After tax change, Virginia sees 63% bump in revenue from sports betting

Virginia Lottery offices in Richmond, Va. Parker Michels-Boyce for The Virginia Mercury

Virginia’s tax revenues from sports betting jumped 63% between June and July after state lawmakers ended what some described as a loophole that let betting apps deduct free-bet promos from their profits.

According to Virginia Lottery reports, sports betting revenues rose from $1.87 million in June to $3.06 million in July, the first month the new tax policy was in effect.

The stronger tax revenues came despite a summertime dip in wagering on sports, with about $266 million wagered in July compared to $295 million in June.

When Virginia legalized sports betting in 2020, the legislation approved by the General Assembly allowed betting apps to essentially write off money they spent on free-bet promotions to attract new bettors. In other words, the more free bets the companies were offering to grow their business, the less they would have to pay to the state in taxes.

After learning some betting platforms were producing little to no tax revenue, Del. Mark Sickles, D-Fairfax, pushed to end the exemption. The change was part of the state budget approved early this summer and took effect July 1.

“It’s just turning out great,” Sickles said in an interview Friday.

The increase wasn’t solely attributable to the tax change. Some of it was a result of the apps having to pay out less in winning bets. But lottery data show sports betting platforms deducted about $8 million from their June revenues for free-bet promos. In July, that fell significantly to $0.4 million.

At the start of the year, only four of 11 sports betting operators reported positive gross revenues subject to taxation. In July, eight of 14 operators reported positive revenues, which Sickles called “a big improvement.”

“People enjoy it,” Sickles said. “It’s a different kind of bettor. People that do this don’t do any other type of gambling. A lot of them.”

The tax change drew some pushback from the sports betting industry, which argued the hastily approved provision would create confusion and limit growth.

In a statement, Bea Gonzalez, a lobbyist for the Virginia Sports Betting Alliance, criticized the change for being passed “with no public debate or discussion” and no hearing in a legislative committee. She called the change “a shortcut to slightly higher revenues” that will come at a cost to future revenues for the state from a stronger sports betting market.

“The short-term benefit to the state is at the cost of long-term revenue,” Gonzalez said. “Operators won’t offer as many promos as they have in the past, and the ultimate size of the legal market will be smaller than it otherwise would be.”

The change doesn’t prevent the platforms from doing free bet promos, but it makes it more costly for the companies to offer them.

Under Virginia’s sports betting law, the state taxes 15% of each betting platform’s adjusted gross revenues, essentially the amount left over after paying out winning bets. Most of that tax money goes into the state’s general fund, with 2.5% set aside for a fund meant to help people addicted to gambling.

Though most of the state’s sports betting operators are online-only, Virginia’s first brick-and-mortar sportsbook recently opened as part of Bristol’s Hard Rock Casino & Resort.

by Graham Moomaw, Virginia Mercury

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