Michigan Sports Betting Solution Could Be Its Downfall: The Tax Debate Continues

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During the negotiations between Michigan legislators and Gov. Gretchen Whitmer regarding gambling expansion, the primary point of disagreement revolves around slight variations in tax rates. Although the disparity in tax rates for sports betting may appear insignificant, it has the potential to significantly impact the revenue generated by Detroit’s three commercial casinos.

The ongoing bills advocate for reduced rates compared to Whitmer’s preferences, putting legislators in a challenging position of meeting her requirements without jeopardizing the support of the casinos.

The differences in the proposed Michigan sports betting tax rate

The Michigan House has approved a bill that proposes a 12% tax on the sports betting handle at commercial casinos. However, Whitmer has expressed her preference for a higher tax rate of 18.25%.

Whitmer has expressed her worries regarding the potential impact of legalized sports betting on the state’s lottery. She is concerned that this could result in a decrease in funding for the state’s School Aid Fund.

Although negotiations are currently taking place between the governor and Legislature on various matters, the significance of the 6.25% difference should not be overlooked. This variation could have a substantial impact on businesses such as the MGM Grand Detroit.

By analyzing revenue figures and conducting hypothetical calculations, it becomes evident how substantial that number could be, potentially reaching a difference of millions of dollars over several months.

Projecting the different Michigan tax structures forward

Starting with the MGM Grand’s September revenue of over $49.48 million, it is feasible to provide certain projections.

It is challenging to predict the exact revenue that the casino will generate from its sportsbook in a specific month. Several factors, such as the month of the year and the inclusion of online betting, can significantly impact the overall handle.

To ensure the most accurate projection possible, it is advantageous to make a geographically close comparison. Indiana boasts two casinos near the Michigan border, providing both mobile and retail sports betting options.

In October, the Ameristar Casino in East Chicago and the Blue Chip in Michigan City collectively received a total of $46.16 million and $6.92 million, respectively, in sports bets.

The average of the two numbers is $26.54 million, which will be used as an example to estimate the potential sports betting handle for the MGM Grand Detroit in a given month.

Sportsbooks are subject to taxes on their earnings, but not on the total amount of money wagered. By applying the same averaging technique used for calculating the October win percentages at Ameristar and Blue Chip, we find that the hypothetical MGM Grand win percentage would be 11.9%.

With the identification of a specific number, it becomes feasible to determine the amount the casino would owe in taxes for each structure. The additional 6.25% plays a significant role in distinguishing the two scenarios.

A difference of $196,875 between the two plans

Based on the current bill’s structure, the MGM Grand Detroit would contribute $378,000 in taxes to the state, representing 12% of their estimated monthly revenue of $3.15 million.

Under Whitmer’s proposal, the tax payment would escalate to $574,875. Considering the benchmark of $3.15 million in revenue, for every additional percentage point increase in the tax rate, the monthly tax payment would rise by $31,500.

The total amount lost in this situation is $196,875, which would significantly impact the revenue of casino sportsbooks, particularly in the long run.

It is possible to find a middle ground without increasing the tax rate by allocating a significant portion of the sports betting tax to the School Aid Fund.

It is uncertain if Whitmer would agree, but a compromise that avoids raising the tax rate could alleviate her concerns. However, it is evident that even small percentage points can translate into millions of dollars in yearly revenue for Michigan casinos.

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