Michigan Sports Betting Solution Could Be Its Downfall: The Tax Debate Continues
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During the ongoing negotiations between Michigan legislators and Gov. Gretchen Whitmer regarding gambling expansion, the primary point of disagreement revolves around slight variations in tax rates. Although these disparities in sports betting tax rates may appear insignificant, they have the potential to significantly impact the revenue generated by Detroit’s three commercial casinos.
The ongoing bills propose reduced rates compared to Whitmer’s desires. Legislators find themselves in a challenging position of meeting her demands while also maintaining the support of the casinos.
The differences in the proposed Michigan sports betting tax rate
The Michigan House has approved a bill that proposes a 12% tax on the total amount wagered in sports betting at commercial casinos. However, it should be noted that Governor Whitmer has expressed her preference for a higher tax rate of 18.25%.
Whitmer has expressed worry that the legalization of sports betting could have a negative impact on the state’s lottery, potentially resulting in a decrease in funding for the School Aid Fund.
The ongoing negotiations between the governor and Legislature encompass more than just the tax rate, however, the 6.25% difference holds significant importance. For businesses like the MGM Grand Detroit, this variance could have a substantial impact.
Examining the revenue figures and employing hypothetical calculations reveals the immense significance of that number, as it gradually accumulates to a disparity of millions of dollars over several months.
Projecting the different Michigan tax structures forward
Based on the MGM Grand’s revenue in September, projections can be made. The casino’s adjusted revenues exceeded $49.48 million during that month.
It is challenging to predict the exact amount of revenue the casino will generate from its sportsbook in a specific month. The revenue can vary significantly due to various factors such as the time of year and the inclusion of online betting options.
For a more accurate projection, it is recommended to make a geographically close comparison. Indiana presents an ideal scenario as it has two casinos near the Michigan border, offering both mobile and retail sports betting options.
In October, the Ameristar Casino in East Chicago and the Blue Chip in Michigan City collected a total of $46.16 million and $6.92 million, respectively, from sports bets.
The average of those two numbers is $26.54 million, which will be used as an estimate to project the potential sports betting handle for the MGM Grand Detroit in a random month.
Sportsbooks are subject to taxation on their earnings, but not on the total amount of money wagered. By applying the same averaging method used for the October win percentages of Ameristar and Blue Chip, the projected win percentage for MGM Grand would be 11.9%.
Once the number is determined, it becomes possible to calculate the casino’s tax payments for both structures. The additional 6.25% plays a significant role in determining the outcome.
A difference of $196,875 between the two plans
Under the existing structure of the bill, the MGM Grand Detroit is expected to contribute $378,000 in taxes to the state, based on the assumption of generating $3.15 million in revenue for one month. This amount represents 12% of the projected revenue.
Whitmer’s proposal aims to raise the tax payment to $574,875. Based on the $3.15 million revenue benchmark, every one percent increase in the tax rate would result in an extra $31,500 in monthly taxes.
Over time, the revenue for casino sportsbooks would be significantly affected by a total difference of $196,875, which would be quite discouraging.
It is possible to find a compromise without increasing the tax rate, potentially by allocating a significant portion of the sports betting tax to the School Aid Fund.
The proposed compromise has the potential to alleviate Whitmer’s concerns without necessitating a tax rate increase. It remains uncertain whether Whitmer would be willing to accept this compromise, but it is evident that even slight percentage adjustments can translate into significant revenue gains for Michigan’s casinos each year.
