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Sports betting operators in Massachusetts are not permitted to lower their taxable revenue by deducting the value of free bets and other promotional offers supplied to customers, according to state regulators.
The Massachusetts Gaming Commission (MGC) is debating whether to give promotional deductions to regulated sports betting companies in the state. However, bookies expressed concern that incorporating promotional gaming credits might result in the exemption of actual revenue from taxation.
The treatment of tax deductions for promotional offerings under Massachusetts sports betting law was uncertain. This uncertainty developed as a result of last-minute legislative negotiations to enact the wagering legislation. However, after careful study, including input from legislators and the state’s attorney general, as well as an examination of early sports betting statistics, the Massachusetts Gaming Commission (MGC) voted 5-0 to include bonuses when determining an operator’s taxable revenue.
Commissioner Eileen O’Brien emphasized that most states do not offer promotional deductions, and allowing such deductions in Massachusetts could have an impact on the state’s tax income. A part of this tax revenue, 9%, is designated towards problem gambling programmes under the Public Health Trust Fund.
Online sportsbooks in Massachusetts face a 20% tax on adjusted gross revenue, which is the entire wagering amount minus player wins and the federal handling tax. Retail sportsbooks are subject to a 15% tax rate. The state got $11.8 million in sports betting taxes off $58.9 million in taxable income in April.
“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 issue of taxing promotional play is not unique to Massachusetts, but is one that state regulators and legislators face across the country. It serves as a reminder that sports betting is still relatively new in Massachusetts. The state only legalized sports betting at the end of January, and online wagering began in March. Regulators are striving to smooth out technicalities and alleviate growing pains as the market develops.
One prevalent issue is that operators do not follow the state’s allowed betting options. This problem has been reported in casinos as well as online sportsbooks. The MGC learnt on Monday during a meeting that one online sportsbook provider, DraftKings, had erroneously offered unauthorized wagering markets.
DraftKings told the MGC that it had received bets on prohibited tennis matches for around two weeks before the finding. This resulted in 864 wagers totaling $7,867 being placed on UTR Pro Tennis. DraftKings admitted their mistake and blamed it on a misunderstanding between its trading and trade compliance departments.
DraftKings took corrective action once it was discovered that it had accepted unauthorized tennis bets. All wagers on prohibited tennis markets were cancelled, and any gains, including stakes for both winning and losing bets, were repaid to the players. Furthermore, DraftKings quickly withdrew any unapproved tennis markets from its platform.
Despite these corrective actions, DraftKings is likely to face disciplinary action from the Massachusetts Gaming Commission (MGC). A subsequent hearing will be held to dive more into the infractions and, if required, decide appropriate punishments. During Monday’s meeting, commissioners voiced their displeasure with the failure to stick to the allowed events, emphasizing the necessity of adhering to the state’s standards.
“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.”