The Massachusetts Senate spent most of Thursday working through a sports betting bill (H 3993). Senators considered 69 amendments but only adjusted the legislation that emerged from the Ways and Means Committee late last week at the margins. Most amendments received voice votes, which means we don’t know how individual Senators feel about the policies.
That sets up a conference committee showdown pitting the industry-friendly House bill against the Senate version, focused on consumer protections and tax generation.
The gap between the two chambers will be difficult to bridge before the legislature adjourns at the end of July, as the Senate and House diverge on several key issues:
- Tax rates
- Licensing structure
- Collegiate sports betting
- Credit card usage
- Advertising restrictions
Making matters worse, the Senate wasn’t interested in negotiating on any of these key points yesterday. Essentially, the Senate, which has been apathetic to sports betting all along, appeared to be telling the House, this is our final offer, take it or leave it.
Tax Rates Influenced by the Surrounding States
When New York imposed a 51% tax on sports betting operators, there was some concern these excessive burdens would trickle into other states. Those concerns are now a reality.
An amendment to lower the mobile betting tax rate in the Massachusetts Senate from 35% to 12.5% and the retail tax rate from 20% to 10% failed 35-4. The House version set the mobile tax rate at 15% and the retail tax rate at 12.5%.
Before the vote, Sen. Bruce Tarr took to the floor to argue the state’s 35% tax on mobile wagering would make it uncompetitive in the market. Sen. Michael Rodrigues delivered the rebuttal, pointing to neighboring states and noting the tax rate in New York, New Hampshire, and Rhode Island is 50-51%.
“When we look around at what other states have done in this area, we notice Pennsylvania, with a tax rate of 36%, is among the highest total sports wagers and resulting state revenue in the country,” Rodrigues said. “It would be difficult to suggest Pennsylvania is uncompetitive.”
“I find it hard to believe that a tax rate that is lower than Pennsylvania and New York, and lower than three of our four neighbors would make Massachusetts uncompetitive,” said Rodrigues, before noting that one of the bill’s goals is to generate tax revenue.
When it comes to tax rates, the Senate has the upper hand in negotiations, and as we’ve seen in several states, operators will begrudgingly accept a high tax rate. The question is, will the Senate budge at all, and if the House acquiesces on taxes, can it get anything in return?
The best argument would be that Pennsylvania allows for promotional deductions (which lower the PA tax rate to under 25%) and the Massachusetts Senate bill does not.
Licensing Structure Remains Unchanged
The Senate rejected or withdrew amendments to increase market access and adjust the licensing structure.
The result is a market with no more than nine mobile operators, but likely less. The state’s three casino operators can launch a single mobile platform, as can up to six hybrid licensees chosen by the state, and defined below.
- Category 1 – permits the holder of a gaming license to operate sports wagering through 1 mobile application or other digital platform approved by the Gaming Commission and in person at a gaming establishment.
- Category 2 – permits the operation of sports wagering through 1 mobile application or other digital platform approved by the Gaming Commission and in person at a facility approved by the Gaming Commission.
The bill also opens the door for more Category 1 licenses, as Massachusetts is sitting on a casino license, as well as the possibility of tribal casinos.
If the bill makes it to the conference committee, this is one area where the Senate may be willing to negotiate. That can be done by either increasing the number of online skins/platforms allowed or creating a third license category for mobile operators.
No Compromise on Collegiate Sports Betting
Perhaps the most significant difference is the two chambers’ stance on collegiate sports betting. The House wants to allow wagering on college sports, while the Senate wants a blanket ban. And neither side seems willing to compromise on this point, at least not yet.
The good news is there is a compromise position that allows both chambers to chalk this up as a win, a ban on in-state college betting. Whether or not the Senate is interested in compromising is unclear.
Are Credit Cards the Hill the Senate Will Die On?
The Senate tipped its hand when it strengthened the already restrictive credit card ban by amending it to read “or a third-party payment method providing funds through the use of a credit card.” That means customers cannot use their credit card to deposit or place wagers, nor can they use their credit card to fund a PayPal account or purchase a gift card to wager on sports.
That policy will be a nightmare to enforce and could be a compromise point for the two chambers. However, I don’t see the Senate moving off its position about credit cards, which like taxes, shouldn’t be a dealbreaker for the industry.
Consumer Protections are the Cornerstone of the Senate Bill
The Senate also approved several amendments that strengthened the already robust consumer protections in the bill. The whistle-to-whistle ban on betting ads during sporting events and the requirement that 85% of an audience be 21+ (borrowed from the legal cannabis industry in Massachusetts) would make Massachusetts the most restrictive advertising market in the country.
These policies would hurt market penetration, particularly early on. Still, they shouldn’t be dealbreakers.
Based on the bill and yesterday’s session, it’s evident that the Senate’s willingness to legalize sports betting hinges on the state having the most robust consumer protections. The industry needs to decide if it’s willing to accept that fate or try again next year.
