Inside Asian Gaming

FEBRUARY 2018 INSIDE ASIAN GAMING 31 GAMBLING AND THE LAW “In 1954, Congress imposed a 10% federal excise tax on all sports wagers, legal and illegal. This tax was so high that it was virtually impossible for even the best sports handicappers to win consistently.” a win of US$416,000 – now only had to pay the federal government US$200,000. This is equivalent to a tax on gross gaming revenue of 48.07%. Nevada also has a sliding scale of state gaming taxes, with the top tax rate quickly reaching 6.75% of gross gaming revenue. Therefore, the lowering of the federal excise tax to 2% allowed sportsbooks in Nevada to operate and pay the equivalent of approximately 54.82% on their win. This was low enough to allow a few entrepreneurs to think about expanding the small turf clubs into true sports betting parlors. In 1975, the Nevada Legislature passed enabling legislation so that casinos could have sportsbooks. But the tax rate was so high that few casinos were willing to devote any of their valuable floor space to a form of gambling that generated so little to the bottom line. In 1983, Congress lowered the federal excise tax on legal sports wagers to 0.25% (illegal sports bets still pay 2%). A sportsbook with a handle of US$10 million and a hold of 4.16% producing a win of US$416,000 now only had to pay the federal government US$25,000 (0.25% times US$10 million). This is equivalent to a tax on gross gaming revenue of 6.01% (US$25,000 divided by US$416,000). Nevada’s top tax rate of 6.75% means the sportsbooks were now paying the equivalent of approximately 12.78% of gross gaming revenue (6.01% federal plus 6.75% state taxes). The direct result of having gaming privilege taxes at about 13% of gross gaming revenue for legal sportsbooks was an explosion of growth and capital expenditures for Nevada’s sports betting industry. In 1973 there were only 10 sportsbooks with a total handle of US$2.8 million. Twenty years later there were approximately 100 sportsbooks with a total handle in excess of US$2 billion. By the year 2000 there were about 157 sportsbooks, with a total handle greater than US$2.5 billion, generating more than US$117 million in gross gaming revenue. Sportsbooks not only became large and numerous in Nevada, they were viewed as profit centers and entertainment enticements for commercial casinos. By 1985 all of the small independent sportsbooks were closed, replaced by multi-million dollar casino sportsbooks with dozens of giant video screens and all the other services sports bettors could want, including easy access to other forms of gambling. IMPACT OF THE PROPOSED 1% TAX Here is how the same analysis would work using the numbers proposed for Indiana, which is a 1% “integrity fee” on handle, a 9.25% state tax on gaming revenue and the existing 0.25% federal excise tax on handle: A sports book with a handle of $10million and a hold of 4.16% producing revenue of US$416,000 would pay the sports leagues US$100,000 (1% times US$10 million). This is equivalent to a tax on gross gaming revenue of 24.04% (US$100,000 divided by US$416,000). The federal government receives $25,000 (0.25% times US$10 million), which is equivalent to a tax on gross gaming revenue of 6.01% (US$25,000 divided by US$416,000). The state receives US$38,480 (9.25% times US$416,000). The total in fees and taxes would