A little more than half the country could still legalize sports betting. Politicians will cite job creation, new revenue, and business competition as reasons to bring sports betting to their states. However, politicians – and some analysts – will pull a simple writing trick to make their projections sound more impressive. They’ll take advantage of the fact that “revenue” can mean a few different things to different people.
If that sounds ridiculous, let me ask you this. If I told you that sports betting would make $1 billion in your state, what would you think? Worded ambiguously, you could take that $1 billion to mean:
- Betting Handle
- Sportsbook Profit
- Tax Revenue
That $1 billion is almost what New Jersey’s total sports betting handle was in December 2020, but the tax revenue that pads the state budget? $7.6 million. Less than 1% of that impressive $1 billion went to the State.
That’s why reading numbers carefully is so important. Lazy reading will let high-power figures get away with upselling their projects–whether they deserve to or not.
What The Different Numbers Mean
If you don’t want to be fooled leading up to sports betting in your state, then you must pay attention. Here’s the difference between betting handle, sportsbook profit, and tax revenue in the sports betting industry.
Betting Handle
Betting handle is how much money bettors wager at sportsbooks. That’ll tell you how excited people are to participate in the state’s sports betting industry. It’s also a sign that the sportsbook industry is accessible and offers great betting options.
But for sportsbooks, betting handle is top-line revenue. That’s the pile of money they’re going to use to pay winnings.
Sportsbook Profit
After sportsbooks pay winners, they have a couple of smaller costs to pay. First, sportsbooks take promotions out. They don’t want to count free site credits as cash. That’s a big business no-no. Sportsbooks also have to pay the federal excise tax. It’s a 0.25% tax on sportsbook profits. (There’s actually a bill to repeal it.)
If bettors read a sneaky revenue projection, they’ll see this number quoted. Sportsbook profit is an important part of the sports betting industry. Well-run sportsbooks are profitable, and that’s important to see. (You don’t want the sportsbook handling your money to run out of money, do you?)
However, don’t confuse sportsbook profit with tax revenue. Only one of them pays for public education.
Tax Revenue
This is the magic number. Unfortunately, it’s also the lowest number on this list. So, it won’t be the first number that politicians report. However, they will get to it, since that’s going to be the money paying for public services. (Usually, education.)
However, don’t confuse missing the tax revenue with ill intent on the writer’s or politician’s part. Just because you know how to tell the different revenue numbers apart doesn’t mean you’re immune to making that mistake again. Besides, if politicians try to obscure the low tax revenue projections, they won’t be successful for long. It’s an easy number to find.
Does Tax Revenue Matter?
Yes.
Sports betting isn’t a big part of the state budget. In fact, it can disappear within the state’s general fund. However, when sports betting funds specific projects, it can go a long way. For example, Colorado directs its sports betting funds to a water conservation project. All the pieces of the project require about $29 million. That’s an achievable figure for a healthy and competitive sports betting industry.
That’s why even small additions to annual revenue can go a long way. Sports betting won’t make a dent in a $30 billion state budget. But it can pay for important projects, welcome new businesses, create jobs, and generate revenue without raising taxes. (That one’s a big Republican selling point.) It can also create the transparency and regulatory framework to help problem gamblers. (Easy Democrat selling point.)
Understanding the numbers being thrown at you is critical to understanding what sports betting can bring to your state. Just because sports betting grows into a billion-dollar industry doesn’t mean public schools will be flushed with a billion dollars. Understanding that tax revenues will be a fraction of betting handle and sportsbook profit doesn’t mean it shouldn’t be legalized, either. It just means you can’t be fooled into parroting bad arguments for voting for new industry.
