Several bills have been introduced to legalize casino wagering on sports in Missouri this year.  Most are versions of bills that have failed to gain passage for the past three years.

None of the bills has a single word protecting the state’s interests in casino gambling.  Not a single word.

What are the state’s interests?

Funding for public schools.

Funding for various veterans’ services.

The National Guard

Funding of a college scholarship program.

Funding for a program to help people who become addicted to the casinos’ products.

Funding for the cities that are hosts for casinos.

The first hearing on one of the bills took place yesterday in a Senate Committee before which I raised this issue last year. In the year since, there has been time to dig deeper into this concern. And the concerns have become deeper.

Yesterday, I talked to the Senate Appropriations Committee about, first, the much-lower tax proposed for sports wagering adjusted gross receipts and, second, about the multi-million dollar damages that tax will cause to elementary and secondary education. Other concerns will be voiced as other bills are brought up for hearings.

None of these bills should be sent out for floor debate until they have been extensively revised to protect the state’s interests.

Please understand that these comments do not oppose casinos or sports wagering. But they do oppose the Missouri General Assembly being skillfully maneuvered into passing new gaming laws that degrade the state’s interests and the interests of the people of Missouri.

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After listening to three years of committee hearings on proposed sports wagering legislation, I am left with the impression that the proposals are being presented as if the issue is unique, separate from other forms of gambling and therefore should be treated as a special category.

It would be erroneous to accept that concept.

The creation of legalized sports wagering can be likened to the addition of a new kind of cheeseburger to the menu at McDonald’s. The biggest difference is that McDonald’s is not lobbying you to lower the sales tax on the cheeseburger while leaving it the same for all of its other products.

Sports wagering is just one more activity in which casino customers can take part. One more item on the gambling menu. But the menu also contains the same products it always has had. Separating one product from the other for taxation purposes makes no sense, whether is a sports bet or a cheeseburger.

This year’s proposed legislation makes it clear that sports wagering will not be done in some other building but will be done on the property of the casino, a phrase that bears scrutiny because it does not specifically say the activity will take place within the wagering area of the casino, a clear position for the state to take. Nonetheless, the assumption seems to be that bets will be accepted within the casino, processed within the casino, and—when necessary—paid within the casino—the same as with bets in all other forms of casino gambling.

Betting on sports is no different than betting on the fall of the cards, the roll of the dice, or the circling of a little white ball.  You will hear me say it many times in these discussions: a bet is a bet is a bet. It’s done in the same facility; the money goes into the same bank account; the taxes are paid on both kinds of money—although the casinos want much less tax charged on proceeds from sports betting by calling for a much lower rate and then by re-defining AGR to make less money taxable by exempting things from the taxable amount in some of the bills.

The proposed legislation accepts that casino winnings on sports bets will be considered part of the casino adjusted gross receipts (AGR) and part of those receipts will be funneled to public education. But the industry claims some of those receipts are not equal to the others for taxation purposes. Once again, a bet is a bet is a bet. That’s the central issue.

Although I have not seen a federal or state income tax form filed by any of our casinos, I doubt that there is one line for taxable income and a second line for taxable sports wagering income on those forms. The federal tax on that income is the same regardless of the source of the income. There is no fair reason why the state tax on AGR should be different from the tax on AGR generated by other forms of gambling.

Sports wagering is NOT something apart from the rest of the casino operations in either space, processing of bets, or in accumulated casino income.

The casinos argued in an earlier hearing that the tax on adjusted gross receipts should be much less than the tax on other forms of gaming because the house advantage on sports wagering is “only five percent.”  That is true. But it’s not the whole truth.

The house advantage of sports wagering is more than the house advantage of several other games offered by the casinos. A study done for the Center for Gaming Research at the University of Nevada-Las Vegas indicates the house advantage is lower than five percent for some of the other gambling opportunities in casinos, yet the industry has never sought a lower tax rate on those games.

Because sports wagering is just another gambling opportunity within the casino, the income from which is part of the general profits of the business, there is no reason to grant sports wagering a preferred tax rate or a different definition of AGR than is used for other gambling activities—as is proposed in this year’s sports wagering bills.

Missouri has 28 years of history to support this argument.  For almost three decades the monthly financial reports of the State Gaming Commission have broken out revenues from table games from revenues from slot machines for each of our casinos. Table games contribute about 15% of the revenues; electronic gaming devices, as the category is called, contributes the other 85%.

For almost three decades, the casinos have had no problems with the revenues from those two sources combined into one AGR figure and taxed at 21%.  Now, however, the industry wants you to approve and new, and what is likely to be the second-most lucrative revenue stream, but they want the legislature to approve a far lower tax rate for it—a tax rate that will undermine support from the other two categories for elementary and secondary education.

I have been told that casinos say they cannot do sports wagering with a 21% tax on AGR.  That’s THEIR problem.  The legislature has a responsibility and that responsibility is not to solve the casino industry’s problems.  The legislature’s responsibility is to the people back home–the school teachers and children, the veterans, the college kids needing a state scholarship, the home dock citis.

If the casinos “can’t do sports wagering,” there still will be gambling on sports.  It just won’t be legal.  and the casinos won’t make any money from it.  That’s their choice.

DAMAGE TO ELEMENTARY AND SECONDARY EDUCATION

Various sports wagering legislation this year proposes tax rates on sports AGR of nine percent, 6.75 percent, 6.25 percent and 6.0 percent. (The particular bill heard yesterday proposes a nine percent rate)

The present tax on AGR from all other forms of gaming is 21 percent.  Ninety percent goes into a fund for elementary and secondary education. Ten percent goes to the home dock cities.

