Free sports bets? How to tax them?

To answer questions, Gaming Commission digs into legislative sausage making


GAMING REGULATORS have reached no conclusions  as to how they will treat, for tax purposes, the promotional betting offers that sports wagering companies dangle to attract customers, or whether they might seek to put responsible gaming guardrails around their use in Massachusetts.

The primary question before the Gaming Commission  was how to handle promo play credits — the “free” bets that operators offer to lure in bettors, like the “up to $1,000 back in free bets if you don’t win your first [NFL] bet” that FanDuel Sportsbook offered on its website Monday — for tax purposes. Whether some or all of the $1,000 that FanDuel would give a player to bet with them is counted as part of the company’s taxable revenue base has significant tax revenue implications for the state and profit implications for operators.

The commission is wrestling with the question because the Legislature, which spent years debating sports betting before legalizing it this summer, did not make a clear statement about promotional play in its compromise betting bill, despite analysis showing that the issue could have a dramatic effect on the state’s take from legal betting.

Lawyers from the commission’s outside firm Anderson & Kreiger, including Gov. Charlie Baker’s former chief legal counsel Lon Povich, advised the regulators Monday that they read the state’s betting law to say that promo play credits are part of the operator’s taxable revenue base.

“We believe that the better, but not exclusive, reading of the statute is that promotional play is included within a sports wagering operator’s gross sports wagering receipts,” Annie Lee of Anderson & Kreiger said.

Lee and Povich reached that decision in part by trying to discern the legislative intent.

The House’s betting bill explicitly allowed operators to deduct promo credits from their taxable revenue, but the Senate bill did not. After an all-night session, a compromise bill came out of conference committee in the wee hours of August 1 and the House’s explicit language around deductions was not included in the version that the governor signed into law. Chairwoman Cathy Judd-Stein said she felt the same way as Povich and Lee.

“The House language was clear, promo play was to be deducted. The Senate thought otherwise. And ultimately the bill that was signed into law by the governor reflected the position that the Senate took,” Judd-Stein said. “I feel as though our lawmakers’ intent is clear.”

To get a first-hand perspective on the Legislature’s thinking, the commission turned to Commissioner Brad Hill, who served as assistant minority leader of the House when that branch passed its sports betting bill. He said that the House included the language allowing promo play to be deducted because “we were convinced at that time that would help the businesses or the licensees that were coming before us.” But then he addressed the conference committee talks between the House and Senate that ultimately produced the state’s sports betting law.

“There was a lot of horse-trading going on on that last day to get this bill to us, or to the governor’s desk. And I think during those discussions and during those horse-trading, that the House gave up a lot of what it would have liked to have seen in the bill to get the bill to the governor’s desk,” Hill said. He added, “There was a saying, and I’m paraphrasing, that you never want to see how a bill becomes law; it’s like watching a sausage get made. And in this particular case, that was, I would say, the epitome of that phrase. Because a lot went into this with the Senate and in the House just to get it to the governor’s desk.”

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Hill proposed reaching out to some of the lawmakers who wrote the bill, but other commissioners said they felt like the fact that no lawmakers had reached out since the commission raised the matter publicly weeks ago was a sign that the commission was not missing something.

“I feel like they’re listening. If they disagree with where they feel this is trending or where we vote, they absolutely have the capacity to come back in and change the statute accordingly,” Commissioner Eileen O’Brien said.

The commission on Monday did not determine a new date at which it will circle back to its promo play discussion. Judd-Stein said  commission staff had prepared to go in-depth on the taxation issue, but O’Brien and Commissioner Nakisha Skinner both said they also want to discuss the responsible gambling aspects of whether or how the commission will regulate the use of promo play in the Massachusetts market.