You can bet on almost anything during the Super Bowl. Money changes hands based on the result of the coin toss, the color of Gatorade dumped on the winning coach and the length of the national anthem.
In 2023, Kansans took full advantage of the chance to bet on sports. They bet $194 million in February alone.
Even so, the state collected just $1,134 in tax revenue on those February bets.
Such paltry returns on the state’s new billion-dollar sports betting industry have appalled some Kansans, and now Missourians head to the polls in November with a chance to legalize sports betting. If they do, Missouri will likely see similarly large disparities between the volume of bets and how much money goes into state coffers.
Here’s a look at the tax math behind sports betting.
How much does each state tax?
If Missouri voters approve sports betting, both states will have a 10% tax on sports wagering revenue, after exemptions on “free” bets.
Joe Weinert, vice president of Spectrum Gaming Group, said the tax rate, unsurprisingly, is a major factor in how much a state collects.
“It starts with the tax rate,” he said, “and then promotions.”
Sportsbooks routinely offer “risk-free” promotional wagers to attract new customers. For example, someone could deposit just $5 in their betting account and the sportsbooks would give them $200 in online credits for future bets. Those $200 in credits can’t be deposited into the gambler’s bank account. They can only be used to make future bets, and bettors can only take that money home if they win.
In Kansas, those promotional bets are completely tax-free for the sportsbooks.
Missouri’s proposed law is not as loose as the rules in Kansas, but it likely won’t make the state more money. In Missouri, promotional bets would only be taxed if they are more than 25% of “all cash and cash equivalents received” by the sportsbook.
Here’s a look at how that might play out in Missouri based on recent results in Kansas.
In July 2024, DraftKings settled $56.9 million in online wagers in Kansas. The company had $1.3 million in promotional deductions — just 2%.
DraftKings wouldn’t have paid taxes under Missouri law. In fact, none of the Kansas sportsbooks would have paid taxes in 2024 under Missouri’s proposal because none ever came close to that 25% mark for promotional bets.
Weinert said states with poor tax receipts have themselves to blame for the way they wrote the sports betting laws.
How do taxes on sports gambling work?
ESPN Bet hasn’t paid a penny in Kansas taxes for online sports gambling all year. That’s because sportsbooks can deduct certain expenses before state taxes.
In July, ESPN Bet had $5.7 million in total wagers. It paid out $5.3 million in winning bets, exempted $134,000 in promotional bets and paid $14,000 to the federal government. Then, the sportsbook subtracted another $1.4 million as a carryover deduction.
Kansas law lets sportsbooks use “negative revenues” from past months to cut down their tax bills on current months. Negative revenues happen when a sportsbook’s exemptions and deductions exceed how much money it takes in. For ESPN Bet in June, that was $7.6 million in bets placed and $9 million in prizes paid out, federal taxes paid, promotional bets paid and past months of negative revenue.
Total it all up and that meant ESPN Bet still had a negative balance of $1.4 million for online bets in July, which means it can deduct that money when calculating its August tax bill.
In Missouri, that scenario would play out exactly the same way because the exemptions are almost identical.
“If the amount of adjusted gross receipts in a calendar month is a negative figure, the licensee shall remit no sports wagering tax for that calendar month,” the constitutional amendment reads. “Any negative adjusted gross receipts shall be carried over and calculated as a deduction in the subsequent calendar months until the negative figures has been brought to a zero balance.”
Not every company has claimed the carryover each month. DraftKings, the largest online betting company in Kansas, has paid taxes on online sports gambling every single month in 2024.
The largest exemption for sportsbooks is always paying out the winners. That cuts into the company’s profits on paper and, consequently, its obligation to pay taxes.
In February 2023, Kansas only collected $1,134 in taxes because so many people won their bets. There were $194 million in wagers and $194.8 million in payouts.
FanDuel was the only company to pay taxes that month because it didn’t pay out more money than it collected in bets and because it had fewer promotional bets to exempt.
What do other states do?
A 10% tax rate isn’t unusual. Neither are tax exemptions on promotional bets.
Weinert, with Spectrum Gaming Group, said there really isn’t a typical tax because states do things differently. New York sits at the high end of the scale, though, imposing a 51% tax rate.
A New York Times investigation found that states with higher tax rates outperform expected tax revenue. States that opted for the 10% tax rate aren’t doing as well.
If passed, Missouri’s tax rate would be codified in the state’s constitution. That means lawmakers couldn’t amend the tax rate without another statewide vote.
Kansas Rep. Boog Highberger, a Lawrence Democrat, voted against sports betting because he didn’t like the tax rate in the Kansas bill. The state also puts most of its taxes from sports betting into a fund to incentivize professional sports teams to move to Kansas.
That change was passed late in the legislative session.
“I believe that I voted for an early version of the bill because I thought it was something that I thought a lot of my constituents wanted,” Highberger said over email. “But by the end, something about it smelled too rotten for me to be able to support it.”
Missouri’s tax revenue would be used for different purposes, such as education. A larger share also would go to problem gambling addiction services.
The prospect of sports betting appears to be popular in Missouri. A YouGov survey conducted in August found that 50% of likely voters in Missouri supported Amendment 2, with 30% opposed and the rest undecided.