Virginia State Budget Closing Tax Loophole for Sports Betting Operators

An amendment passed by Virginia lawmakers this month will close a loophole that allowed sports betting operators to avoid paying millions of dollars in taxes to the state from online sports gambling.

Virginia sports gambling companies were allowed to deduct certain promotional expenses from their pre-tax revenues, according to the Richmond Times-Dispatch. Among those expenses are “free bets” offered to players to entice them to sign up or continue wagering.

The freebies ultimately negated as much as 43.7% of the revenue Virginia’s government could tax, or a potential $26.7 million in collected tax revenue, the Times-Dispatch said.

As a result, of the 13 companies currently taking sports bets in the state, just five have paid any taxes since the industry launched in January 2021.

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What New Amendment Does

A new amendment, known as Item 494 #2C, written into the state budget, says sports betting companies “may exclude from adjusted gross revenue the value of allowable bonuses or promotions provided to bettors as an incentive to place or as a result of their having placed Internet sports betting wagers.”

Once past the first 12 months of sports betting activity, the companies are prohibited from excluding from adjusted gross revenue any bonuses or promotions provided to bettors, the new budget states.

“This change will positively impact general fund revenues (for the state),” the budget amendment says.

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Current Virginia Onilne Sportsbooks

Currently, six companies have been taking bets in Virginia for over a year — FanDuel (started January 2021), DraftKings (January), BetMGM (January), BetRivers (January), WynnBET (March) and Unibet (April).

William Hill Sportsbook went live in the commonwealth in February 2021 but was later rebranded as Caesars Sportsbook in August.

A total of 14 online sportsbooks are licensed in Virginia, but just 13 are active after Golden Nugget Online Gaming announced in early May that it would discontinue its online sportsbook in the state; the company was acquired by DraftKings Sportsbook. A Virginia Lottery spokesperson said the license would not be available for another sportsbook.

In May, a guest panel at the iGaming NEXT New York '22 conference discussed the future outlook for online sports betting, noting, “sports betting is just an on ramp to get iGaming (online casinos).”

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Online Casinos Big Among Future Aims

“iGaming is the long-term profit center for all of these companies,” Chad Beynon, managing director at Macquarie Securities, said during the conference. “You look at the revenues that we're seeing right now from Rush Street Interactive (BetRivers), from BetMGM, 60 to 75% of their revenue are coming from iGaming. Ultimately, it’s the cross selling from sports betting to iGaming.”

“What we're seeing right now is the average iGaming user is spending about $300 per month,” Beynon said, referencing data provided by Rush Street Interactive and Golden Nugget. “Sports betting is about $100 per month,” he continued.

There are no Virginia real money online casino options at the moment. Bricks-and-mortar casinos are under development in Danville, Norfolk, Portsmouth and Bristol. The first Virginia casino will open in Bristol on July 8. A fifth casino planned for Richmond is under review while the City of Petersburg conducts an economic study to see if it would be a better location.

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