Minnesota Senate Committee Advances Amended Sports-Betting Bill

March 15, 2024
A bill to legalize sports betting in Minnesota continues to make its way through the committee process in the state Senate, but not without additional changes, including doubling the tax rate and altering how tax revenue will be distributed.

A bill to legalize sports betting in Minnesota continues to make its way through the committee process in the state Senate, but not without additional changes, including doubling the tax rate and altering how tax revenue will be distributed.

The Senate Committee on Taxes approved Democratic-Farmer-Labor (DFL) Senator Matt Klein’s sports-betting bill, Senate File 1949, with minimal opposition on Thursday (March 14), sending it forward to the Senate Committee on Finance.

The measure is a companion bill to House File 2000 and both measures would authorize retail and online sports wagering.

Klein’s bill grants Minnesota’s 11 tribes exclusivity over sports betting.

Klein presented several changes to the fifth engrossment of his legislation to the committee. Amendment 104 to SF 1419 includes a tax rate increase from 10 percent to 20 percent, changes to the tax revenue distribution, and an end date for the deduction of promotions and free bets offered by sports-betting operators.

Under the amendment, 5 percent of tax revenue would be distributed to the Minnesota Racing Commission, 15 percent would go to Minnesota Sports and Events, and 1o percent to the state’s Department of Human Services for problem gambling treatment and education.

In addition, 20 percent would be set aside for tax relief payments to charitable gaming organizations, with 5 percent distributed to the Minnesota State High School League to support youth sports and activities, and 45 percent directed to the state general fund.

Klein said the reason for the redistribution of some revenues to charitable wagering organizations was to make up for any losses incurred due to changes in pull-tab and e-tab that will go into effect on January 1, 2025, when e-tabs will no longer be allowed to use “open all” options and bonuses as part of the games.

Traditional paper pull-tabs only allow players to reveal their symbols individually, while the “open all” feature in e-tabs allows players to reveal rows of symbols at once.

“Those organizations felt they were significantly injured by changes in the pull-tab policies last year,” Klein said. “We considered that and took them at their merits and have given them some relief to offset those losses.”

Klein also proposed to change how sports-betting operators can deduct free or promotional bets. Operators will be able to deduct these types of bets from launch through January 1, 2028, before the deductions will be reduced by 25 percent each year over the next four years.

The deductions for free or promotional bets will no longer be available starting January 1, 2031.

From the gaming industry’s perspective, Klein told the committee, these promotional wagers should be tax exempt because no money has changed hands, and they are important as an incentive to move people who are currently participating in the illicit market to the legal market.

“The contrary argument is, why would we make these tax exempt,” Klein said. “I could see both sides, so what I did in the amendment was phase them out.”

Senator Scott Dibble, also a Democrat, offered an amendment Thursday that was defeated by a vote of 8-2 in committee to eliminate the tax exemption for promotional wagers, describing it as an “inappropriate use of our public funds.”

“Taxpayers and the public are paying for the promotional activities of the industry to establish itself and hook people on this addictive behavior,” Dibble said.

Other changes made to the Senate bill include allowing patrons to set voluntary daily deposit limits, prohibiting in-game wagers, and requiring the creation of a voluntary exclusion list. Klein admitted that those two changes would have a direct effect on tax revenues. 

According to a bill summary produced by the Senate Counsel Research and Fiscal Analysis, total sports-betting tax revenue for fiscal years 2026 and 2027 would total $27.4m, with net revenue of $12.33m distributed to the general fund.

Klein said previous estimates were close to $40m in tax revenue. He also reminded lawmakers that mobile wagers placed on tribal lands are not taxable.

“Despite doubling the tax, their protective measures have really had a massive impact on expected revenue,” Klein said. “It will be something to consider moving forward.”

The Minnesota Indian Gaming Association (MIGA) has made it clear it does not support a prohibition on in-game wagering.

“The significant impact prohibiting in-game wagers has had on revenues creates difficulties for our stakeholders,” Klein said. “In particular, the license holders, the tribes, looking at how much revenue has been lost and how diminished the value of these licenses will be, will have some concerns about the provision going forward.”

The DFL has a majority in both chambers of the Minnesota legislature, but not all members of the party are on board with Klein’s bill meaning Republican support is crucial to passing a sports-betting bill.

Amendments introduced by Dibble on Thursday that would remove any tax revenue supporting Canterbury Park and Running Aces racetracks, or create a model similar to New York’s where operators competitively bid for licenses and institute a minimum 40 percent tax rate, were defeated in committee.

“This bill and amendment is still a work in progress,” said Republican Senator Jeremy Miller. “We are trying to find a bipartisan solution that we feel can pass both through the House and Senate.”

Miller made it clear he supported even more tax relief for charitable organizations and will be advocating for more money to the racetracks to help enhance the industry.

“Hopefully, we get this done this year,” he added.

Committees in both chambers must approve any sports-betting bill by March 22. The Minnesota legislature is scheduled to adjourn by May 20.

If approved, the bill would go into effect on July 1.

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