Tennessee's Unique Sports Betting Tax Strategy Explained

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00:00Back on Newswire, welcoming in Jim Gonzalez from Legal Sports Report, he's sports betting

00:08and horse racing business news is what he covers and we'll start off with sports betting

00:14news in the state of Tennessee.

00:18According to your tweet just yesterday, sports betting tax collectors in the state approached

00:23$87.6 million for fiscal year 24.

00:30That's up $4 million and this is the initial 12-month period with Tennessee sports books

00:34taxed 1.85% on handle rather than on gross revenue.

00:39You say in this tweet that Tennessee is the only state where they handle tax.

00:42Can you explain why they have it versus other states not having it?

00:47Yes, certainly Mike and they are unique in the sense that they are the only state that

00:54applies a tax on the overall betting volume in the state as opposed to every other legal

01:02jurisdiction that applies a tax to the revenue that the sports books make each month.

01:09So this was a change that happened a little over a year ago and like I mentioned in that

01:15tweet, we did see this first 12-month period of this handle tax generate about $4 million

01:25extra in tax collections for fiscal year 2024 compared to the prior fiscal year in Tennessee

01:32and a variety of reasons I think why this handle tax came to be and the main one was

01:41when they legalized sports betting in Tennessee, the law and the regulators put in place a

01:47minimum 10% hold for the sports books.

01:51So the sports books had to win essentially at least 10% of all the money that was bet

02:00and by requiring that, it would essentially have regulators and state government in Tennessee

02:08be able to accurately forecast their fiscal projections.

02:15The problem with that is holding 10% is quite challenging.

02:20A lot of times we see the average hold across multiple jurisdictions falling below that

02:2810% on a monthly basis.

02:31So in Tennessee, in addition to that minimum 10% hold requirement, which has now gone away

02:38as they transition to that handle tax, included with that minimum hold requirement was a level

02:45of fines that were passed down to the sports books if they did not meet that requirement

02:51and that proved to be a little bit of a failure in Tennessee, which is why we did see that

02:561.85% tax on handle as opposed to a tax on gross revenue like we see elsewhere.

03:07I think the taxes in the sports betting industry is an interesting topic.

03:13You have New York with their 51% tax, which a lot of the sports books do still grovel

03:21about.

03:22We've seen in recent months, Ohio doubled their tax rate from 10% to 20% on gross revenue

03:31for operators.

03:32Illinois just increased their tax rate.

03:36New Jersey is talking about it as well.

03:40So proving and paying off some dividends in Tennessee, applying that handle tax as opposed

03:47to revenue, but still the only state in the country to apply that tax in that way, Mike.

03:56Like you said, it is an interesting topic.

03:57New York famously with a very high tax rate and operators have complained that it is impossible

04:02for them to get profitable in the state of New York paying that level of tax rate.

04:08But I don't know how much leverage they're ever going to have against the state government

04:11A and B. It is not a market that they can relinquish at any point, right?

04:16It's too important in terms of the volume of betting and for image marketing purposes

04:22to be active in New York.

04:24Moving over to the state of Kansas, DraftKings earned additional Kansas sports betting market

04:29share in June.

04:33They went from 46% to 49%.

04:35Is there any event related to that that allowed them to increase their volume within the state

04:41or are they just doing better than the competition?

04:44Is this a sign of things outside of Kansas as well?

04:49It's tough to really pinpoint one specific event.

04:54Really in a lot of these states as we get into the thinner parts of the sports betting

04:59calendar in the summer months and in a smaller market like Kansas, things tend to be a bit

05:08volatile from month to month.

05:10Though DraftKings grabbing a couple of extra percentage points in June in terms of overall

05:16handle compared to May I thought was at least a little bit interesting.

05:22Like I said, as we get into the summer months where there just isn't a ton of extra things

05:29to be wagering on.

05:31So $66.2 million for DraftKings handle in Kansas in June and that was about half of

05:42all the dollars bet in Kansas for the month and DraftKings has been pretty steady at number

05:49one in that market.

05:52Not terribly shocking that they were able to boost their market share a little bit,

05:57but a couple percentage points higher than May I thought was at least interesting when

06:03there's not too much to glean from monthly reports in those summer months.

06:10Like I said, Caesars in Kansas also was able to have a few points extra moving from 4.4%

06:18of overall handle to, excuse me, up to 4.4% in June from 4.2% in May with $6 million in

06:28June handle in Kansas.

06:32So like Jim said, if those numbers remain consistent, clearly those two operators would

06:37love to see that continue into the fall and August and September when football is with

06:41us and the volume goes up.

06:43So let's move over to the track, opening weekend stats from Saratoga year over year.

06:48You have an interesting year over year comparison and it seems like it's up across the board,

06:53particularly when you go down to the stat from your tweet all the way at the bottom,

06:57a daily average saw a nearly 20% increase from 20.6 million to 24.4 million.

07:05So good news for Saratoga.

07:08That's a really significant year over year increase when you compare percentages.

07:13Yeah, for sure, Mike.

07:15I think it was a pretty positive opening weekend, which the racing season up here began on Thursday.

07:23So four days, Thursday through Sunday, like you said, 18% year over year.

07:30And what I think kind of stuck out to me was that the on-track handle was pretty flat up

07:37only a couple hundred thousand dollars in the grand scheme of things.

07:42And walking around the track for a couple of days this weekend, I did see on Sunday

07:47when I was up there, relatively lightly attended, you could move around rather freely, which

07:55was in a stark contrast to Belmont Stakes weekend up here back in June when everybody

08:03was kind of crammed in like sardines.

08:05It was kind of tough to move around in person at the track during that busy weekend.

08:12But overall, I think the executives from NYRA that I've been speaking to over the last couple

08:16of days were pretty pleased with what they've seen.

08:20And a lot of it, too, has to do with the weather.

08:24A lot of times when it rains, they have to pull races off of the turf, which then results

08:31in a lot of horses being scratched from those races.

08:34So in a race that you might have 10 or 12 different betting interests, that comes off

08:40the turf.

08:41And then you're oftentimes left with four or five or six, sometimes if we're lucky,

08:47betting interests, which certainly affects the handle.

08:50So good weather, good action up at Saratoga to kick off the meet and another five weeks

08:57to go.

08:58So we'll see how that progresses here throughout the rest of the summer.

09:01But all things considered, off to a pretty solid start here at Saratoga.

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