Advertising, Promo Deductions Continuously Under Review By U.S. States

June 27, 2022
Advertising and promotional play deductions continue to be flashpoints in the U.S. sports-betting industry, as some states begin to make changes that could possibly curtail some advertising, while others continue to assess their options.


Advertising and promotional play deductions continue to be flashpoints in the U.S. sports-betting industry, as some states begin to make changes that could possibly curtail some advertising, while others continue to assess their options.

Virginia last week became the latest state to make regulatory changes aimed at limiting the amount of promotional play that operators can deduct from taxable revenues.

The state previously allowed full deductions of promotional play and bonuses, but under the state's 2022-24 budget law, operators can now only deduct promotional play for their first 12 months of operation, shutting off the tap for many of the largest operators in the market, including FanDuel, DraftKings and BetMGM.

“What was happening was the promo play was significant and the legislature was basically saying the [tax revenue] return is so little, which I think … we all know going into it but until people really see it, they don’t realize how small it is,” said Gina Smith, deputy director of gaming compliance for the Virginia Lottery, during a webinar hosted by VIXIO GamblingCompliance last week.

“We have some operators that have been in operation for over a year, and they have not paid a penny in tax.”

“It'll be interesting to see what happens because it is not a dollar-for-dollar effect on the revenue; I'm not sure what's going to happen,” Smith continued. “We do have a pretty good tax rate so hopefully it won't affect the overall revenue that we're bringing in that much.”

Virginia joins Colorado as states to course-correct from unlimited deductions to either a cap or a sunset clause that ultimately phases out the tax-deductible promotional play.

Promotional play deductions were also a key part of the conversation in North Carolina, where the Senate passed a bill last year with unlimited deductions, but the House plan, before it ultimately failed last week, included unlimited deductions through 2024 before a three-year phase-out after which deductions would be eliminated.

“I think that the promotional issue is a concern, and I think what you'll see is as people in places where [promotional play] is restricted, you'll see a reduction in the amount, obviously that's offered by operators because of the tax impact,” said Andrew Winchell, director of government affairs for FanDuel.

“And I think that that will have a knock-on impact on revenues in the longer term because it will lead to a much slower growth of the industry in those jurisdictions,” Winchell said.

Smith said that 18 months after launch, the advertising boom in Virginia has begun to settle compared with the early stages after market launch in January last year.

"You couldn't turn the TV on, you couldn't pass a billboard without seeing sports-betting advertising,” she said. “We got questions from the [lottery] board, the public they're just like, when is this gonna stop?”

Smith said the lottery’s regulations give them little authority to step in on advertising, except for instances where an operator saturates the market.

“It's leveled off now without any intervention from the lottery, but I do believe that overall as you know, states are going to start cracking down on that,” Smith said.

One of those states could ultimately be Michigan, which launched both sports betting and online casino gaming at almost the exact same time as Virginia, and where David Murley, deputy director of the Michigan Gaming Control Board (MGCB), said the advertising boom has yet to subside.

“I don’t believe it’s leveled off to a great degree, it’s still going pretty strong here,” Murley said of sports betting and online casino advertising. “I do think that if it continues, then you'll see something, whether the legislature addressing the free play issue, perhaps putting limits or tying that to advertising.”

Murley said that the MGCB has asked for funding to run responsible gambling awareness advertising to counter the aggressive advertising of operators.

“If you think about it, it is a good thing we're doing, but it's also wasteful, because the industry is advertising like they are, then we feel the need to use taxpayer money to somewhat counteract the message to get people the help they need,” he said.

Murley also referenced Ontario’s ban on inducements such as bonus promotions in public advertising in discussing potential proposals to curtail the advertising of U.S. operators.

“I think it's a little bit wait and see and if it doesn't change, you'll probably start to see some daring things, some things that we're not sure, because no one knows what's legal, what can a government do to limit these things?” he said.

“It's new to us. and this is something where we're going to have to assess once a couple of years have passed,” Murley said.

A recording of the VIXIO GamblingCompliance's webinar “Evaluating Regulatory Risks In Evolving U.S. Sports Betting Market” is now available on-demand by clicking here.

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