A proposal to reinstate the promotional deductions for online sports betting operators in Virginia was recently amended to lower those deductions.
Industry Operators Call for Change
Back in July 2022, a proposal called for all promotional deductions to be eliminated after an online sportsbook had been operating in Virginia for one full year. But that has recently been challenged with another bill, SB 1142 introduced by Sen. Jeremy McPike, that returns the deductions to the operators to keep Virginia operator-friendly.
However, the lack of deductions has improved the revenue share of the state as it has seen monthly increases of $4 million or greater in its last four reports. Clearly, the promo deductions help the online sportsbooks but are disadvantageous to Virginia’s tax coffers.
McPike’s bill would call for a four-tier sliding scale of tax relief benefits that would decrease every year. Platform providers could deduct a maximum of 2.5% of their monthly handle from July 2023-June 2024. The percentage would fall by 0.25% each year for the next four years, which means it would be at 1.75% in July 2026. This would save the operators anywhere from $6.8 million to $9 million over those four years.
Delegate Paul Krizek voted in support of the bill but remained concerned about generating enough money to support the fund created to help with problem gambling. “My understanding is had we not had that, we would have run out of money before the end of last year,” Krizek said. “So that is really critical. I’m going to support this to send it up to appropriations because I want to see what the fiscal impact is but that’s my concern, that we have enough money for the problem gambling fund.”
Bills Pass Subcommittees
Another bill, HB 2202, was passed in the General Laws subcommittee by a 6-2 vote while SB 1142 made it out of the Finance and Appropriations by an 11-4 vote. The Sports Betting Alliance, an industry advocacy group for sportsbook operators, spoke in favor of the bill.
But a report last year by VIXIO Gambling Compliance stated that states could lose as much as $120 million per year by allowing these deductions to continue without sunsetting them after a certain number of years.
“Provisions allowing deductions in the early days of a sports betting market that phase out over time have recently become a popular move for states, enabling operators to acquire customers early on with the state benefiting in the long run from a full amount of taxable revenue,” the report says.
Can Virginia Learn From Other States?
But there are other states like New York, with the highest tax burden in the nation at 51%, that never had a provision for promotional deductions, much to the chagrin of the operators doing business in the Empire State. This has caused the operators to severely slow or eliminate any inducements for new customer acquisition.
“The result has been several operators slowing their customer acquisition efforts in recent months after a brief explosion of inducements offered after the state’s January launch”, VIXIO’s report states.
“Other major markets that do not permit bonus deductions include Illinois, Indiana, and Tennessee, all of which passed bills legalizing sports betting in 2019 before the promotional play clause became a more popular item to include in any new legislation.”
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