Rhode Island legislators’ decision to allocate a 51 per cent state-bound tax on sports betting risks killing the goose before the golden egg is laid. That’s the general consensus among observers watching the state-by-state emergence of the new, legalised sports betting environment post-PASPA. As previously reported, the breakdown of gambling revenue will be 51 per cent to the state, 32 per cent to the vendor (currently IGT) and just 17 per cent to the operators.
The state senate evidently sees thing differently, as Rhode Island Senate president Dominick Ruggerio commented: “Rhode Island taxpayers will be receiving the highest percentage of revenue in the nation from sports wagering. Legal sports wagering in Rhode Island will provide revenue for critical state services while offering a new entertainment option for Rhode Islanders. This provides a legal means for Rhode Islanders to enjoy a form of entertainment in which many already engage.”
But to gather that revenue, operators will need to think long and hard about their return on investment which, with 83 per cent being wiped straight off the books, could be slow to accumulate. By comparison, Delaware and New Jersey have earmarked a tax level of circa 10 per cent.
To put Rhode Island’s strategy into context, one only has to look at what is happening – or not as is currently the case – in Pennsylvania which has established a 36 per cent tax, allied to a $10m betting licence fee. Far from generating a rush to enter the market there, the state’s nascent sports betting business struggles to attract operators who understandably remain wary of a high price tag just to get licensed.
Rhode Island’s lawmakers may need to revisit some simple, but direct, advice from Seth Young, executive director of online gaming at Foxwoods who recently issued a sobering reminder about managing expectations of what can be realistically earned from sports betting. “On the economics, it’s not like Europe,” he said.
“You really need to be aware of the low margins in this business and not killing it with taxes or things like integrity fees. The last thing I’ll say, and it’s for anyone who doesn’t know how the economics work; there is the handle number which is the wager. So when you see $150bn in handle from the market, that’s not the revenue coming in. If you want to do the quick math, five per cent of that is the revenue number.”