We can explain the problem with a fourth-grade-style arithmetic example.

Johnny’s mother wants to make some apple pies.  She gives him some money and tells him to guy ten apples. There will be enough to buy something for himself if wants it.

Johnny buys ten applies and, seeing plums also on sale, buys a plum to eat on the way home. At the checkout counter, he learns the apples cost $2.10, or 21-cents per apple.  His plum costs 6.75 cents.  The first ten items cost 21-cents each. The last one lowers the average cost of the eleven items to 19.7 cents each.

Using this example, the tax rates proposed for sports wagering could lower the average AGR tax to 19.91% (nine percent rate), 19.70% (the proposed 6.75% rate), and 19.66% (the proposed 6.25 rate, which would establish a new low rate in the nation), and 19.64% (the 6.0% rate proposed in a House bill).

In fiscal year 2018-19—the last full year before the pandemic significantly affected the casino business, the casinos reported to the Missouri Gaming Commission that $15,160,505,906 had been bet in their slot machines.  Table games produced “only” $1,255,959,366 for a total bet in our casinos of $16,416,465,272.  The slot machines had a payout rate of 90.3%.  Table games had a “hold” of 20.8%–meaning table games produced a 79.2% pay out.

The result was an AGR of $1,735,757,881, or 10.57% of the total amount bet and Missouri’s tax on the AGR amounted to 2.2% of all funds bet in slot machines or at gaming tables.

The math shows that a nine percent tax on AGR (the definition used for all other forms of gaming in Missouri) would cost elementary and secondary education about $17 million. The loss to schools would top $21.2 million at the lowest rate proposed.

I don’t know how many members of the General Assembly want to go home and tell their school superintendents they favor legislation that would pump tens of millions of dollars into casino profits while cutting state funding to education by $17-21 million with no realistic hopes of recovery. It will take a lot of PTA chili suppers to make up the difference.

All of this is based on numbers supplied to the Missouri Gaming Commission by the casino industry in Missouri.  We believe it shows the depth of loss the state will incur if the legislature passes these gaming bills without major rewriting.

The extensive homework behind these observations is below.

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All discussion of percentages and holds and payouts aside, here is what the current AGR tax rate produced in that fiscal year and how much the state would have lost if the tax rate were reduced.

21%       $364,509,155    Existing rate

9% (19.91) $345,589,394     Reduction of $18,919,761 ($17,027,785-$1,891,976)

6.75%  (19.7)  $341,944,303     Reduction of $22,564,852 ($20,308,367-$2,256,485)

6.25%  (19.66) $341,249,999     Reduction of $23,259,156 ($20,933,240-$2,325,916)

6.0%   (19.64)  $340,902,848  Reduction of $23,606,307 (21,245,676-2,360,631)

It might be argued that the increased AGR of sports wagering would have offset those losses.  How much betting would have been necessary to bring about that offset?

It would have taken an AGR increase totaling $210 million to produce $18,900,000 at 9%

It would have taken an AGR increase totaling $336 million to produce $22,680,000 at 6.75%

It would have taken an AGR increase totaling $372 million to produce $23,251,000 at 6.25%

It would have taken an AGR increase totaling $ 394 million to produce $23.640,000 at 6.0%

Actually, the AGR increase would have had to be even more substantial because the sports wagering bills re-define AGR through a series of exemptions that would have lowered the amount of money that was taxable.

If, using the 2018-2019 fiscal year as the basis, we calculate how much more would have to be bet on sports to reclaim the lost funds, and understanding that AGR represents 11% of the total amount bet (we’ve rounded up the percent), then the amount bet on sports to recover the lost funds at the four tax rates advocated in this year’s bills would be:

9%—$2,079,000,000

6.75%—$3,326,400,000

6.25%—$3,682,800,000

6.0%—$3,374,938,195

And further, there would have been another loss occurring because of the lower tax rates because the schools and home dock cities would be losing income from the AGR if it had been  taxed at the present 21%.  For example:

$210,000,000 taxed at 21% would have earned $44.1-million.

$336,000,000 taxed at 21% would have earned $70.56 million.

$372,000,000 taxed at 21% would have earned $78.12 million.

$394,000,000 taxed at 21% would have earned $82.74 million

In other words, the schools and home dock cities, while waiting to collect $22,564,853 at 6.75% would have been foregoing $70.56 million that would have reached them at the current 21% rate.

The loss to elementary and secondary education and to the home dock cities, therefore would have been (approximately) $25.2 million, $48 million, $54.8 million, and $59.1 million.

Elementary and Secondary Education (and the home dock cities) will NEVER catch up.

The goal for the casinos in adding sports wagering is to INCREASE their AGR.  This study shows how much the DECREASE in elementary and secondary education and the home dock communities might have been if the average AGR tax had been lowered, that it would have taken hundreds of millions of dollars in wagering to REPLACE the funds lost by elementary and secondary education through the lowering of the average AGR tax rate, and the income loss while waiting to replace lost income through increased wagering would have been an even larger financial setback.

Casinos don’t seem to care about elementary and secondary education, veterans, college kids, problem gamblers, or even their home dock cities.  Somebody has to raise these issues. Perhaps you might ask your legislator about whether he favors passage of legislation that will undermine financing for all of these issues we’ll be raising in subsequent hearings.

I hope legislative committees don’t send any of these bills to the floors for debate without substantially rewriting them to protect the interests of the state.

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