Sports betting will be no home run for state budgets – Mississippi Business Journal

The race to legalize sports betting is on now that the U.S. Supreme
Court has allowed it in all 50 states, but will it provide enough extra
tax revenue to make much of a difference for schools, roads or pension
debt?

Don’t bet on it.

Just look to the states that capitalized immediately after the
court’s ruling last spring and to Nevada, which previously had an
effective monopoly on sports gambling. Even though the market is still
developing, the returns to date have been modest.

In Nevada, revenue from sports betting has accounted for roughly one half of 1 percent of the entire state budget.

“Everything I’ve seen so far suggests that this would not be what one
would consider to be a pot of gold,” said Ohio state Sen. John Eklund, a
Republican who introduced legislation to legalize sports betting in his
state.

Delaware, Mississippi, New Jersey, Pennsylvania, Rhode Island, and
West Virginia legalized sports betting last year after the Supreme Court
decision, as did the District of Columbia. Although New Mexico has not
passed a sports betting law, the Santa Ana Star Casino & Hotel
started taking bets in October through a tribal gambling compact.

Lawmakers in Kentucky, Missouri, Ohio, Tennessee and Virginia already
have filed bills to allow sports betting, and those who track the
industry expect a total of 30 states to consider similar ones this year.

The expected stampede of states seeking to legalize it has parallels
to the growing trend toward legalizing recreational marijuana, which 10
states have done and others are considering.

As with marijuana, lawmakers say they are motivated in large part
because sports betting has been a black market activity outside Nevada.
Legalizing it would allow states to impose regulations and take in at
least some money.

“I keep telling them this is not like a craps table or a slot
machine,” said Mark Sickles, a Democratic state lawmaker in Virginia who
has sponsored a bill that would place a 15 percent tax on sports
betting in the state. “My main purpose is to take something that’s
currently being done illegally and get some tax revenue from it.”

Revenue from legalized pot makes up just a small portion of state
revenue, even in the states with the most mature markets — about 2
percent in Colorado and a little over 1 percent in Washington, according
to a May report from Moody’s Investors Service. That’s still a far
larger portion of revenue than even the most optimistic projections for
sports betting.

New Jersey was the first state to legalize sports betting after the Supreme Court decision last May.

The state’s gambling industry took in $928 million worth of sports
bets since the first one was taken on June 14 through the end of
November. From that, the state received less than $8 million in tax
revenue.

Even if the state meets its projection of $25 million in sports
betting tax revenue for a full year, that would amount to well under one
10th of 1 percent of the state’s $37.4 billion budget.

Former New Jersey state Sen. Raymond Lesniak began the effort to
legalize sports betting there 10 years ago with what at the time seemed
like a quixotic lawsuit against the federal government. He said sports
gambling was not supposed to be a big moneymaker for the state.

“It wasn’t intended to do that,” he said. “I was driven by the fact
that the Atlantic City casino industry was dying and the horse racing
industry was on life support. It needed an injection of new money and
new people that would come, fill up rooms, eat in restaurants, spend
money.”

Lesniak expects sports betting to eventually generate over $100
million in taxes for the state once all New Jersey’s casinos and
racetracks have sports books up and running for a full year. That would
be 10 times the level of tax revenue being generated right now, when
many sports betting operations in New Jersey are in their infancy.

Yet experts say sports betting revenue in New Jersey and elsewhere is
likely to be diluted as more and more states jump into the game.

New Jersey’s market is being squeezed on one side by Pennsylvania,
which recently began offering sports betting, and on the other by New
York, which is likely to pursue legalization this year.

For perspective, New Jersey’s casino revenue at the end of 2006, when
Pennsylvania opened its first casino, was $5.2 billion. A decade later,
that number had been cut in half and Pennsylvania had more casinos.

The states that have launched sports betting this year expect they
will bring in tax revenue that ranges from about $5 million in
Mississippi and West Virginia to $25 million in New Jersey. In each
state, hitting those targets would account for just a fraction of 1
percent of state spending.

Even Rhode Island, which has the highest sports betting tax rate at
51 percent, estimates it will take in $23.5 million a year, or a quarter
of 1 percent of the state’s budget.

Those revenue projections are in line with expectations from the
municipal ratings firm Moody’s Investor Service. Baye Larsen, who
analyzes state finances at Moody’s, expects sports betting to account
for a “very, very small slice” of state revenue and will do little if
anything to help cover their rising pension, Medicaid, education or
infrastructure needs.

Instead, some lawmakers said they will try to direct the money to
specific projects. A bill in Missouri, for example, would send some of
the revenue to the capital improvement fund of the state Veterans
Commission, while some of New Jersey’s online sports betting revenue is
targeted to an Atlantic City promotion campaign.

“Legalized sports gambling is not a way to raise revenue for the
government; it is not a mechanism to create jobs,” said Minnesota state
Sen. Patrick Garofalo, a Republican. “It’s a high-volume, low-margin
business.”