Indiana Sports Betting Produced About Half The Tax Revenue As Trains, But It Just Left The Station

It’s been over three years since the U.S. Supreme Court ruling paved the way for states, including Indiana, to legalize sports betting, so it’s debatable whether the industry in the U.S. is still nascent. That said, it’s clear things have just started rolling for the Hoosier State.

According to a comprehensive state report on state tax revenues in Fiscal Year 2020, sports betting was a tax pipsqueak. To use a term from New York Gov. Andrew Cuomo, a “rounding error.”

In Fiscal Year 2020, which ended nearly a full year ago, Indiana sportsbooks produced about $7.4 million for Indiana coffers. That was less than a full year, as sports betting kicked off in the fall of 2019. Indiana charges a 9.5% tax on operator sports betting revenues.

How negligible is $7.4 million for Indiana? Extremely. The state collected $16.95 billion in taxes, according to the comprehensive report. Sports betting was slightly more than half of the state’s $13.7 million direct tax revenue from trains (to be specific, railroad car and railroad company property tax).

Obviously trains aren’t a booming industry in the United States. Sports betting, or online gambling more broadly, is considered to be a major growth sector across the U.S. Indiana will see much more in taxes from sports betting as the activity continues to go mainstream.

That FY 2020 sports betting tax revenue also included pandemic months, where casinos were closed and major sports were briefly off the air. It was a challenging rookie season for Indiana sports betting, but no one among state policymakers, regulators, and the industry could be faulted.

Sports betting since the end of the fiscal

The numbers aren’t yet in for FY 2021, but it’s clear they are much better. Through May of this year, the total sports betting taxes collected were $27.7 million, according to figures compiled by Sports Handle.

That includes more than $20 million in tax revenue from sports betting in the fiscal year.

Since inception, Indiana books have taken more than $3.6 billion in wagers and raked in more than $291 million in taxable revenue, per state figures tracked by Sports Handle.

Going back to the trains … Indiana retail and online/mobile sports betting is now more than likely bigger than trains when it comes to filling state coffers.

Sports betting ancillary benefits

Of course, sports betting doesn’t exist in a vacuum. It helps many other markets indirectly.

Indiana collected $8.23 billion in sales tax in FY 2020, and sports betting helped fuel some small part of that. With sports betting not existing in Ohio, Michigan, or Kentucky in the fiscal year (Illinois had it for a small part of FY 2020), some bettors from other states came into Indiana. There’s no data on that contribution, but it’s notable. Those out-of-state bettors would often purchase things once in Indiana.

Sales taxes were up in FY 2020 over the $8.08 billion in FY 2019.

Other items such as fuel taxes ($1.45 billion in FY 2020) and alcoholic beverage taxes ($52.9 million) are also indirectly impacted by sports betting. Beer and sports betting obviously go hand-in-hand for many.

We can’t forget about individual income taxes, as sports bettors are required to pay taxes on winnings (profits). Those were $5.27 billion in FY 2020. Roughly 93% of the handle is returned to bettors.

We can’t quantify sports betting’s impact on these ancillary areas, but the direct sports betting tax isn’t the only benefit. If it was, states would have less of an appetite for it. Sports betting can also boost other forms of casino play, though with 2020 including a casino shutdown it’s more difficult to quantify.

In 2017, a study commissioned by the American Gaming Association found that Indiana could see $71.5 million in annual total tax benefits from sports betting, including direct and indirect taxes. That study is now a bit old, and it was conducted without a pandemic in the equation, but it shows that sports betting stimulates other sectors of the economy. Sports betting will continue to benefit Indiana.