Missouri Sports Betting is Already Confronting a Hard Truth

Since launching on December 1, Missouri sports betting operations are drawing in the masses. More than $500 million in wagers were placed during the first month sportsbooks in The Show Me State were live.

Do you know how much tax revenue was generated off that action? Less than 1 percent of all the money thrown around.

That is the reality of sports betting in Missouri at this moment. Despite projections that have The Show Me State soon raking in over nine figures worth of tax revenue each year, profit margins will be hard to come by in the interim—perhaps even for the first 12 to 18 months.

This sounds ridiculous on its face. At the very least, it comes across as an unintended consequence of…something. In actuality, though, this is by design.

Missouri Sports Betting Tax Breaks are Currently in Full Effect

Two one-word questions spring to mind when considering that half-a-billion dollars of Missouri sports betting action earned the state essentially no money: How? And why?

Fortunately for us, Rudi Keller of the Missouri Independent does an excellent job breaking down the answer to the first question:

“The financial report, issued Friday by the Missouri Gaming Commission, showed the impact of provisions in the constitutional amendment allowing companies accepting bets to deduct the cost of promotional and other expenses. The 16 licensed operators provided customers more than $125 million in free bets and other promotional benefits. As a result, most showed a negative result and deductions exceeded net revenue by $20 million.

“The gaming commission received nearly $7.5 million from initial license fees paid for the 16 retail and online licenses. Two companies, DraftKings and Circa Sports, are online-only licenses, while the other 14 are either in casinos, at major sports venues or online platforms partnering with a major sports team. The net to the state was $521,200, or less than one-one-hundredth of 1 percent of the total wagered.”

Believe it or not, these types of deductions are standard fare for markets launching online sports betting in the United States. If you like at the other 39 places that have legaled some form of wagering, as well as Washington D.C. and Puerto Rico, you will find similar provisions in state constitutions or gaming compacts.

None of which answers the second leg of our question: Why?

Missouri is Counting on Short-Term Tax Breaks Equating to Long-Term Gains

The logic behind these promotional deductions is multi-faceted, yet not at all difficult to understand. First and foremost, The Show Me State is hoping the cost of Missouri sports betting licenses can offset some of the difference in Year 1.

As Keller notes in his piece, the initial upfront payments totaled around $7.5 million. This is a pittance relative to tax-revenue projections, but it’s still a chunk of change the state didn’t have before. Plus, it’s not as if sportsbooks in Missouri won’t pay a dime in taxes. They just won’t be forking over as much cash as they will be in future years.

That brings us to the second part of this approach: The Show Me State is attempting to maximize the number of people who bet on sports in Missouri. By offering more aggressive bonuses, sportsbooks are able to draw in more first-time customers. These users, the thinking goes, will then be converted to long-term patrons, who will not be subject to as many promotions.

Think about it: The initial sportsbook welcome bonuses and promotions always seem to be the most appetizing. Whether it’s a raw dollar amount in free bets or matching or doubling the first deposit, sign-up promotions are the creme da la creme of sports wagering incentives.

This is not to say Missouri sportsbook customers still won’t capitalize on bonuses into the future. They will. But they will not be offered nearly as often or be nearly as extreme. And while we cannot confirm this for The Show Me State, these constitutional provisions can have a shelf life. Some last only the first year.

Either way, Missouri is essentially conceding short-term tax revenue with the hope it positions the state for longer-term gains.

Time will Tell Whether This Approach

It is much too early to know whether these Missouri sports betting provisions will work as intended. Yet, if the onset wager volume is any indication, it just might.

Taking in more than $500 million in bets through the first month is a big deal when looking at market-launch comparisons. According to population data, the Maryland sports betting market is similarly sized. And during its third month of operations, back in 2023, it took in a little over $441 million in total bets.

If we adjust for inflation, this comes out to around $478 million today. Even by this measure, the Missouri sports betting volume in December comfortably exceeds this, having clocked in at $543 million.

To be sure, this does not necessarily portend the future. We need to see how The Show Me State fares over a longer period of time, including and especially during slower months in the sports calendar. But the early returns have exceeded expectations and, therefore, offer insight into why the constitutional provisions are in place.

Whether they need to be is a separate matter. Would sportsbooks have really flinched at bidding for licenses without these tax breaks? Perhaps. We will never know for sure.

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