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Tim Steller's opinion: Sports betting unlikely to make much tax money for Arizona
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Tim Steller's opinion: Sports betting unlikely to make much tax money for Arizona

The barrage of sports-betting ads hitting us in Arizona has a silver lining, or so I hoped.

You’ve undoubtedly seen the ads from the likes of FanDuel, DraftKings, Caesars Sportsbook and others. How can you avoid them, right? The companies are desperate to grab the biggest possible share of Arizona’s new sports-betting market at the outset, steering new customers into their apps, which the bettors will presumably use for years.

I’m not in love with any kind of gambling, since it tends to act as a tax on people’s weaknesses. But the silver lining is tax revenue.

That, it turns out, was the main objective in negotiations toward the new tribal gaming compact that also brought about sports betting in Arizona.

Kirk Adams, the former chief of staff for Gov. Doug Ducey and former Arizona House speaker, said so in an exhaustive Arizona Republic story on how sports betting came to be.

The governor’s goal “was revenue,” Adams said in the story.

If that wasn’t clear enough, the Republic also reported that Damon Clarke, chairman of the Hualapai Tribe, said that what Ducey wanted out of the updated gaming compacts was “revenue.”

“More revenue. Yes, sir.”

So one would assume we’re at least going to get a big stream of tax revenue to help offset Arizona’s big new tax cut for the wealthy, right?

Wrong.

Projections for Arizona show that the likely revenue from sports betting alone will be in the range of $12 million to $25 million per year. Before the bill passed, and before tax rates were set by the Arizona Department of Gaming, the Joint Legislative Budget Committee put the projected revenue from sports betting at $15.2 million.

After tax rates were set, the Play USA Network, a gambling information service, projected revenue of $22 million.

These figures may sound large, but they are tiny in context. Under this year’s state budget, Arizona will spend $12.8 billion. If sports betting revenue comes in at $22 million, that will be less than two-tenths of 1% of the state’s spending.

Or, for another comparison: $22 million is about 1.7% of the $1.3 billion tax cut that will go into effect this year.

The long story short: It’s not that much.

Now, on Tuesday, I spoke with Adams, who led the negotiation over the new Arizona tribal gaming compacts and sports betting. He said that it’s wrong to view the sports betting revenue in isolation.

There are other components of the negotiation that will lead to more revenue for the state. Specifically, there’s the addition of keno and mobile draw games to our state lottery. The Joint Legislative Budget Committee projected that will bring in about $17.8 million in tax revenue.

And probably most important, tribal casinos were allowed more machines on their floors, a broader variety of table games and increased bet limits, meaning people can bet up to $100,000.

“It was $80 million to $100 million annually from gaming,” Adams said. “My personal opinion: the totality of money to the state could triple.”

Now, the tribal casinos generally don’t pay money to the state general fund but rather put money into local governments, social-service entities and other public works. But still, even if $100 million in total revenue eventually turns into $300 million of total “tax” revenue from gambling businesses, that is still at the outside an increase of $200 million per year.

In contrast, look at the booming cannabis industry. In November’s election, Arizona voters legalized marijuana for personal use, setting up a system of recreational retail sales on top of the existing medical-marijuana system.

The resulting taxes have been pretty strong from the outset. Sales began in late January, and between April and August, the industry has generated an average of about $20,225,000 in tax revenue per month.

That means cannabis is already on pace to produce about $243 million in tax revenue per year, with growth all but guaranteed once winter visitors and tourists return in the winter.

“We’ll make more in a month than what (sports) gambling is going to bring into the state for a year,” said Sam Richard, executive director of the Arizona Dispensaries Association.

That’s in large measure due to the high taxes on cannabis products. The 5.5% state sales tax applies to all sales, as do the applicable local sales taxes. Plus, there is a 16% excise tax on sales of cannabis for recreational use.

Sports bets are taxed much more lightly. Under the new state law, Arizona’s Department of Gaming sets the rate, but it can be no lower than 8%. The department chose to put an 8% tax rate on retail sports-betting operations and 10% on online betting operations.

Businesses are charged those taxes after deducting payouts and other costs from their gross revenue.

Arizona’s tax rates are somewhat low compared to other states with sports betting. Pennsylvania is a strong outlier, with a 36% tax rate, which has not affected total bets as much as feared, said Zack Hall, a spokesman for Play USA Network

“There are states, like Pennsylvania, that have a really high tax rate compared to the rest of the country, and they haul in a lot of revenue as a result,” he said.

In the last five months, Pennsylvania has averaged $9.9 million per month in tax revenue from sports betting.

Since Arizona’s Department of Gaming sets the tax rates on sports betting, it can change them any time, following the state’s rulemaking procedures. It should consider doing so soon.

Otherwise, it’s hardly fair to say this is really about “revenue.”

Tim Steller is an opinion columnist. A 25-year veteran of reporting and editing, he digs into issues and stories that matter in the Tucson area, reports the results and tells you his conclusions. Contact him at tsteller@tucson.com or 520-807-7789. On Twitter: @senyorreporter


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