2020, the state collected US$1.6 million in tax revenue from online sportsbook operators, even as in-person sportsbooks lost revenue, reasons unknown, but presumably as a result of the COVID-19 pandemic. In March 2020, the state managed to rake in six times more revenue from online sportsbook operators than from operators who accepted solely in-person bets. This trend in revenue collections continued into 2021, when internet gambling and sports betting represented 46 percent of New Jersey’s total gaming revenue, putting it nearly on par with all the revenue the casinos brought in from traditional gaming. In 2022, the state’s year-to-date sports wagering handle – or total amount wagered – totaled more than US$10.9 billion, with US$10.1 billion of that coming from
online sports betting. 14 According to New Jersey’s Division of Gaming Enforcement, brick-and-mortar sportsbook operators brought in approximately US$763 million in revenue, while online sportsbook operators reported a total of US$1.66 billion in revenue, reflected growth of 21.6 percent compared to US$1.37 billion for the prior year-to-date period. New York’s delayed - but impressive - entrance onto the sports betting market New York reclaims bettors with state lines and a land grab among operators: New York joined the sports betting market shortly after New Jersey’s trailblazing success, reclaiming the state’s bridge and tunnel bettors who made their way from New York across the Hudson River by car, train, and foot to place their bets in New Jersey. During the first weekend of legalized mobile sports betting in the state, the four online sportsbook operators in New York gained 650,000 new bettor accounts and took in US$150 million in wagers – more than the neighboring states of New Jersey and Pennsylvania combined during the same period. In the first thirty days of mobile sports betting operations within the state, popular online sportsbook operator DraftKings acquired 300,000 users, which is 2.3 times the average of new users during the first thirty days of DraftKings’ operations in other states with legalized mobile sports betting. 15 However, these numbers are not as surprising as they seem when considering New York’s 20 million residents, twice the population of New Jersey. Although New York legalized online sports betting in mid- 2021, bettors were still unable to place any online wagers within state lines until the state negotiated deals with sports betting operators, which did not come to fruition until January 2022. The legalization of online sports betting in New York created a competitive market among sportsbook operators vying to get a piece of the state’s lucrative market. Many operators believed that New York represented one of the most
12 https://www.casino.org/news/new-jersey-sportsbooks-receive-tax-breaks-on-promotional-play/ 13 Richard C. Auxier, States Learn to Bet on Sports: The Prospects and Limitations of Taxing Legal Sports Gambling, TAX POL’Y CTR. 1, 11 (2019). 14 N.J. Off. Att’y Gen. (Jan. 17, 2023), https://www.nj.gov/oag/ge/docs/Financials/PressRelease2022/December2022.pdf. 15 ACTION NETWORK (Feb. 23, 2022), https://www.actionnetwork.com/legal-online-sports-betting/customers-new-york-sports-betting-tax- rate-concern.
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IMGL MAGAZINE | APRIL 2023
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