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A new Minnesota sports betting bill takes a unique approach to handling the tax rate for the industry.
Rather than tax the gross gaming revenue for operators, legislation announced Wednesday by Rep. Pat Garofalo is the first in the nation to calculate tax obligations based on the total amount wagered.
Garofalo spoke to Legal Sports Report about why he chose to address the tax rate in this manner. He also discussed why he thinks it would set up Minnesota with the lowest tax rate on sports betting in the country.
Garofalo’s bill, the Safe and Regulated Sports Gambling Act of 2019, proposes a 0.5 percent tax on handle. All other regulated sports betting markets in the US levy taxes based gross gaming revenue (GGR).
Garofalo contends that by taxing handle, casinos can have a particularly successful year in MN sports betting revenue without getting punished with higher taxes. He also expects that projections for handle will be more stable than projections on profits.
“Our focus is making this low cost and, in sports betting, revenues can be volatile,” Garofalo said. “This presents volatility to investors, and by making this very static, it provides more stability for them.”
In 2017, the Nevada Gaming Control Board reported a 5.1 percent hold for the state’s sportsbooks. That tracks with the state’s historical hold as well.
In sports betting terminology, what sportsbooks “hold” is the money from bets they win compared to the overall handle.
At 5 percent hold, the proposed tax rate of 0.5 percent on handle would equate to 10 percent of gross gaming revenue (GGR). This would be comparable to established regulated markets in the country.
Nevada currently has the lowest tax rate in the country for sports betting at 6.75 percent of GGR. In calling Minnesota’s tax rate the lowest in the nation, Garofalo is considering that the hold in many states could be higher than 5 percent.
He points to New Jersey’s sports betting industry having close to an 8 percent hold in 2018 (approximately $1.2 billion in handle generating $94 million in revenue). A half-percent tax on handle with an 8 percent hold would equate to a 6.25 percent tax on GGR.
Lower than Nevada, yes, but it might be wishful thinking.
“With parlay and prop bets we’ll be offering, I think Minnesota casinos will be at 7 to 8 percent of the hold,” Garofalo said. “Based off that, we’d end up with the lowest tax rate in the nation.”
The method for the MN sports betting tax rate might also just be about optics. A tax of 0.5 percent looks small, after all.
And it appears Garofalo is going to need to do everything possible to make sports betting appealing in order to earn support from tribal gaming interests.
This letter from the Minnesota Indian Gaming Association opposing the legalization of sports betting means that legislation is dead this session (and likely longer). Frustrating. pic.twitter.com/Go2tQ1Z3rg
— John Kriesel (@johnkriesel) January 14, 2019
The key takeaway is that Minnesota tribes want sports betting to take place only within their casinos.
In Minnesota, 11 federally recognized tribes operate 19 gambling establishments. Last year, Garofalo told LSR that he “would not submit a gambling bill the tribal casinos are opposed to.”
It appeared clear in how Garofalo deflected questions on where the tribes stood on the proposal, both in a press conference and to LSR, that they aren’t yet in support. Garofalo indicated that he gave a draft to tribes about 10 days before releasing it to the public.
“For close to a year, I’ve been listening to stakeholders and their concerns, and seeing mistakes that other states made,” Garofalo said. “At some point, you need to put pen to paper and put the bill out there for people to talk about.”
It’s difficult to see how Garofalo could cater the bill more to tribal desires. He gave them exclusivity over sports betting, not allowing participation from the state’s two commercial racetracks or the state lottery.
He also limited the scope of wagering to the brick-and-mortar casinos. Mobile wagering would have to be on site.
And he wasn’t going to take away from tribal revenue by giving an integrity fee to professional sports leagues.
“I think it’s important that we listen to pro sports teams but, with this low-tax model, there simply isn’t enough to provide revenue streams to other entities,” Garofalo said.
The language also specifies that tribes would enter into a new compact with the state for Minnesota sports betting rather than renegotiate current compacts. That is a can of worms most tribes in every state would resist opening.
Garofalo points out that authorizing Minnesota sports betting really is a two-step process. The legislature needs to create a law to allow for sports betting at tribal casinos, and then Gov. Tim Walz will have to negotiate sports betting compacts with the tribes.
He’s hoping tribal stakeholders will allow the bill to move, then work out final details with the governor.
Garofalo indicated that any future expansion of mobile wagering would be up to the tribes.
“Mobile gaming won’t be on the table unless tribal entities want it,” Garofalo said.
Garofalo is the rare state legislator who admits a personal interest in seeing legal sports betting.
“I bet on sports all the time,” Garofalo said. “Not to brag, but I’ve done a pretty good job at it too.”
Garofalo said that he goes to Las Vegas at least a couple of times a year. He even said he might have even placed bets with online “Caribbean sportsbooks” in the past.
Regulating sports betting would be a way to keep Garofalo’s dollars, as well as those of countless other Minnesotans, in-state.
“Sports gambling is going to be legal in Minnesota,” Garofalo said. “I just can’t guarantee when.”