The good news for people looking to get in on future Maryland sports betting? The Maryland Lottery & Gaming Control Commission has posted its draft regulations. The not-so-good news for the same? In the future, Maryland sports betting promos could be less frequent and/or less lucrative than those in other jurisdictions.
That’s because of one provision in the proposed rules affecting how MD sportsbooks will report their taxable revenue in the future. While this isn’t anything to freak out over yet, it’s a situation worth watching.
What the regs say about Maryland sports betting promos
Take a deep breath, residents of the Old Line State. The 228-page document is just a draft. It’s currently pending legislative review. Then, a 30-day public comment period will transpire. There’s at least one section that will probably inspire many comments.
On page 193, there’s a section limiting free promotional play. That limit isn’t going to apply directly to bettors. This proposal wouldn’t place a cap on the number of odds boosts or guarantees against lost bets you can take advantage of, for example. The limit is for sportsbook operators. Here’s the current text:
“(3) After the first fiscal year of sports wagering activity, the 20 percent cap specified under §F(2) of this regulation includes all revenues generated by casino sports wagering and gaming activities. (4) An amount of money given away as free promotional play in a fiscal year exceeding the percentage defined in §F(2) of this regulation of the sports wagering licensee’s proceeds of the prior fiscal year shall be allocated as proceeds.”
In plainer language, that means MD sportsbooks will be able to claim all the value of promotional play issued to customers during their first fiscal years of operation. Starting with their second fiscal years, however, they’ll only be able to claim 20% of that same value against their taxable win.
How exactly might that affect a sportsbook’s bottom line? A hypothetical scenario should make it clear.
A “for instance”
A common promo for sportsbooks is a betting bonus. To create the scenario, suppose the Baltimore Ravens qualify for the playoffs in a future NFL season. Further, assume a sportsbook you want to use has an offer like, “Bet $1, Get $25” for that game.
In this example, if you followed the steps correctly, you’d get $25 in site credit in addition to your winnings, should you place a winning bet. That’s when this stipulation in the rules could come into play. The sportsbook could only count 20%, in this case $5, of that site credit against its taxable revenue for that year. Thus, sportsbooks might limit their use of promos in MD relative to how often they use them in other jurisdictions.
Most jurisdictions with legal sports betting do not tax promotional credit at all. MD would be the first to structure its tax for sports betting revenue this way. That’s provided, of course, this part of the rules makes it into the final version unaltered. There’s are two benefits to the state in doing it this way.
Why this provision is good for Maryland’s coffers
The first reason should be obvious. The less promotional credit licensees can claim an exemption for, the more taxable revenue they will show. However, the other tangible benefit is this makes forecasting tax revenue from sports betting much easier for state regulators.
As operators are largely free to style their promos as they wish and it’s difficult to predict how popular all the disparate offers will be among bettors, it’s difficult to quantify how much promotional play a sportsbook might claim against their tax liability. The cap makes this a bit easier.
For certain, those variables still exist. However, administrators can look at a past year’s figures, adjust for whatever amount of growth they expect to take place, then figure that 20% cap in as a constant value. It’s important to note that sportsbooks can control to what extent this provision affects their business.
It’s not all gloom and doom. There’s are also reasons to believe that MD sportsbooks will take this rule in stride if it becomes permanent. The potential loss of tax credit may not end up getting passed onto the end consumer.
Competition, origination may aid Maryland sports betting promos’ value
The silver lining in this situation could be the fact that this provision would be in place from the very beginning for MD sportsbooks. If this is part of the final rules, MD licensees will know that the cap is coming into effect in their second fiscal years.
The story would be quite different if MD sportsbooks had already been claiming all their promotional credit for years and then regulators tried to impose a cap. That might have a “toothpaste back in the tube” effect. Books can plan ahead how to adjust their marketing strategies this way.
Additionally, because the statute allows for up to 60 licenses, there’s bound to be plenty of competition in MD. That competition should motivate sportsbooks to offer frequent and solid promos regardless of whether they can use it to reduce their tax liability or not.
Still, expect interested parties to protest this part of the rules during the comment period. This might be a unique part of the MD sports betting landscape, but not one that should scare gambling companies off the market.