It’s been suggested that COVID-19’s impact on the U.S. economy could motivate states that are facing revenue shortfalls (think in terms of income tax, sales tax) to expedite the passing of sports betting legislation. But those expecting legalized sports betting to be a panacea for billion-dollar budget deficits are bound to be disappointed. In fact, Missouri House Representative Wes Rogers said, “There are a lot of reasons to support legalized sports betting—none of which include the financial impact it will have on the state budget because it won’t offer any sort of true relief. Missouri has a $30 billion budget and in a best case scenario (think: statewide, mobile included) you’re talking about tens of millions of dollars in tax revenue.” Former Ohio House Representative (and the current VP of Government Relations at ZHF Consulting) Dan Dodd conveyed a similar message: “Ohio has a budget deficit of $2.7 billion, and the Legislative Service Commission projects that the state would generate between $35 million and $40 million (depending on the bill passed) over a two-year period (which is how the state’s budget runs) in sports betting tax revenue. Clearly, it’s not going to cure Ohio’s financial issues or even come even remotely close to doing so.”
Our Take: Despite the tempered fiscal expectations, both Rogers and Dodd remain believers that all 50 states would benefit from having sports betting legislation on their books. The Missouri Democrat explained that he sees sports betting as “one piece of the larger puzzle. If a state can find eight, nine, 10 new revenue streams like [sports betting], then there would be some real money coming in [to the treasury].” Dodd concurred, adding that “in a time of budget distress”, a drop in the bucket is better than nothing. While the tax revenues generated won’t solve growing state deficits, he sees the prospect of “reducing the impact of the shortfall—without raising taxes” to be an optimal solution.
There’s an argument to be made that even if sports betting isn’t an economic ‘white knight,’ states should legalize it simply to ‘keep up with the Jones’. As Rogers explained, Iowa and Illinois have already passed legislation, and Kansas is not far behind. “If Missouri casinos are going to offer fewer products than competitors in those neighboring states, we’re going to lose that business,” he said. “We believe [sports betting legalization] can be a defensive mechanism to ensure casinos within the state can continue to bring in the economic activity they are accustomed to generating.” Dodd agreed: “It’s noteworthy that now the majority of states who have active legal sports betting or who are in the process of legalizing it border another state where it’s also legal. The competitive advantage that a state with legal betting has over another where it is not legal drives a great deal of the discussion.” Having the ability to regulate an industry that has prospered on the black market and enhancing the fan experience at sporting events within the state are among the other factors motivating Rogers.
Ironically, the common—if misleading—narrative that sports betting is a fiscal cure-all has helped legislators in various states push new legislation across the finish line. Rogers and Dodd suggested that as states become desperate for revenue in COVID’s wake that the trend would accelerate—particularly with the domestic sports leagues on the precipice of a return. But Dustin Gouker (Head of U.S. Content, Catena Media–LegalSportsReport.com) wasn’t so sure. “Sports betting remains a small thing in the context of the world today,” he said. “Outside of the pandemic, there’s so much attention being paid to social issues right now. We’re also in an election year, and many legislatures are either currently out of session or dealing with special sessions. Aside from a few states that are already pretty far along (think: Ohio), it’s unlikely there will be any others passing new legislation in the immediate future.”
While realists recognize the prospective revenue opportunity isn’t going to solve all of a state’s issues, savvy lawmakers understand that pushing sports betting legislation can make them “a hero” and thus the number of states with legal sportsbooks should continue to grow. David VanEgmond (CEO, Bettor Capital) said that “[sports betting] has become such a safe political issue—the data shows it’s 80/20 in terms of people in favor of legalization—that even if [there are doubts about the fiscal upside] it should eventually get done in most states.”
Rogers acknowledged that political motivations are among the reasons he supports sports betting legislation. “As a Democrat, I hear all the time that I’m for big government and telling people what they can and cannot do. Well, with sports betting, I am trying to legalize something that is currently a felony in the state of Missouri. In an ideal world the Republican majority gets on board with our plan [for legalization], but the second best outcome would be gaining the ability to holler about how the Democratic Party actually wants less government and that it’s the Republicans who are holding us back.” Either outcome would presumably be considered a win.