Regulators in Massachusetts have made it official: sports betting sites cannot lower their taxable revenue by deducting the value of free bets and other promotions they offer customers.
Members of the Massachusetts Gaming Commission (MGC) previously discussed amongst themselves whether they should grant promo deductions to legal sports betting operators in the state. The regulator also heard from bookmakers concerned that including promotional gaming credits would mean the commonwealth would not be taxing actual revenue.
At issue was some uncertainty around the Massachusetts sports betting law and whether it did or did not allow for such tax treatment. That uncertainty was partly because of the last-minute negotiations lawmakers engaged in to reach a compromise allowing the wagering legislation to pass.
But after hearing from legislators, the state’s attorney general, reviewing the early sports-betting data, and then taking in two more presentations on Tuesday regarding the deductibility of promo play, the MGC voted 5-0 in favor of including bonuses when calculating an operator's taxable revenue.
Promo plans
Commissioner Eileen O’Brien said most states do not allow promo-related deductions and that allowing it in Massachusetts could affect the tax revenue the state is receiving, 9% of which goes to a Public Health Trust Fund for problem-gambling programs.
Massachusetts has a 20% tax on the adjusted gross revenue of online sportsbooks, which is total wagering minus winnings paid to players and the federal handle tax. For retail sportsbooks, the tax is 15%. Massachusetts received $11.8 million in sports-betting tax during April, which stemmed from $58.9 million in taxable revenue.
“I have a belief also that any sort of deduction for promo play would likely lead to an increase in the offerings of the promo plays, which would have an RG impact [and] would also have an impact in my view on the advertising that would then go out and into the marketplace,” O’Brien added during Tuesday’s MGC meeting. “And we have already been receiving quite a lot of feedback in terms of the frustration that people have with promo play in the advertising that's already going on in the industry.”
The decision on promo play taxation is one state regulators and legislators across the U.S. are grappling with, and it is a reminder of the relative newness of sports betting in Massachusetts. Legal sports betting only began in the commonwealth at the end of January, and online wagering commenced in March. There are still details regulators need to sort out and growing pains the market must endure.
Ordering off the menu
One recurring growing pain is the failure of operators to abide by the state’s betting catalog. There have been several missteps at casinos, but the MGC heard Monday that one online sportsbook operator mistakenly offered forbidden wagering markets as well.
Commissioners heard that on March 23, DraftKings reported to the MGC that it had taken bets on unapproved tennis events for about two weeks prior. In total, DraftKings mistakenly took 864 wagers worth $7,867 on UTR Pro Tennis, which the Boston-based sportsbook operator chalked up to a miscommunication between its trading and trading compliance teams.
DraftKings voided all the wagers in question, recouping any winnings and returning the stakes to players for both losing and successful bets. The bookmaker also removed all of the unapproved tennis markets.
Even with the remedial measures, DraftKings will likely face some kind of discipline from the MGC. A hearing will be held in the future for a deeper dive into the indiscretions and possible sanctions.
Some frustration was voiced by commissioners during Monday’s meeting about the failure to stick to approved events.
“I would like to make sure that this practice doesn't continue,” MGC Chair Cathy Judd-Stein said during Monday’s meeting. “That we just really ensure that the operators know that this is something that the commission takes very seriously.”
