Pa., N.J. among states earning most tax revenue from sports betting

The Supreme Court’s landmark 2018 decision to legalize sports betting beyond Nevada, where it had been allowed for decades prior, opened up the floodgates for states to establish new revenue streams that would absorb long pent-up demand. Several years into the experiment, it’s now becoming clearer which states are raking in the most tax dollars from sports betting done in-person and online.

To present a picture of the geography of sports wagering, the Washington Post examined tax revenue data from around the United States and raised the question — why are some states faring better than others? Pennsylvania and New Jersey, which both allowed sports books to open in 2018, are among a cluster of states in the Northeast that have quickly turned the industry into a revenue hog.

In Pennsylvania, state taxes from sports gambling totaled $169.5 million last year for an average of $16.36 per adult resident. In New Jersey, sports gambling revenue reached $112.2 million, which breaks down to $15.42 million per adult. New York led the U.S. with $861.9 million in tax revenue, averaging $55.43 per adult.

New Jersey leads the U.S. with $51 billion in wagers placed since sports betting was legalized, ahead of New York at $43 billion, Nevada at $41 billion, Illinois at $34 billion and Pennsylvania at $30 billion.

The high tax revenue figures aren’t just a function of people in these states betting more frequently and placing higher wagers than people in other states. Some governments, like those in New York and Pennsylvania, recognized the value that their markets could offer burgeoning online sports books. In exchange for granting access to the industry’s key players, New York granted licenses to companies at a nation-high 51% tax rate on gross revenue for online sports betting. Pennsylvania’s tax rate for online sports gambling is 36%. These are among the highest in the U.S. Rhode Island and New Hampshire have 51% tax rates for online sports wagering, and Delaware has a 50% tax rate.

Nevada’s established gambling industry would seem to give the state a head start to capitalize on sports betting, but total tax revenue there last year was $52.6 million. Although Nevada has the highest average monthly amount wagered by adults, its in-person and online tax rates are just 6.75% for sports gambling. The state also has another hurdle for people who want to place bets online. While most state gaming regulators allow registration to be done online using one of dozens of popular apps, from DraftKings to FanDuel and BetMGM, customers in Nevada have to complete their sign-ups at a local sports book associated with the app of their choice.

New Jersey’s tax rate for online sports betting also is comparatively low at 13%, but the state’s booming market has made it among the nation’s highest in tax revenue. Lawmakers in New Jersey and a number of states have seen the explosive growth in online wagering and now want to emulate what has worked for New York and Pennsylvania.

A bill proposed in March would increase New Jersey’s tax rate on online sports betting to 30%. The bill’s sponsor, state Sen. John McKeon (D), has argued that doing so would generate revenue from a source that doesn’t impose hardships on typical residents.

“I was, in part, looking as to areas that wouldn’t take money out of the pocket of hard-working New Jerseyans, but out of an industry that, this year alone, on online gaming has profited $1 billion,” McKeon told New Jersey Monitor in April.

One of the ironies of the growth in online sports betting is that places with established casino industries are seeing their business shift online, where revenue must be shared with partnering sports books and tech platforms. April was New Jersey’s second-best month ever for internet gambling, rising 10.4% from a year earlier, but in-person gambling at casinos was down 6.3%. Unsurprisingly, the Casino Association of New Jersey opposes an increase to the tax rate for online sports betting.

Year-over-year, online sports betting is driving the gambling industry forward faster than other categories  — and states have the most to gain by capturing revenue specifically from that trend. Figures from the Pennsylvania Gaming Control Board show that online sports betting tax revenue jumped 78.5% from January 2023 to January 2024. Every other gaming type except internet slots — whose tax revenue increased by about 22% — declined during the same period. That doesn’t mean casino gambling and other gaming types are suffering. The U.S. gambling industry as a whole posted a record $65.52 billion in 2023, up 10% from the previous year, according to the American Gaming Association. The $11 billion generated by the sports betting industry marked a 44.5% year-over-year increase.

The Washington Post puts the online sports betting industry’s tax revenue growth in perspective, albeit sharp. The $2.5 billion that states earned from it last year was less than 1% of their total tax revenues. That’s only a bit more than what states make on providing driver’s licenses. State lotteries generated about $28 billion in 2022, a figure less than 2% of total state tax revenue.

A March survey from YouGov found that only 26% of people have bet on sports, including just 10% who have done so online. The same survey found that just under 30% of adults play a lottery game at least monthly. With sports betting still in an early and impressive growth phase, time will tell whether it rises to the same level of normalcy as buying scratch-off tickets. Some states are betting on the signs that it will — and they’re taxing it accordingly.