Gambling promotions may appear to be abundant in Massachusetts, but that could change. A recent report presented to the Massachusetts Gaming Commission (MGC) examined the impact of promotional play on tax revenue and problem gambling. The report, prepared by RSM U.S. LLP, provides insights into the prevalence and effects of gambling promos in the state.
Let’s delve into what the report found regarding gambling promotions in Massachusetts and their impact on the gambling market.
Promotional play devote is large early within new marketplaces
RSM examined promotional play in ten states for its report: Colorado, Connecticut, Louisiana, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Virginia, and West Virginia. Only 10 out of the 29 states with established sports betting markets provided promotional play data.
The report found that promotional play tends to peak early in new markets but can have a long-term impact on problem gambling, particularly among young sports bettors.
In Ohio, which was in its first month of online gambling in January 2023, promotional play expenses accounted for 29.9% of the total handle. This high figure indicates that sportsbooks in Ohio were aggressively promoting their offerings in the early stages.
In states like Colorado, Michigan, and Pennsylvania, the report revealed that the hold rate (the proportion of money that sportsbooks retain for each dollar wagered by customers) increased as the markets matured, while the percentage of promotional play decreased.
RSM specifically examined the promotional play performance of DraftKings and FanDuel, which together dominate the Massachusetts gambling market, accounting for over 70% of it.
The findings showed that both operators typically reduce promotional play 4-5 weeks after entering a new market, leading to an increase in gross gaming revenue (GGR). This means that as they decrease promotional play as a proportion of their expenses and total handle, sportsbooks earn more taxable revenue.
Correlation among tax income and promotional play reductions
The survey revealed that states that prohibit deductions of promotional play tend to have higher tax revenue. Among the 31 states that have legalized online gambling, 22 do not allow exclusion of promotional play from taxation. Four states allow partial exemption, three states allow complete exemption and two states have hybrid tax policies regarding promotional play. The four states that permit sportsbooks to exclude promotional play expenses from their tax bill are Arizona, Louisiana, Maryland and Pennsylvania.
For instance, states like Ohio do not allow deductions of promotional play, while states like Maryland do. Both Ohio and Maryland launched their online gambling markets in January. Ohio had just over $1 billion in handled and collected $20 million in taxes from sports gambling operators. Meanwhile, Maryland reported $422 million in total handle in January but only collected $1.8 million in tax revenue. This is because sportsbooks in Maryland can deduct promotional play from their tax bill. The promotional percentage of total handle in Maryland was only 5.2% in January.
Louisiana has a favorable market for sportsbooks as it allows them to include promotional play and offset operational losses. In the first 15 weeks of legal sports betting, Louisiana has collected over $38 million in taxes from gambling activity. While this is lower than what some states like Ohio, New York, and Massachusetts may expect to see in a single quarter, Louisiana’s market is still performing well.
Like other markets, Louisiana sportsbooks heavily invested in promotional play during the early stages. In January 2022, 28.9% of the total handle was allocated to promotional play. However, this figure has consistently dropped to less than 4% per month since March 2022.
In Massachusetts, online gambling operators are taxed at a rate of 20% of their gross gaming revenue, and there is no deduction allowed for promotional play. In April 2023, Ma reported $546.2 million in total handle from its seven online sportsbooks, resulting in $11.7 million in tax revenue. This brings the tax collection to over $20 million in the first eight weeks of online sports betting in the state.
one in seven customers below 45 gamble on sports activities daily
Based on data from several states, the survey shows that white men are the most frequent sports bettors. Two out of every three men bet on sports, and 83% of sports bettors are white.
Regular gambling is more common among young people. 27% of sports bettors between the ages of 21 and 44 wager on a weekly basis, compared to only 6% for those 45 and older. Only 3% of bettors aged 45 and up gamble daily, while for those aged 21-44, it is 15%. This means that approximately 1 in 7 sports bettors under the age of 45 are gambling daily, based on the seven states surveyed in the report.
According to the RSM survey “sports bettors are at least three times more likely to exhibit risky behavior compared to gamblers not betting on sports.” Furthermore, “those who gamble more than once per week are at least five times more likely to report behaviors indicating problem gambling.”
A surprising finding in the survey states that “seven percent of sports bettors aged 21-34 place an average bet of $50+ every day,” and these consumers have the “highest likelihood to develop problem gambling.”
Regular bettors who frequently use a mobile betting app are often exposed to promotional play messaging. This can lead to more bets for more money and a higher chance of developing a gambling problem.
Recommendations for restricting negative effect of promotional play
To conclude, the study suggests three measures Massachusetts can consider to counter the negative consequences of promotional play:
- Restrict sportsbooks from any messaging that appeals to customers under the age of 21.
- Prohibit sports betting advertising in or near college campuses or college media.
- Ensure that content published by sportsbooks and their affiliates does not include misleading language or make claims that downplay the risk associated with gambling.
Just three months after the introduction of legal online sportsbooks in the state, the Massachusetts Gaming Commission (MGC) has demonstrated its commitment to consumer protection. The MGC recently held an adjudicatory hearing to address the use of the phrase “ “Can’ to Lose Parlay” in a Barstool Sportsbook MA promotion. Regulations prohibit the use of terms like “free” or “risk-free” when promoting bets.
State laws also require operators to include responsible gambling messaging in every advertisement, and they are prohibited from messaging or advertising on platforms primarily frequented by individuals under the age of 21.
About RSM
RSM is a global firm that provides accounting, auditing, and tax services. This was the second report prepared by RSM for the Massachusetts Gaming Commission (MGC). Previously, RSM submitted a report that projected the future tax revenue for the Ma sports betting market.
The report titled “U.S. Online Gambling: Promotional Play and Financial Performance Summary” was presented by Connor Loughlin, Director of Financial Consulting for RSM, and Theresa Merlino, Consulting Principal, also from RSM.
Dan Holmes is a Staff Writer for PlayMA with plenty of experience under his belt. Dan has written three books about sports and previously worked for the National Football Hall of Fame and Major League Baseball. He also has extensive experience in the launch of sports betting in other states, including Ohio and Maryland. Currently, Dan is residing in Michigan with his family.
