Editor's note: This is the first of a two-part series on sports betting in Kansas. Read part two here.
Kansas taxpayers subsidize the millions of dollars nationwide sports gambling apps hand out to bettors for their initial wagers that get them in the habit of gambling.
The new sports betting industry also makes hardly any revenue for the state, amounting to a small drop in the bucket of the state’s multi-billion dollar operating budget.
What’s more, programs dedicated to supporting bettors with gambling addiction only get peanuts from that revenue. Instead, the vast majority of the dollars are placed in a fund aimed at attracting a sports team to the state — a concept that the fund would never realistically be able to afford.
A majority of state lawmakers — both Republicans and Democrats — legalized sports betting with caveats that heavily favor casinos and online sports betting apps but lack quality safety nets from the harm it has on some Kansans.
Legislators could change that by amending the law. But they showed little appetite for it in Topeka this spring after the law went into effect almost a year ago. And that’s after the New York Times called out the Legislature for bowing to sports betting lobbyists who swarmed Topeka to get a legalization law enacted.
Republican Rep. Paul Waggoner repeatedly called the proposal a bad deal for Kansas residents. One of the main sticking points is a provision that allows casinos to provide tax-free promotions to bettors — a tool that can be used to get people hooked on betting while creating no revenue for the state.
“It would be like a liquor store,” Waggoner said, “having promotional drinks to get people really into vodka and never having to pay taxes on that liquor. But of course it’s designed to drum up business.”
Meanwhile, the state has made less than $6 million in the first fiscal year of the program even though people bet $1.6 billion on the outcomes of games, an athlete’s performance and even far-out wagers like the timed length of the national anthem before the Super Bowl.
But supporters of the law contend Kansas is in line with the 37 other states that have joined the rush to legalize sports betting.
Take former House Speaker Ron Ryckman, for example. Lobbyists for sports betting apps recently pointed to the one-time Republican leader as a champion of the law. He contends the law reflects the best practices established in other states that legalized sports gambling, and the law now gives Kansans a legal way to do something they were already doing illegally.
Ryckman also said it was important for Kansas to get the jump on Missouri, which still hasn’t legalized sports betting.
“Now we are getting thousands of Missouri residents,” Ryckman said, “coming into Kansas to place their bets every week, and Kansas keeps that tax revenue.”
Yet the total revenue from sports betting to the state represents just 0.05% percent of all tax revenue. It’s a miniscule amount of money for the state, and not even enough to repair a bridge on Interstate 70 in Wyandotte County.
Additionally, lawmakers have yet to show interest in an overhaul of the law. The vast majority of Democratic lawmakers backed the proposal that was pushed by Republicans. And Democratic Gov. Laura Kelly signed the bill into law without raising any objections to how it was crafted. She even celebrated sports gambling opening by making the first legal bet in the state and wearing a jacket promoting Barstool Sportsbook, one of the several online betting apps that flooded the state with legalized betting.
After reporting about how Kansas got less than $1,200 out of more than $194 million bet the month the Kansas City Chiefs won the Super Bowl, Kelly said she had some concerns about the law. She has yet to specify what changes she might want to see.
Her spokesperson didn’t go far to clarify that.
“She agrees there are aspects of the sports betting legislation that could be improved,” Zach Fletcher said in an email. “She will continue to discuss any potential changes with legislators.”
Lobbyists win, Kansans lose
Waggoner said legal sports betting is a bad deal for Kansas taxpayers because lobbyists essentially wrote the bill. Those same lobbyists descended on Topeka in droves to push for the new industry in the state by offering lawmakers money, single-malt whiskey and cigars, The New York Times reported.
The bill then sailed through the Legislature late in the 2022 session, during a period when bills are made in conference committees — where a handful of lawmakers craft a plan by negotiating between the House and Senate and most don’t get a chance to offer improvements.
“The details of this,” Waggoner said, “were not really well known or really analyzed in any serious sense when the Legislature passed this.”
