The state of Michigan will not be joining Colorado in adjusting its online sports wagering promo deduction policies. Since the tax revenue numbers in the state have already surpassed the initial projections, lawmakers in Michigan will be leaving their policies toward promotional deductions for sportsbooks intact.
Michigan has 2 distinct policies that govern online casinos and online sports betting. The first is the Michigan Lawful Internet Gaming Act while the second is the Michigan Lawful Sports Betting Act.
Lawmakers in Michigan voted to legalize sports betting 19 months after the Supreme Court struck down the federal ban on sports betting in 2018. As per the laws, sports betting in the state is taxed at 8.4% with licenses available to applicants for $100,000. Operators are also required to renew their licenses each year at $50,000.
Once Governor Gretchen Whitmer signed the iGaming bill into law, Michigan became the second largest state in the Midwest region, behind Illinois, to legalize its market. It was also the 19th state to do so based on records from the American Gaming Association. The new iGaming laws allowed the state to grant operating licenses to businesses that already had casino licenses or Native American tribes already offering gaming via their casinos.
The extra dollars that have been generated from Michigan’s lucrative iGaming market have helped enhance the state’s School Aid Fund, which supports education. Since sports betting was launched in the state, the School Aid Fund has grown by a projected $4.8 million. The tax dollars generated are also redirected to Michigan’s First Responder Presumed Coverage Fund, which provides benefits to trained first responders in the state suffering from various forms of cancer.
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Colorado has already successfully amended its promo policy
Colorado became the first state in the country to eliminate tax deductions on promos for sportsbooks. In May, the state legislature passed State House Bill 22-1402, designed to generate additional tax revenue from the thriving sports betting market. The state House Bill was approved and sent to the Governor for consideration.
Should Colorado Governor Jared Polis sign the bill into law, sportsbooks in Colorado will no longer be allowed to deduct promotional and other incidentals from their incomes. Since sports betting was legalized in Colorado, the laws have allowed operators to subtract the cost of promotions and bonuses. The legislative change came amid a crucial time in the sports betting calendar and could have serious repercussions for those involved.
The months between April and August are typically some of the slowest in the country’s sports calendar. With the slump and the legislative reform in tow, operators’ revenues are expected to drop lower in the coming months. Owing to the summer sports slow down, sports betting in Colorado has dropped by more than 20%.
Based on a report shared by the Colorado Department of Revenue, sportsbooks in the Centennial State generated a combined handle of $392 million. This was a drop of 22% compared to March, which produced a total handle of $505 million. The state’s betting market, which is currently ranked 6th in the country, collected $22 million in revenue this April.
However, this was a shard drop compared to the $28 million that was generated in March. Promotions and federal taxes caused the income generated by the sportsbook to drop further to $11 million. As a result, in April, the state only generated $1.2 million in taxes.
The Colorado Gaming Division reports that operators have paid the state approximately $17 million in taxes. However, this amount makes up less than 5% of the overall sports betting handle. Colorado lawmakers that voted to legalize sports betting in the state claim that this amount is too low and that the state needs to extract even more revenue from the industry, which is where HB 22-1402 comes in.
In its first full year of legal sports betting, Colorado managed to generate $6.6 billion, which resulted in a 4% tax rate. In comparison to other states, Colorado legislators believe that the state’s performance could be better. Case in point, New York, which only legalized its market at the start of the year, collected an excess of $216 million in tax revenue in its first 4 months.
Despite being one of the newer industries, New York also broke records by becoming the first state to reach the $5 billion mark in handle. To prevent operators from being too severely affected by the changes, the state of Colorado plans to phase out the deductions slowly each year over a 3-year span.
From the start of next year to mid-2024, sportsbook operators will be allowed to deduct up to 2.5% of their monthly handle as free bets. In the following year from July 2024 lasting through June 30th, that percentage will drop to 2.25% and will even further in the following year.
But it’s not just Colorado that wants to phase out its sports betting promo policies. Both Virginia and Louisiana have attempted and failed to amend their promotional deduction policies. Colorado may have been the first state to pull this move. However, analysts believe that even more states will join the bandwagon in the coming months.
Colorado bill 22-1402 was brought forward by Alec Garnett, who is the exiting House Speaker, and was co-sponsored by Senate Hansen. Not only is the bill looking to amend the promo deductions policy, but it is also looking to raise more funds for the creation of responsible gambling programs in the state.
Final Thoughts
Since Michigan legalized its market, punters in the state now enjoy a safe and regulated environment. Before legalization, residents were forced to travel thousands of miles to other states or place wagers via risky offshore betting sites. Before legalization, critics argued that the expansion of gaming would cause further harm than good.
However, a legal iGaming market has not only helped to fund important state programs, but has also increased traffic to the brick-and-mortar casinos in the state. So far, the revenue generated from iGaming has helped to support school funding, support public safety initiatives, as well as various state and local enterprises.
