Restrictions on Sports Betting
While sports betting expanded quickly after the U.S. Supreme Court eliminated the federal prohibition in 2018, it’s not quite the Wild Wild West as states have established some regulations.
For example, some states restrict which sporting events are subject to bets. All states prohibit wagering on high school sports, but college sports betting is regulated differently in every state. Some states prohibit betting on all college sports and athletic events while others only prohibit betting on in-state teams. Then, there are states without any restrictions on college sports betting. Here are the details on how states regulate:
Blanket prohibition on all college sports and athletic events: Oregon and Tennessee.
Prohibition on in-state teams and in-state college events: D.C., New Hampshire, New Jersey, New York, Rhode Island** and Vermont.
Prohibition on in-state teams: Connecticut, Delaware, Illinois, Iowa, Maine, Massachusetts*, South Dakota**, Virginia, Washington and Wisconsin.
No restrictions: Arizona, Arkansas, Colorado**, Indiana, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi**, Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Pennsylvania, West Virginia, and Wyoming.
*Massachusetts allows betting on in-state teams when those teams are participating in a tournament.
**Rhode Island, South Dakota, Colorado and Mississippi also prohibit proposition bets on college sports and athletic events. Prop bets, as they are known, are side wagers that have nothing to do with the final outcome of an event, such as wagering on the first team to score, or even the length of the national anthem.
Lottery-Run Sports Betting
Lottery commissions in several jurisdictions—Washington, D.C., Montana, New Hampshire, North Dakota, Oregon, Tennessee, Virginia and Wyoming—partner with private operators to offer sports betting. In the district, the lottery commission offers its own sports betting product in addition to partnering with private operators.
Does the Betting Pay Off?
States generate revenue from sports betting by taxing winnings. Tax rates on sports betting differ widely, ranging from 6.75% in Iowa to 51% in New York and Rhode Island. A few states levy different tax rates on retail and online wagering. Retail gaming operators expressed concern that online gaming would siphon off casino/racetrack customers and hurt their bottom lines. As a result, policymakers in some states created a two-tier tax structure designed to give retail sports betting an advantage over online wagering by providing a lower tax rate. While most states have one flat rate for sports betting revenue, Arkansas and Mississippi use graduated tax rates and Vermont imposes different tax rates on the three different sports betting operators in the state. The table below shows current state tax rates.
Since the legalization of sports betting, states have collected hundreds of millions of dollars in tax revenue, mostly from online sports betting. This is because people who don’t regularly frequent casinos can get in on the action through an app on their phones or a website on their computer. And more betting means more state revenues.
Take Arkansas and New York for instance. Both states expanded sports betting to include online betting in 2022. The next year, tax collections doubled in Arkansas, with revenues going from less than $2 million in FY 2022 to over $4 million in FY 2023. Similarly, New York collected less than $2 million in tax revenue during the first nine months of FY 2021. After online sports betting became operational in the last 3 months of FY 2021, revenue collections jumped to $163M. This large increase in tax collections is due in part to the 51% tax rate on online sports betting.
The experience in other states is similar. In FY 23, online sports wagering made up 92% of total gross wagering receipts in Indiana and 89% of total gross receipts in Pennsylvania.
However, tax revenue generated from sports betting is just a fraction of the gaming pie compared to total casino revenue. According to The American Gaming Association, commercial gaming operators contributed over $14.4 billion in gaming taxes in 2023 compared to $2.1 billion from the sports betting industry.