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As legalized sports betting continues to be introduced in more states, a few of them are experiencing regret regarding their promotional deduction agreements with operators.
Agreements have been attempted to be modified by Virginia and Louisiana, whereas Colorado seems to be leading as the first state to revise its promotional deduction policies.
Michigan is not likely to join that group in the near future.
Michigan lawmakers are satisfied with their current policies on promotional deductions for operators as tax revenue numbers exceed initial projections.
What are Michigan’s promo deduction policies?
There are two distinct policies in Michigan regarding online casinos and online sports betting.
The regulations are governed by both the Michigan Lawful Internet Gaming Act and the Michigan Lawful Sports Betting Act.
MI Lawful Internet Gaming Act
Operators provide reports on Gross Receipts and Adjusted Gross Receipts when examining monthly revenue figures.
As per the policy set by the MGCB, the term “adjust gross receipts” refers to the receipts minus the deduction, which is equivalent to the value of free play given and wagered by authorized participants as an incentive to place or as a consequence of placing online bets under this act.
The deduction rate will gradually decrease over time for operators. The following is the current deduction rate.
- From the first to the third year, the gross receipts cannot surpass 10%.
- In Year 4, the gross receipts cannot exceed 6%.
- Year 5: Gross receipts cannot exceed 4%.
- Starting from Year 6, deductions are prohibited.
According to Michigan Senator Curtis Hertel Jr., a favorable agreement has been reached in Michigan through negotiations. Although there are some provisions for advertising write-offs, these provisions gradually diminish over time. Senator Hertel highlights that Michigan has exceeded its initial revenue projections, making it difficult to dispute the effectiveness of our system.
MI Lawful Sports Betting Act
The Lawful Sports Betting Act, unlike Internet gaming, does not eliminate freeplay deductions when calculating tax revenue.
Colorado’s proposed amendment
Legislation has been recently passed by Colorado lawmakers, which aims to restrict the promotional deductions that sports betting operators are eligible for.
Governor Jared Polis is anticipated to sign Bill HB 22-1402 into law.
Due to the provision that permits operators to deduct promotional credits pre-tax, the tax revenue generated from sports betting in Colorado has been lower than expected, despite the state’s 10% tax rate.
Colorado sportsbooks have accumulated over $408 million in revenue since their launch. However, the state’s collection has only amounted to $17.7 million, resulting in a rate closer to 4% rather than the anticipated 10%.
Starting in 2025, Colorado’s proposed law aims to reduce promotional deductions to 2.5%, gradually phasing them down to 1.75% by July 2026.
Why Michigan isn’t facing the same problem
Because of the successful revenue generated by online casino taxes, Michigan is not worried about its promotion rates.
As we observed last week, online gaming in Michigan generates tax revenue that is 2,700% greater than that from online sports betting.
Colorado is the only state among the six with legalized online casinos that is not included in that group.
Michigan has generated over $300 million in state tax revenue and nearly $120 million in local taxes since January 2021, following the legalization of both online sports betting and online casinos.
Hertel stated that, in terms of tax implementation and revenue generation, our state has performed exceptionally well compared to other states. He highlighted Michigan’s ability to allocate more funds towards education and establish a lasting fund to assist firefighters battling cancer.
Online sports betting and gaming have greatly incorporated promos and free wagers into their operations.
Since the introduction of online sports betting in January 2021, operators have accumulated approximately $254 million in promotional deductions. As for internet gaming operators, they have claimed over $160 million in promo deductions up to this point.
Hertel expressed his concern about avoiding any actions that could harm players, acknowledging the benefits that many individuals have gained from deposit matches and similar offers. While recognizing the importance of building client bases in Michigan, he emphasized the ultimate goal of maximizing tax revenue for schools in the long run.
