Smoke Clearing Around Texas Sports Betting Legislation

Written By Tyler Andrews on January 27, 2023 - Last Updated on July 21, 2023
Texas Online Sports Betting In Focus

The 88th Texas Legislature is underway. At this point, no bills addressing online sports betting have been filed, but, with a March 10th filing deadline, there’s still time.

Speaking with PlayTexas, Cara Gustafson, spokesperson for the Sports Betting Alliance (SBA), provided insight on the state of Texas online sports betting in the Texas legislature. While the SBA hasn’t yet announced an author, other components of their forthcoming legislation have come into focus.

The sports betting picture gets clearer

Some aspects of the 2021 legislation filed by the SBA have not changed in 2023. Others have evolved as a result of more states legalizing some form of sports betting in the last two years. While Gustafson said they are “willing to listen” to arguments on each of the following points, these are the details we know the 2023 legislation will contain for certain.

10% tax rate and $500K application fee for three-year license

This is a carry over from the 2021 legislation and may inspire the most debate when the bill reaches committee.

“This is Texas,” she stated. “I don’t see the tax rate increasing much, but the decision is not entirely in our hands. We are open to discussion, but I doubt Texas becomes a New York and carries a 51% tax rate on sports betting. That’s not going to happen.”

While it’s hard to argue with Texans wanting to keep taxes low, most industry people expected New York’s steep tax rate to slow down the industry more than it did.

Legislators in New York are currently debating whether to scale back New York’s massive 51% tax rate–highest in the nation–but with 98% of the revenue going to education, making an argument that would take money from school kids and give it to millionaire sportsbook operators is a hard sell.

Texas, not wanting to be in the same position of reneging on tax payments, will want to make sure they get the tax rate right the first time. And, with that in mind, New York’s high rate provides a reasonable argument for negotiating the SBA legislation’s rates up by 10-15%.

Along with a 10% tax rate, the SBA has established the same $500,000 application fee for a three-year sports betting license. All major league sports, including MLB, NFL, NBA, NHL, MLS and WNBA, and major horse race tracks will be eligible for licenses.

In the 2021 legislation, which included retail sports betting, minor league sports could have applied for a retail sports book. In the current online-only legislation, minor league sports will not be permitted to apply for an online license.

Yes on college sports betting; No on esports

Also a common compromise in legislative negotiations, betting on college sports–including in-state colleges–is included in SBA’s legislation. This likely owes to the large number of colleges and universities in the state and their zealous fanbases.

On the other hand, esports, one of the fastest-growing markets in the betting industry, is not included in the legislation. With major esports tournaments regularly held in Houston, Austin, and Dallas-Fort Worth, this could be something added down the line. For now, it’s off the table.

A limited number of operators and a regulator to be named later

While not providing a specific number, Gustafson did clarify that “the number of operators will be limited based on which will work best for Texans.”

Currently, the following five operators are members of the SBA:

Of the five, Fanatics is the only operator that has yet to launch a sportsbook–either retail or online–anywhere in the country. The other four control the vast majority of the market share across the country (Barstool not so much) and will do the same in Texas when sports betting is legalized.

Their position in the SBA will undoubtedly give them the best chance to position themselves however they want in the state. How far will their influence go in limiting other operators from establishing a foothold in Texas? That is yet to be seen, but it would be naive to assume that they have not provided such feedback to the bill’s authors.

Gustafson also noted that “a regulator will be provided when the bill is unveiled,” but did not say whether it would be a new agency, an existing one (like the Texas Lottery), or a hybrid of new and existing agencies.

Operators to provide input on promotional deductions

Promotional offers, which help attract new customers, have allowed sportsbook operators in other states to write off large swaths of tax revenue in the early stages of a launch. In fact, states that allow operators to deduct promo offers have begun to reconsider this practice. For example, in Colorado the law that allowed promo deductions was amended after the state budget fell well short of its sports betting revenue projections and vital state projects couldn’t be funded.

Gustafson explained that, in its current form,

“Our legislation doesn’t specifically allow or prohibit promotional deductions. However, operators will have input on how we handle promo deductions and that will be taken into account in the final version we submit.”

PlayTexas has previously projected sports betting revenue for the state. In our projection, we consider two scenarios: one where the state excludes promo deductions and offers a lower tax rate, and a second where the state allows promo deductions but at a higher tax rate.

This trade-off could be how promo deductions are handled in the state, and, if operators are involved in the handling of promo deductions, it seems likely that they will be allowed in some quantity. From an operator’s perspective, the tax relief–accounting for between 40%-50% of total revenue–is simply too great to ignore.

Some details, like a bill sponsor, still in question

While the picture is coming into focus for the SBA’s online sports betting legislation, an author has yet to be named. Last session’s author, Dan Huberty, did not seek re-election. Rep. Harold Dutton, a past sponsor for sports betting legislation, could be an option, but Gustafson declined to comment on who they were considering for a sponsor.

Gustafson also expressed confidence that “the votes are there” but didn’t give a list of the legislators who would need to get on board to deliver the legislation to Gov. Abbott’s desk.

“This is about doing the math and knowing our number, but it’s more important that we reach every lawmaker at the Capitol. In order for Texas to move forward with online sports betting, we need to make sure everyone understands the risks involved in leaving Texans vulnerable to the illegal market. So, we’re talking to everyone.”

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Tyler Andrews

Tyler is the Managing Editor for PlayTexas, covering sports, sports law and gambling for the Lone Star State. He has also covered similar topics for a number of Catena Media's regional sites including NCSharp, PlayCA, PlayFL, PlayOhio, and PlayMA. Tyler is a Texas resident and currently specializes in covering gambling legislation and news in emerging US markets.

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