Virginia Sports Betting Landscape Could Shift with Promo Changes

Budget-related legislation in Virginia now limits the use of a tax deduction tied to free bets and other promotions that are intended to attract customers to an online sportsbook.

Last Updated: Jul 21, 2022 2:53 PM ET Read Time: 2 min
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The competitive landscape for sports betting in Virginia could start shifting soon, as recent changes made via the state’s budget process will block some operators from deducting free bets and other promotions from their taxable revenue. 

Virginia law allows the operators of online sportsbooks to deduct the value of promotions provided to bettors from their revenue, which is then subject to a 15% tax rate.

Legal online sports betting began in the state in January 2021, and bookmakers have since used a heap of free bets and other bonuses to acquire customers. 

Yet, using the promo deduction has also saved operators plenty in taxes, which raised a few eyebrows in the commonwealth. In May, for instance, nearly $10 million in bonuses and free-play incentives were reported by 14 licensed operators during the month, reducing taxable revenue by the same amount and resulting in just $3.9 million in tax payments to the state.

However, a recent change made through budget-related legislation now means operators can only make those deductions for a year after they start taking bets. The tweak means FanDuel, DraftKings, BetMGM, BetRivers, Caesars Sportsbook, WynnBET, and Unibet no longer have the promo deductions available to them, as they have been operational in Virginia for more than 12 months. 

The tax change was effective as of July 1 and could cause operators to tweak their tactics.

“It'll be interesting to see how they change what they offer to the patrons as we move forward,” said Gina Smith, the Virginia Lottery’s deputy director of gaming compliance, during a board meeting on Wednesday. 

A few stragglers still

From the start of January to the end of May this year, sports bettors wagered more than $2.1 billion via the state's online bookmakers, Smith noted. FanDuel had the greatest share of the state's sports-betting market in the first five months of 2022 at approximately 41%, followed by DraftKings at almost 22.2%, and then BetMGM at nearly 19.7%.

But Smith's presentation showed a different split among operators when it comes to promotions, with bookmakers shelling out almost $68 million in free bets and other goodies from January to May. BetMGM was responsible for 37.1% of those promotions, while FanDuel accounted for 27.6% and DraftKings 16.5%. 

Those three operators are now unable to deduct promotions from their taxable revenue (although they can still roll over monthly losses to tamp down that revenue in a future month), which could be good for Virginia's finances. Meanwhile, newer operators in the state, such as Betway, will still have the deduction in their toolkits. 

“We'll have some of the stragglers that will still have a year to have that ability to deduct,” although a year from now, that will no longer be the case, Smith said. 

Sports betting in Virginia is still mostly conducted online. There is, however, now a brick-and-mortar sportsbook at the temporary Hard Rock casino in Bristol

Virginia is not the first state to try to curb promo-related deductions either, as Colorado reportedly made a similar move earlier this year. 

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