1950s Law described as outdated and harmful to fight against offshore sportsbooks
Sports Handle report
A wagering excise tax was first passed by Congress in 1951, imposing a 10% tax on sports betting revenues and a $50 “occupational stamp” for each person employed in book operations.
If that sounds hostile to legal Nevada sportsbooks — the only ones out there at the time — it was meant to be, according to research by Sports Betting Community Limited (SBC) and the Gaming Law Society of the Boyd School of Law at the University of Nevada Las Vegas.
Those were the organizers of a recent SBC-hosted webinar entitled “Is it Time for Sports Betting’s Federal Excise Tax to Go?” – and all three panelists answered in the affirmative.
All 13 of the Las Vegas sportsbooks closed when the tax was imposed, and only four of the other 11 “books” elsewhere in Nevada survived.
But in the early 1970s, the excise tax was reduced to 2%, and Congress lowered it again in 1982 to 0.25% of the “handle,” or amount wagered at the sportsbook. The industry revived almost immediately.
Sports betting is a low-margin business that in many cases leaves operators with only about a 5% return on investment. So if $1 million is wagered, only about $50,000 gets held by the book. The excise tax initially was taking 10% of the $1 million handle, or $100,000 — leaving a net negative for the books and putting most of out business.
Currently, for every $1 million wagered, the books still may make only $50,000, while the excise tax is down to $2,500 (0.25% of the handle).
An archaic tax for these times?
That’s at a time when the proliferation of legal, regulated sports betting in the U.S. is taking place in part in hopes of cutting into the estimated $150 billion that was bet illegally in the U.S. before the Supreme Court’s May 2018 sports betting ruling opened the door for all states to mirror Nevada.
“The common enemy remains these illegal offshore sportsbooks that don’t have these tax obligations,” American Gaming Association President CEO Bill Miller said on the webinar. “We should do everything we can to support the legal system that still is competing with both the illegal corner books and the offshore illegal sites. Whatever the rationale in 1951 was, it’s time for us to support the legal industry.”
Congresswoman Dina Titus of Nevada noted that the original goal of the tax was that it was supposed to be to “used against the bad guys” to rein in illegal gambling, but a 2018 hearing in the House of Representatives revealed that no one could explain where the tax revenue actually goes.She added that the “head tax” also discourages sportsbooks from hiring back many workers let go during the height of the COVID-19 pandemic.”This is like putting a tax on illegal whiskey stills,” Titus added, meaning that unlawful operations won’t pay any tax that is passed.
Bipartisanship not quite dead yet in D.C.
But Titus, a Democrat, in April put forward a bill with Republican co-sponsor Guy Reschenthaler of Pennsylvania to repeal the tax.
“The industry is hindered by an outdated tax code and burdensome regulations that penalize legal, regulated operators while providing illegal operations with an unfair advantage,” Reschenthaler said in a statement at the time.
The bill was of the “stand-alone” variety, but Titus said that “if we can get it put into a [pandemic] recovery package or in Ways and Means or one of those ‘Christmas tree’ packages, whatever it takes — that would be fine.”
Legendary Las Vegas bookmaker Vic Salerno, a member of the Sports Betting Hall of Fame, said on the webinar that a “Christmas tree bill” was the vehicle for the 1982 reduction to 0.25% of handle.
“I never thought that would happen,” Salerno said.
Miller said that he was heartened by the fact that, after some intensive lobbying, the gaming industry was included in extensive small-business aid in 2020 stemming from the COVID-19 pandemic — “the first time in history” that the industry got such consideration, Miller added.
The fact that about half of the 50 U.S. states have rolled out legal sports betting since 2018 also helps the cause to repeal the excise tax, Miller said.
“In all my years of lobbying, I have never seen anything move forward as quickly as sports betting has,” Miller said.
Industry to feds: Remove tax, leave us alone
Titus pointed, however, to a balancing act for the gaming industry.
“Gaming likes the federal government when it needs something, but the other side is that it wants to keep the federal government out of the states’ business,” Titus said. “If we would start to get too much federal intervention, the industry would not be crazy about that.”
Miller added that “We always remember that [gambling] is a state-regulated industry, and everybody likes it that way. Having an overlay of [federal] government oversight and taxing is not welcome news — and a fireable offense, if you are the CEO of the AGA and it happens on your watch.”
Titus said that the informal gaming caucus in the House is seeking to add more sponsors to the excise tax-elimination bill, while communicating with the staff of committees where such a bill might gain traction.
Viva Las Vegas, panelists say
“This industry is coming back with unbelievable strength and power,” Salerno said. “I see it very day, driving around Clark County. “It’s going to be bigger and stronger, and receptive to all of the people who have had to stay home [in the past year].”
Titus recalled that early in the pandemic, her flights to Baltimore to return for Congressional duties had as few as five passengers. Now, she said, it is more like 100.
And no longer, she said, is driving along the Las Vegas Strip “like a dystopian movie, like a Twilight Zone. Now, when it comes back, it is coming back with a vengeance — after a year of lockdown.”
Miller said that as little as “a month or two ago,” he felt as if gaming industry members were “putting a good face on.”
“Now people are genuinely excited,” said Miller, adding that he planned to be in Las Vegas this week. “People feel as if they had a year of their lives stolen from them, and they want it back.”
