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After Maryland lawmakers agreed to raise sports betting taxes this past legislative session, gaming regulators are now moving forward with limiting the amount of free-bets and other promotions that operators may deduct from taxable revenue.
At its monthly meeting last week, the Maryland Lottery and Gaming Control Commission unanimously approved an amendment to Chapter 13 of the state’s gaming regulations to reduce the maximum amount of revenue that a mobile sportsbook could deduct for promotional play from 20 percent to 5 percent of total revenue from the prior fiscal year.
The change does not apply to retail sportsbooks, which could continue to deduct up to 20 percent. Currently, there are 12 retail sportsbooks and 11 mobile wagering platforms operating in the state.
John Nielsen, deputy director and COO of the Maryland Lottery and Gaming Control Agency (MLGCA), presented the proposed amendments to the commission last week during his annual promotional play report on casinos and sports betting.
“By statute, promotional play redeemed by players is not included in a licensee's proceeds,” Nielsen said. “(The) commission has the ability to regulate what types of promotional play.”
The seven-member commission approved maintaining a 20 percent cap on promotional play revenue on table games and video lottery terminals (VLTs) from the prior year reported by land-based casinos. A 20 percent cap was also approved for the 2025 reporting year for retail sportsbooks in Maryland.
The move towards a lower cap of 5 percent comes after state regulators provisionally approved new regulations last year to remove all promotional play deductions for all forms of gaming, but that proposal was not finally approved.
Nielsen noted that the commission had received “confidential reports showing revenue by sports wagering licensee and the amount of promotional play redeemed by mobile and retail licensees”.
During his report on mobile sports betting, Nielsen said Caesars Entertainment had recommended increasing the cap on promotional play to 30 percent of prior-year revenue, while other operators all recommended keeping it at 20 percent.
Following discussions, Nielsen told the commission the gaming control agency recommended lowering the cap on promotional play for mobile sports betting to 5 percent.
“As an agency that generates revenue for the state, we’re always mindful of fiscal concerns,” Seth Elkin, a spokesman with the MLGCA, told Vixio GamblingCompliance. “The change will help increase sports wagering contributions to the Blueprint for Maryland’s Future, which is a priority of both the administration and the General Assembly.”
Nielsen told commissioners the amendment does two things.
“It separates the types of sports wagering licensees between retail and mobile, and it sets different caps for promotional play for each type,” he said.
The commission’s decision to sign off on the amendment was the first step in the approval process. Elkin said the next step is for the amended regulation to go to the General Assembly’s Joint Committee on Administrative, Executive and Legislative Review (AELR) Committee.
Upon approval by AELR, the regulation will then be published in the Maryland Register for the start of a 30-day public comment period. Once the comment period is closed, the comments are reviewed, and the regs are then published in the Register again before taking effect.
“The timing of those steps varies, so we can't pinpoint an effective date,” Elkin said.
The reduction in promotional free bets would be the second effective tax increase on Maryland’s sports betting operators this year.
On Tuesday (July 1), the state tax rate for mobile sports betting increased from 15 percent to 20 percent of gross revenue. Democratic Governor Wes Moore had initially proposed doubling the state’s rate to 30 percent but could not garner enough legislative support for that higher increase.
Moore proposed increasing sports betting taxes to help close a $3.3bn budget deficit with the final 20 percent tax rate that was included in the state’s fiscal year 2026 budget he signed in May.
Colorado To Eliminate Free-Bet Deductions In 2026
Maryland is not the only state to be addressing the tax treatment of promotional bets in sports betting.
By July 1, 2026, sportsbooks in Colorado will no longer be able to deduct free bets from their taxable sports betting revenue after Governor Jared Polis, a Democrat, signed a new legislation into law on May 15. The proposal enjoyed strong support in both the House of Representatives and Senate.
Previously, sportsbooks could deduct promotional non-cash wagers up to a cap of 2.25 percent of monthly handle.
Beginning on Tuesday through December 31, that figure will be limited to 2 percent of total monthly wagers that can be deducted, while no more than 1 percent of handle can be deducted from January 1 to June 30, 2026.
On July 1, 2026, tax deductions for any free bets will be eliminated. Colorado taxes sports betting at a headline rate of 10 percent of monthly net revenue after permissible deductions.
