Sports betting tax revenues rise, but are unpredictable

Many states are seeing sports betting tax revenue increase over time as markets mature. But it’s so far proved a relatively small, somewhat unpredictable funding stream.
Philadelphia Phillies’ Bryce Harper celebrates after scoring during the fourth inning in Game 1 of baseball’s World Series between the Houston Astros and the Philadelphia Phillies on Friday, Oct. 28, 2022, in Houston. (AP Photo/Eric Gay)

The World Series between the Philadelphia Phillies and Houston Astros could raise millions of tax dollars for Pennsylvania to spend on schools, health care and other services. The same won’t be true for Texas.

That’s because Pennsylvania is among the 36 states where legislative leaders or voters have chosen to legalize sports betting and tax bookmakers. Meanwhile, most forms of gambling remain illegal under the Texas constitution.

The promise of new tax dollars wasn’t enough to win over key Texas lawmakers when the legislature last met in 2021. Texas Lt. Gov. Dan Patrick (R) said then that he’d never been in favor of sports betting and that lawmakers weren’t impressed by its revenue potential, the Austin American-Statesman reported. “It doesn’t move any votes,” Patrick said of the additional tax dollars.

Many states are seeing sports betting tax revenue increase over time as markets mature. But it’s so far proved a relatively small, somewhat unpredictable funding stream.

“The sports wagering revenue can be a nice fix for a small budget problem,” said Adam Hoffer, director of excise tax policy at the Tax Foundation, a conservative-leaning Washington, D.C. think tank. “But in no way, shape or form are these revenues capable of substituting for a major revenue source, like an income tax or a sales tax.”

State tax rates on sports betting operators’ gross revenue, the overall amount bet minus payouts to winners, varies widely. Pennsylvania’s tax rate of 36% is on the higher end.

People tend to wager more money during big sporting events. The Super Bowl and the NCAA men’s college basketball tournament draw the most money, industry insiders say. Pennsylvanians bet over $68 million on this year’s Super Bowl, the state gaming control board estimated in February, raising about $4.5 million in tax dollars.

Pennsylvanians will likely wager more this October than they did last October, given that there’s an in-state team in the World Series, said Doug Harbach, communications director for the Pennsylvania Gaming Control Board. But he cautioned that more wagering doesn’t guarantee a revenue spike.

“It all depends on whether the bettors made out well, or the house made out well,” Harbach said. “So we can have very large wagering months, and the revenue in the end can be lower than months where wagering was much lower.”

For example, Pennsylvanians bet about $761 million on sports last November, some $15 million less than last October. But the state still raked in more than twice as much in tax dollars in November — over $21 million.

To legalize sports betting in Texas, lawmakers would have to place a constitutional amendment on the ballot, and voters would have to approve it.

Along with discussing tax revenue with Texas lawmakers ahead of the 2023 legislative session, sports betting advocates are stressing that taxing and regulating sports wagering would protect Texans who are already betting illegally, said Cara Gustafson, spokesperson for the Sports Betting Alliance.

The group, which represents sports teams and betting platforms, estimates that Texans use offshore websites and illegal bookies to bet $8.7 billion a year on sports.

“You get those questions of, why would we bring a problem to Texas?” Gustafson said. “And what we always say to that is, the problem is already here.”