Low Tax Revenue From First Month of Kansas Sports Betting Caused by Freebies

• Kansas Sports Betting Launched in September and Giveaways Dented the Bottom Line
• Better Days Expected Once Freebies Vanish and Total Revenue Can be Fully Taxed
• Next Step: Take Advantage of Legislative Permission to Expand to Bars, Restaurants

Kansas Sports Betting Launched in September and Giveaways Dented the Bottom Line

In September, Kansas joined the over 30 U.S. states that have legalized sports betting and in that first month the state reported a sizable handle of $160.5 million, but before anyone gets too excited about all the tax revenue that must have been generated, consider first the freebies.

Talking about all the giveaways that retail and mobile sportsbooks seem to offer whenever they begin operating in a brand new market, those discounted wagers and free bonuses are all part of a marketing plan that has the side benefit of giving those gambling companies huge write-offs.

So in Kansas, after paying out all the winners and subtracting all the freebies, the $160.5 million handle becomes just $1.3 million, and at the 10% tax rate that the Sunflower State charges the final tax revenue number comes out as $130,000, a lot less than one might expect.

Except in most states, it’s written into the sports betting legislation that sportsbook operators are permitted to offer these giveaways and the reason it happens is at least twofold, the first being it’s a great way to attract new customers and the second being that for a time it’s all deductible.

But that’s only true for the honeymoon phase, and when that’s over expect those tax revenue numbers to rise.

Better Days Expected Once Freebies Vanish and Total Revenue Can be Fully Taxed

Despite the low initial tax revenue numbers, Kansas Lottery Executive Director Stephen Durrell still sounds excited about the new market launching, telling the media:

We've seen, obviously, that there was a very pent-up demand for sports wagering within the state, and people wanted a legal and safe way to place wagers on their teams.

Sportsbooks like DraftKings, Caesars, BetMGM, and most others use freebies to attract new customers and then they subtract the total amount of those from their revenue figure, so a lot less becomes taxable, a loophole that gets the sports betting market engine running at first.

Of course, that does not last forever and eventually, those deductions are no longer given and so the freebies stop, but hopefully, by then the customer base is large enough that alternative marketing strategies can be employed meanwhile states can begin to tax more revenue.

States that have more mature sports betting markets are generating impressive tax revenue numbers, like Kansas's neighbor Colorado which has created a $23.8 million tax revenue stream since legalizing sports betting in May 2020, that money increasing as freebies decreased.

Next Step: Take Advantage of Legislative Permission to Expand to Bars, Restaurants

For gamblers who live in Kansas, it could get even easier to place wagers in the future since lawmakers there are right now in the middle of trying to figure out how to take advantage of the part of the sports betting law that allows for “marketing entities” to offer legal sports betting.

Insiders are hoping that means bars and restaurants will be permitted to place betting kiosks in their establishments for the price of a cut of the action, a smart move that requires a bit of legal wrangling given the “ambiguity” of the written law.

That should get cleared up soon enough, so keep checking back for all the latest news and updates on this ongoing Kansian story.