Inside Asian Gaming

INSIDE ASIAN GAMING FEBRUARY 2018 30 GAMBLING AND THE LAW “Indiana Rep. Alan Morrison has introduced a bill that would give the national sports leagues 1% of the new sports betting handle as an ‘integrity fee.’ But is imposing a 1% fee on gross gaming wagers a good idea for operators?” illegal. This tax was so high that it was virtually impossible for even the best sports handicappers to win consistently. Licensed sportsbooks were limited to Nevada. At the time these were called turf clubs, were limited in number, small in size and not connected with large casinos. Individuals who worked in the industry during this time reported widespread tax evasion to get around this high tax. For example, a $1,100 bet to win $1,000 was recorded as merely $11 to win $10. Sportsbooks make their profit from the statistical advantage they have over their patrons. The most common wager is a multiple of $11 to win $10. If the sportsbook succeeds in having the same amount of money wagered on both sides of a match, it is guaranteed to make a profit. For example, if Patron A bets $11 on his team and Patron B bets $11 on the opposing team, the sports book now has $22, but the sportsbook pays the winner, whoever he may be, only $21, his original $11 bet back and his $10 in winnings. The sportsbook keeps the additional $1. It is easy to see why the 10% tax would be devastating if it could not be passed on to the patrons. Of the $22 bet in the example above, the federal government would take $2.20, obviously much more than the sportsbook’s expected $1 profit. But the 10% tax could not be passed on, because the patrons would no longer be betting $11 to win $10, but rather $11 plus 10% ($1.10) for a total of $12.10 to win $10. Sportsbooks allow patrons to make a wide variety of bets. The “hold” is the percentage that the sportsbook wins. In Nevada, slightly more than US$22.5 billion was bet over a 10-year period and the sportsbooks had gross gaming revenue of about US$938 million, which means they kept 4.16% of the amounts bet. Looking at a single sportsbook: if it has a handle of US$10 million – the total amount bet in a year – and it holds 4.16%, it will win, or have gross gaming revenue, of US$416,000. But when the federal excise tax on wagers was 10%, the federal government demanded US$1 million (10% of the US$10 million bet). If the sportsbook had to pay this, it obviously could not; it would be like imposing a 240% tax on gross gaming revenue. In 1974, Congress lowered the federal excise tax on sports wagers to 2%. Using the same numbers for comparison purposes, a sportsbook with a handle of US$10 million and a hold of 4.16% – therefore producing Indiana Rep. Alan Morrison has proposed a 1% “integrity fee” on gross gaming revenues for the state’s sportsbooks