Taxing online sports betting, fantasy sports may help states cover pandemic losses

NEWS RELEASE

Jeff Falk
713-348-6775
jfalk@rice.edu

Avery Ruxer Franklin
713-348-6327
averyrf@rice.edu

 Taxing online sports betting, fantasy sports may help states cover pandemic losses

HOUSTON – (Sept. 16, 2020) – Taxing online fantasy sports and sports betting may help states recoup some of the sales tax revenue lost during the coronavirus pandemic, according to a finance expert at Rice University’s Baker Institute for Public Policy.

Joyce Beebe, a fellow in public finance, writes that COVID-19 has saddled state governments with large revenue shortages, highlighted by a 21% plunge in average sales tax revenue in May 2020 compared with a year earlier. Some states have been exploring creative ways to raise money — like imposing excise taxes on sports betting and daily fantasy sports (DFS).

“When excise taxes are levied on potentially harmful goods and activities, such as cigarettes, gambling and alcoholic beverages, they are often called ‘sin taxes,’” Beebe wrote. “Over time, what constitutes ‘sinful’ products varies as a result of evolving cultural, health and social perspectives. Although ‘sin taxes’ arguably focus on goods and activities that aren’t overly controversial, the public debate is no less intense, because the tax is imposed, in part, to change people’s behaviors.”

The U.S. Supreme Court overturned a federal law prohibiting sports betting in 2018, allowing states to decide on the issue for themselves. As of 2020, sports betting is legal — and providing tax revenue — in 23 states and Washington, D.C. Yet, not all of these states allow DFS, and not all states that allow DFS permit sports betting.

“The distinction generally lies in whether the fantasy sports are considered a ‘game of chance’ or a ‘game of skills’ under state law, where the former falls in the definition of gambling and the latter is generally authorized,” Beebe wrote. “As such, some DFS industry groups maintain the distinction between DFS and sports betting by emphasizing the skill element of DFS, hoping to increase the chance of legalizing DFS — although their goal is to ultimately legalize both.”

COVID-19 has provided an unexpected environment for DFS to flourish due to social distancing measures, Beebe argues. She wrote that such measures may continue to “fuel the popularity of online sports betting, and the pandemic will motivate more states to accelerate its legalization.”

“When debating whether to legalize sports betting, the real gain is that states can regulate the activities and provide a legitimate environment that protects consumers from disreputable operations and limits the risk of addiction,” Beebe wrote.

To schedule an interview with Beebe or for more information, contact Avery Franklin, media relations specialist at Rice, at averyrf@rice.edu or 713-348-6327.

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Related materials:

Blog: http://blog.bakerinstitute.org/2020/09/03/be-a-good-sport-and-pay-your-taxes/.

Beebe bio: https://www.bakerinstitute.org/experts/joyce-beebe/.

Follow Rice News and Media Relations via Twitter @RiceUNews.

Follow the Baker Institute via Twitter @BakerInstitute.

Founded in 1993, Rice University’s Baker Institute ranks as the No. 2 university-affiliated think tank in the world and the No. 1 energy think tank in the world. As a premier nonpartisan think tank, the institute conducts research on domestic and foreign policy issues with the goal of bridging the gap between the theory and practice of public policy. The institute’s strong track record of achievement reflects the work of its endowed fellows, Rice University faculty scholars and staff, coupled with its outreach to the Rice student body through fellow-taught classes — including a public policy course — and student leadership and internship programs. Learn more about the institute at www.bakerinstitute.org or on the institute’s blog, http://blog.bakerinstitute.org.

About Avery Ruxer Franklin

Avery is a media relations specialist in the Office of Public Affairs.