Jemma McColgan Asks, Are States Squeezing the Industry Too Hard?
For much of the US's history, lotteries and gambling were used as financial tools to fund the establishment of the country. Famously, the 17th-century Jamestown Lotteries were authorized by Britain's King James I to fund the Virginia Company of London and ensured the survival of the colony. Highly profitable, it contributed thousands of pounds and set a precedent for using lotteries to fund public projects. It was probably too successful and was banned by the Crown, accused of fraud and draining money from England!
Ever since, it seems that the US has had an ongoing relationship with allowing gambling and then not allowing it, only to relegalize it when the state coffers run a bit dry! The modern era of legalized online casinos and sports betting in the US is no different. These sites not only provide entertainment for their users but are essential revenue streams to state coffers. However, there is always a balancing act between fair and unfair tax levels.
Casino.org's Jemma McColgan wonders if the states are now squeezing the industry too hard and whether it is sustainable. We sat down with this industry expert to get her views and find out more about the state of the industry in general.
CasinoLifeMagazine
Hi Jemma, welcome to CasinoLifeMagazine. You have suggested that you think state taxes might be too high. What is it that makes you think that?
Jemma McColgan
Thanks for having me. My question was a bit of a theoretical musing – wondering how high taxes could go before platforms cannot operate profitably. After all, both Super Group (Betway / Spin / JackpotCity) and 888 Holdings have exited the US market, citing high taxes and regulatory burdens as the reasons. However, the reason a company gives in a press statement might not be the whole truth, and other companies left for other reasons, such as unsustainable marketing spend and a fragmented market. So high taxes might be part of the picture, but not all of it.
CasinoLifeMagazine
Thanks, Jemma. To give this some context, what are taxes like at the moment, and where are the biggest hikes?
Jemma McColgan
Well, it is a very mixed picture across the country. However, even without a tax rise, New York, New Hampshire, Oregon, and Rhode Island have online gambling taxes of 51%. It could be argued that the other states, like North Carolina, Maryland, Louisiana, and New Jersey, are now thinking their rates of around 15 -40% have been set too low. Most state legislators are keen to keep lower taxes on land-based venues, as they can directly see increased operator costs, but argue that increased iGaming and sports betting profits come with much lower additional investment requirements.
Compared with the high-tax states, their increases are relatively moderate. North Carolina's doubled tax rate would fund youth programs and the UNC system; Maryland's 5% increase from 15% to 20% primarily funds education. The Governor originally wanted to increase it to 30% with a view to closing a budget deficit, but settled on 20%.
It is all a bit of swings and roundabouts, with governors seeing online gambling as an easy target for increases, and then the platforms and gambling lobby having to push back.
CasinoLifeMagazine:
What is the effect of tax rises on the business and the player?
Jemma McColgan
Well, clearly the cost will be felt within the business, and it could inevitably affect payouts and jackpots. While legislators might think that profits are easy to come by in online operations because they don't require physical venues or staff on the ground, that is not the case. Regardless of taxation levels, the player wants a great experience, and part of that is getting the best value for money. At Casino.org, we work to enhance the player's experience – Casino.org finds the best payouts, bonuses and ongoing promotions. They get harder to come by if businesses have to tighten their margins, but we know where to look.
These businesses have high operating costs, too; they are just different. Customer acquisition is a massive cost for an online platform, which needs to make itself more attractive than the competition through generous bonuses, promotions, and constant investment in the best tech and game libraries.
As you know, live dealer games are the talk of the town at the moment, but they are not cheap to operate. The studios have to be staffed with real humans around the world and around the clock!
CasinoLifeMagazine:
Do you think there is anything else that could significantly affect casino operating profits, state taxes, and charges?
Jemma McColgan
Well, the elephant in the room is prediction markets, isn't it? I mean, the states can do what they like with taxes on sportsbooks and casinos, but they have no control over prediction market platforms like Kalshi and Polymarket. These sites do not fall under state-level jurisdiction, which could lead to a massive outflow of revenue from state to federal coffers. It is not only operators who are feeling threatened by these apps; gambling revenue is also a key income stream for states like New Jersey, and prediction markets do not operate at the local level.
Kalshi and the other prediction market platforms do not pay state gaming taxes or state licensing fees, and this is one of the big bones of contention. States claim they are losing millions in tax revenue, and a battle royale is underway in the courts.
New York is potentially particularly badly hit, as it levies massive state licensing fees of $ 1 million per operator and also a 51% GGR tax. If traditional operators lose business to Kalshi, their state licenses are going to look very expensive, and the taxes could become unsustainable.
CasinoLifeMagazine:
From what you are saying, it seems that you think the biggest threat could come from prediction markets rather than taxation?
Jemma McColgan
For anyone in the gambling industry, it is always a balancing act, and it is hard to know what the market can sustain. For states that do not currently have regulated gambling markets, it is less of a problem, but online platforms in regulated markets are now facing a double whammy of new competition and higher taxation. Something will have to give!
Some operators, like FanDuel and DraftKings, have hedged their bets by launching their own prediction sites, and we might see more of that as operators look for ways to increase profitability and reduce tax liabilities.
CasionLifeMagazine
Thank you, Jemma. We hope that wasn't too taxing for you!
