It may not surprise you that in the same month the Kansas City Chiefs won the Super Bowl, more than $194 million was wagered on sports in Kansas. But would it surprise you to learn that the state received only $1,134 of that in tax revenues in the same month?
It surprised Stephenie Roberts, a Wichita social worker and gambling addiction counselor.
“Is criminal too strong a word?” asked Roberts, when she learned from a reporter that Kansas allows sportsbooks to deduct “free plays or other promotional credits” before assessing state tax, basically allowing sportsbooks to advertise their product for free. The deductions reduce what is considered revenue and taxable by the state.
“I call that get-into-debt money instead of free-play money,” said Roberts, who is also the chair of the South Central Kansas Problem Gambling Task Force. “I mean, that’s fraud or something. That’s advertising money. That’s money to hook the player in, money to entice them to play and to get them started. That’s not right.”
Sportsbooks use terms of Kansas law to minimize state taxes
Whether or not it is right, it is legal under the Kansas sports betting law enacted last year by the Kansas Legislature and signed by Gov. Laura Kelly.
“It was probably the biggest ask from lobbyists was that they would be allowed to deduct promos,” said John Holden, an associate professor in the Spears School of Business at Oklahoma State University who has monitored the expansion of legalized sports betting in the United States. Colorado is the only state bordering Kansas that currently has legalized sports betting, along with 31 other states and Washington, D.C.
The sportsbooks in Kansas have claimed nearly $80 million in promotional deductions from September 2022 through April 2023, according to numbers reported by the Kansas Lottery.
One sportsbook, BetMGM, has not paid a cent in state taxes through April 2023 by claiming $18.6 million in promotional deductions despite bringing in $17.5 million more from wagers than it paid out in prizes. But it did pay federal taxes — more than $400,000 worth. That’s because unlike the state of Kansas, the federal government does not allow sportsbook companies to deduct their promotions before assessing its taxes.
Thanks to a law regulating federal taxation of legal gambling originally passed in 1951, the federal government collected $468,699 in tax revenue on Kansas sports wagering in February 2023, the same month Kansas got just $1,134.
The federal tax is an excise tax based on the value of wagers placed, unlike the Kansas tax based on the value of net revenue. The federal tax is assessed based on a formula of $50 per employee plus .25% of the overall bets wagered, more colloquially known as “the handle.”
The handle is the total amount of money wagered by bettors. The federal revenues are relatively stable month to month while state revenues vary widely. That’s due to differences in federal and state laws determining how much tax is owed. (Source: Kansas Lottery)
Kansas revenues from sports betting still exceed projections
Despite scant collections in February, Kansas expects to take in more than the $1.8 million in tax revenue projected when it legalized sports betting last year.
Sports betting in Kansas began on Sept. 1, 2022, a week before the NFL season was set to begin. The state’s tax revenue share was a little more than $4.5 million by the end of April, the most recent month reported by the Kansas Lottery. A lottery spokesperson anticipates the total will rise to no more than $6 million when the fiscal year ends this month.
