Kansas Sports Betting launched in September and giveaways spoiled the bottom line
In September, Kansas joined the 30+ states that have legalized sports betting and in that first month the state reported a whopping $160.5 million, but before anyone gets too excited about all that tax revenue, that must have been generated, you should first consider the freebies.
Speaking of all the freebies that retail and mobile sportsbooks seem to offer when they enter a brand new market, these discounted bets and free bonuses are all part of a marketing scheme that has the side effect of giving these gambling companies huge writedowns.
So in Kansas, after paying out all winners and deducting all freebies, the $160.5 million becomes only $1.3 million, and at the 10% tax rate the Sunflower State charges, the final tax revenue is $130,000, much less than one might expect.
Except in most states, it is written in sports betting legislation that sports bookmakers are allowed to offer these freebies and the reason for this is at least twofold, the first is that it is a great way to attract new customers and the second is that it is a It’s all deductible for a while.
But that’s only for the honeymoon, and when that’s over, tax revenues will increase.
Better days are expected once freebies disappear and total revenues can be fully taxed
Despite the low initial tax revenue, Kansas Lottery executive director Stephen Durrell still sounds excited about the launch of the new market, telling the media:
We obviously saw that there was a very pent up need for sports betting within the state and people wanted a legal and safe way to place bets on their teams.
Sportsbooks like DraftKings, Caesars, BetMGM, and most others use freebies to attract new customers and then deduct the total amount of those from their earnings, making it much less taxable, a loophole that gets the sportsbook market going at first.
Of course, this doesn’t last forever and at some point these deductions will no longer be granted and so the freebies will end, but hopefully by then the customer base will be large enough that alternative marketing strategies can be employed while states can start taxing more revenue.
States with more mature sports betting markets are generating impressive tax revenues, like Kansas’ neighbor Colorado, which has generated $23.8 million in tax revenue since sports betting was legalized in May 2020, with that money increasing as freebies dwindle.
Next step: Leverage legal permission to expand into bars and restaurants
It could become even easier for gamblers living in Kansas to place bets in the future as lawmakers there are in the process of figuring out how to use the part of the sports betting statute that allows “marketing companies” to offer legal sports betting.
Insiders hope bars and restaurants will be allowed to set up betting kiosks in their establishments for the price of cutting the promotion, a smart move that will require a bit of legal wrangling given the “ambiguity” of the written law.
That should be resolved soon enough, so keep checking back for the latest news and updates on this ongoing Kansian story.