Minnesota has the potential to generate more than $40 million annually in tax revenue from sports betting, but a lawmaker leading the conversation in the state thinks it shouldn’t be the motivation for legalization.
There are many benefits to regulated sports betting, which an estimated 28% of the U.S. adult population already engages in. Consumer protection is high on the list, especially with regards to offshore, black market online platforms.
In Minnesota, Rep. Pat Garofalo (R), who crafted a draft sports betting measure this year, is one of the state’s strongest proponents of legalization. He recently Tweeted that the top priority for legal sportsbooks is to put the illegal market out of business. Garofalo oftens talks publicly about sports wagering.
Legalize sports gambling to help defund organized crime. Do NOT legalize sports gambling because you think it will generate tax revenue for politicians to spend.https://t.co/oLsNjqnPN0
— Representative Pat Garofalo (@PatGarofalo) December 22, 2018
Along with Garofalo, State Sen. Roger Chamberlain, also a Republican, is eyeing legislation that he believes will gain bipartisan support in the legislature. Chamberlain chairs the Minnesota Taxes Committee.
There’s not yet an official sponsor of a Minnesota sports betting bill.
Like Garofalo, Chamberlain is on the record stating that the tax revenue should be low so that Minnesotans do business with legal sportsbooks.
The next legislative session kicks off Jan. 8.
Importance of reasonable tax rates
Higher tax rates can translate to less attractive odds for bettors, keeping the black market entact. Unattractive lines might also simply keep more people from engaging in sports betting at all.
Another problem with a high tax rate is that operators would likely spend less on marketing and other customer-facing services that, again, could help keep the offshore platforms alive in the U.S.
In other words, lower tax rates help grow the legal market, which in turn provides more benefits to the state.
Nationwide gaming tax revenue projections
According to a 2017 nationwide sports betting study by Oxford Economics, nationwide gaming tax revenue for legal and regulated sports betting could be $2.5 billion annually, assuming all states are participating and there’s “convenient” availability (online/mobile in the equation). That also assumes a “high” tax rate of 15%.
A base tax rate of 10% could generate $1.8 billion for state coffers across the country.
All signs point to Minnesota having online/mobile sports wagering in legislation that ends up progressing in the legislature. The study projected that Minnesota could see more than $4 billion in annual sports betting wagers (for comparison, Nevada is roughly $5 billion per year).
According to the Minnesota Post, Garofalo has projected Minnesota handle to be as much as $2 billion under a legal system. Projections can vary greatly, which bolsters the position that regulation should first and foremost be about consumer protection.
Those nationwide figures are a bit premature considering states like Texas and California, which have massive market potentials, are not passing legislation in the near future.