Sports betting promos may seem to be everywhere in Massachusetts, but that could change. That’s because sports betting operators typically curtail spending on promos, a study reveals.
Last month, a report was presented to the Massachusetts Gaming Commission (MGC) on promotional play and its impact on tax revenue as well as problem gambling implications. The report was prepared by RSM U.S. LLP.
Let’s take a closer look at what the report discovered about MA sports betting promos, and how much of an impact they have on sports betting markets.
Promo play spend is high early in new markets
RSM analyzed promotional play in 10 states (Colorado, Connecticut, Louisiana, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia) for its report. Only 10 of 29 states with established sports betting markets report promotional play data.
According to the report, promo play peaks early in new markets, but can have a lasting impact on problem gambling, especially among younger sports bettors.
In Jan. of 2023, promotional play expenses represented 29.9% of total handle in Ohio, which was in its first month with an online sports betting market. That figure is a high total for promotional play, which indicates that sportsbooks in the Buckeye State were clamoring for customers in the early going.
Similarly, in Colorado, Michigan, and Pennsylvania, RSM found that hold rate (which represents the percentage of money that sportsbooks keep for every dollar wagered by customers) increased as the markets in those states matured, while promo play percentages dropped.
RSM looked specifically at DraftKings and FanDuel and their promo play performance across the country. Those two operators combine for more than 70% of the Massachusetts sports betting market.
Findings show that both of those operators typically curb promotional play 4-5 months after entering a new market, and gross gaming revenue (GGR) usually increases. That means those sportsbooks earn more and pay more taxes as they decrease promotional play as a percentage of their expenses and total handle.
Correlation between tax revenue and promo play deductions
The report revealed that tax revenue is higher in states that prohibit deduction of promo play.
Of the 31 states that have legalized online sports betting, 22 do not allow exclusion of promo play from taxation. Four allow partial exclusion, three allow complete exclusion, and two have hybrid tax policies regarding promotional play. The four states that allow sportsbooks to exclude promo play expenditures from their tax bill are Arizona, Louisiana, Maryland, and Pennsylvania.
For example, states like Ohio do not allow deductions of promotional play, while states such as Maryland, do. Both Ohio and Maryland launched in January.
Ohio had a little over $1 billion in handle, and it took in $20 million in taxes from sprots betting operators. Meanwhile, Maryland reported $422 million in total handle in January, but only collected $1.8 million in tax revenue. That is because sportsbooks in that state could deduct promotional play from their bill. Promo percentage of total handle in Maryland was only 5.2% in January.
Louisiana has a very favorable market for sportsbooks. It allows them to deduct promo play and offset losses incurred from operation. In its first 15 months of legal sports betting, Louisiana has collected a little more than $38 million in taxes from sports betting activity. That is less than some states like Ohio, New York, and Massachusetts will expect to see in one quarter.
Similar to other markets, Louisiana sportsbooks spent freely on promotional play early on. In fact, 28.9% of total handle was spent on promo play in Jan. 2022. But that figure has been under 4% every month since March of 2022.
Massachusetts taxes online sports betting operators 20% of their gross gaming revenue. It does not allow a deduction for promotional play. In April of 2023, Massachusetts reported $546.2 million in total handle from its seven online sportsbooks. That led to $11.7 million in tax revenue. That brings the tax collection to more than $20 million in the first two months of online sports betting in the state.
1 in 7 customers under 45 bet on sports daily
According to data from several states, the report shows that white men are the most frequent sports bettors. Two out of every three men gamble on sports, and 83% of sports bettors are white.
Betting regularly is a young person’s activity. In fact, 27% of sports bettors between the age of 21 and 44 wager weekly, compared to only 6% for those 45+. Only 3% of bettors 45 and up bet daily, while for those 21-44, it’s 15%. That means that about 1 in 7 sports bettors under 45 years of age are betting daily, in the seven states surveyed for the report.
According to the RSM report, “sports bettors are at least three times more likely to exhibit risky behavior when compared to gamblers not betting on sports.” And “those who bet more than once a week are at least five times more likely to report behavior indicating problem gambling.”
A startling finding revealed in the report states that “7% of sports bettors aged 21-34 place an average bet of $50+ every day,” and that those consumers have the “highest likelihood to develop problem gambling.”
Frequent betters, who regularly access a mobile betting app are being confronted with promo play messaging regularly. That can lead to more bets for more money, and an increased chance of a gambling problem.
Recommendations for limiting negative impact of promo play
In conclusion, the study outlined three steps Massachusetts can consider to counter the negative consequences of promotional play:
- Sportsbooks should be prohibited from any messaging that appeals to consumers under the age of 21.
- No sports betting advertising should be permitted in or near college campuses or college media.
- Content published by sportsbooks and their affiliates should not contain misleading language, or make claims that minimize the risk inherent with sports betting.
Only three months after legal online sportsbooks hit the market in the commonwealth, the MGC has already established itself for diligence in protecting consumers.
The commission recently held an adjudicatory hearing to address usage of the phrase “Can’t Lose Parlay” in a Barstool Sportsbook MA promotion. Regulations ban the use of words like “free” or “risk-free” when advertising bets.
State laws also require operators to include a responsible gambling message on every advertisement, and they cannot message or advertise on any platform that is predominantly frequented by people under the age of 21.
RSM is a global firm that provides accounting, auditing, and tax services. This was the second report RSM was asked to prepare for the MGC. Previously, RSM filed a report that projected the future tax revenue for the Massachusetts sports betting market.
U.S. Online Sports Betting: Promotional Play and Financial Performance Overview was presented by Connor Loughlin, Director, Financial Consulting for RSM, and Theresa Merlino, Consulting Principal, also of RSM.
If you or a loved one is experiencing problems with gambling, call 1-800-327-5050 or visit www.mahelpline.org/problemgambling to speak with a trained specialist for free, 24/7