Don’t Expect Michigan To Join Colorado In Adjusting Online Sports Betting Promo Deduction Policy

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As the number of states legalizing sports betting continues to increase, a few of them are experiencing regret over their promotional deduction agreements with operators.

Virginia and Louisiana have made efforts to modify agreements, whereas Colorado seems to be the pioneering state in revising its promotional deduction policies.

Michigan is unlikely to join that group in the near future.

Michigan lawmakers are satisfied with their current policies regarding promotional deductions for operators, as tax revenue numbers have exceeded initial projections.

What are Michigan’s promo deduction policies?

There are two distinct policies in Michigan regarding online casinos and online sports betting.

The policies are governed by the Michigan Lawful Internet Gaming Act and the Michigan Lawful Sports Betting Act.

MI Lawful Internet Gaming Act

Operators report both Gross Receipts and Adjusted Gross Receipts when analyzing monthly revenue numbers.

As per the MGCB policy, the term “adjust gross receipts” refers to the total receipts minus a deduction that is equivalent to the value of free play given and bet by authorized participants, either as an incentive to place or as a consequence of placing internet wagers under this act.

As time passes, operators will experience a gradual decrease in the amount they can deduct. The deduction rate is outlined below.

• During the first three years, gross receipts should not exceed 10% in value.
• In Year 4, the limit for gross receipts cannot exceed 6%.
• Year 5: The gross receipts cannot exceed 4%.
• Starting from the 6th year, deductions are no longer permitted.

According to Michigan Senator Curtis Hertel Jr., a favorable agreement has been reached in Michigan through negotiations. Although there are some deductions for advertising and similar expenses, they gradually diminish over time. Senator Hertel highlights that Michigan has collected more revenue than initially anticipated, thus indicating the effectiveness of their system.

MI Lawful Sports Betting Act

The Lawful Sports Betting Act differs from Internet gaming as it does not eliminate freeplay deductions in the calculation of tax revenue.

Colorado’s proposed amendment

Legislation has been recently approved by Colorado lawmakers, imposing restrictions on the promotional deductions that sports betting operators can utilize.

Gov. 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, Colorado’s tax rate for sports betting is 10%. Nevertheless, the expected tax revenue has been lower than initially projected.

Colorado sportsbooks have accumulated over $408 million in revenue since their launch. Nevertheless, the state has only collected $17.7 million, equating to a rate closer to 4% rather than 10%.

Starting in 2025, Colorado’s proposed legislation aims to reduce promotional deductions to 2.5%. Furthermore, it plans to gradually decrease these deductions to 1.75% by July 2026.

Why Michigan isn’t facing the same problem

Due to the success of online casino tax revenue, Michigan is not worried about its promotion rates.

As we observed last week, Michigan’s tax revenue from online gaming surpasses online sports betting by a staggering 2,700%.

Colorado is the only state among the group of six states that does not have legalized online casinos, whereas Michigan is among those states.

Michigan has seen a significant boost in state tax revenue, exceeding $300 million, as a result of the legalization of online sports betting and online casinos in January 2021. Additionally, local taxes have contributed nearly $120 million to the generated revenue.

Hertel expressed his belief that our tax system and revenue generation in comparison to other states have been superior. He highlighted Michigan’s ability to allocate more funds towards education and establish a dedicated fund for supporting firefighters battling cancer.

Promotions and complimentary bets have played a significant role in the world of online sports betting and gaming.

Since the launch of online sports betting in January 2021, operators have accumulated promotional deductions amounting to almost $254 million. Furthermore, internet gaming operators have already claimed over $160 million in promotional deductions.

Hertel expressed his concern about avoiding any actions that could harm players. He acknowledged that many individuals have gained advantages from deposit matches and similar incentives. While recognizing the importance of building client bases in Michigan, Hertel emphasized the ultimate goal of maximizing tax revenue for schools in the long run.

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