April 26, 2018

Fitch: States should be cautious with sports betting taxes, fees

If the U.S. Supreme Court overturns a two decades-old law banning sports gambling throughout most of the country, some states -- including Connecticut -- could be in a position for a modest spike in tax revenues, according to a new report by Fitch Ratings.

But states that choose to legalize sports betting will need to offer competitive tax rates in order to draw participants from existing illegal or informal wagering pools, Fitch said in its analysis.

Fitch is also cautioning lawmakers against getting greedy, predicting that gaming operators could be deterred by high license fees or taxes on gross revenue, and may choose to outsource operations.

"Fitch believes Pennsylvania's $10 million initial operator license fee, 34% state tax ... and 2% … local share assessment are likely to deter certain operators' interest and could incentivize them to outsource sports betting operations to more established operators, such as the U.K.-based bookmakers," the report says. "West Virginia's tax rate of 10% … and much lower licensing fees are expected to generate greater operator interest, in Fitch's view."

Fitch Ratings said New Jersey has challenged the constitutionality of the longstanding federal Professional and Amateur Sports Protection Act (PASPA), which prohibits sports betting in all states except for Nevada, Montana, Oregon and Delaware.

If the U.S. Supreme Court decides to overturn the federal law, enacted in 1992, the decision could allow wagering on professional sports in various states.

More than a dozen states, including Connecticut, have introduced sports betting legislation in recent sessions, in the hopes of a favorable Supreme Court ruling.

Under Connecticut's sport betting proposal, the legislation includes operator licensing fees, high tax rates and integrity fees, which are likely to deter certain operators, according to Fitch.

Legalized sports betting could earn significant tax revenue for states, in an industry worth about $150 billion, according to the American Gaming Association.

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