Under the law, casinos don’t pay taxes on promotional bets, which the sports betting apps offer liberally. Anytime a bettor logs into DraftKings or FanDuel, they will see several different promotional bet opportunities. A common promotion is handing over $100 of free bets when a bettor deposits $100 of their own money — instantly doubling the money they can play with. Some even offer referral bonuses that give gamblers more free bets if they find a way to get their friends and acquaintances hooked too.
That’s a way the casinos get bettors to start playing. The casinos then don’t pay any state taxes on the revenue from the free bet until they get their promotional money back. However, the casinos still need to pay federal taxes on them. So in practice, the state is subsidizing advertising to get people interested in sports betting.
In turn, Kansas makes very little money off of sports gambling. It only taxes 10% of the profit the casinos make. That’s comparable to the rates of other Midwest states with legal sports gambling, but it pales in comparison to Rhode Island and New York, which impose a 51% tax.
In June, the end of the fiscal year, Kansas reported earning $5.8 million. That’s less than 0.1% of the state’s $9 billion general fund budget. And only a tiny fraction of that revenue — roughly $100,000 — is put toward funds that help people who suffer from sports gambling addiction.
But the state still earned more than it expected. Cory Thone, a spokesperson for the Kansas Lottery, said the state initially estimated making just $1.8 million in the first fiscal year. The state pushed the estimation up to $5.6 million in the spring and exceeded that as well.
No need for subsidy
No month better encapsulates the benefit to casinos than February 2023 — the same month the hometown Kansas City Chiefs were playing in the Super Bowl. That made the biggest sports betting day in the country even bigger in Kansas. Yet the state made practically nothing off of it.
According to the Wichita Beacon, the casinos in Kansas took on about $194 million in bets. Once the dust settled, the state earned just $1,134. Meanwhile, the casinos paid out $468,000 in federal taxes, which is usually smaller than what the state is owed.
Richard Auxier, senior policy associate for Tax Policy Center, said promotional bets suppress the amount of money the state collects. And he said allowing the casinos to offer the untaxed promotional bets is downright nonsensical because sportsbooks don’t need tax incentives to begin operating in Kansas.
Subsidizing a new industry in that way is meant to spur on a business that the state thinks may struggle or bring a new industry to the state that otherwise would not. Sports betting — which is backed by national sports betting apps that advertise basically everywhere — does not fall in that category.
Auxier said the sports betting apps were going to start operating in Kansas as quickly as they could once the industry was legal.
“It’s a complete misunderstanding of both what the product is and what the market is,” Auxier said. “Why legislators decided we should give away tax breaks on free promotional bets is beyond me.”
One possible reason is that state lawmakers gave it to lobbyists because they asked for it. Waggoner argues they chose what the lobbyist wanted over what benefits Kansas.
“All we ended up with,” Waggoner said, “was just a very sweet deal for the casinos and nobody else.”
Ryckman downplayed the promotional bet tax credit, comparing it to a barbecue joint giving out free samples. However, he did not respond to questions on whether the tax credit was included because lobbyists wanted it.
“Sports betting operators who give customers free money to place bets,” Ryckman said, “should not have to pay tax on that money.”
Ryckman also argues the low revenue in February had nothing to do with promotional bets and the benefit of the promotions have already dropped off for the casinos. Instead, he believes the state saw little revenue in February because many Kansans were collecting on their winnings when the Chiefs were crowned Super Bowl champions.
Lack of changes
Waggoner said changes still need to happen. But when he looked into amending the law this past spring to increase the tax rate from 10% to 20%, he learned the Kansas Lottery entered five-year contracts with state casinos to administer sports betting.
He was warned that if the state changes the tax rate, the casinos could sue for a breach of contract, he said.
But the legislators may be able to change whether promotional bets are tax exempt. And they could always move around where the revenue is used. Waggoner suggests more of the funding should go toward aiding people with gambling addiction or conducting a study on sports gambling in the state to see how it is affecting people.
But Ryckman contends changes are not needed. At least for now. He said the law is in its infancy and it appears to be operating smoothly.
“Lawmakers will continue to keep a close eye on this issue,” Ryckman said, “but I think it’s premature to discuss any changes at this point.”
Dylan Lysen reports on politics for the Kansas News Service. You can follow him on Twitter @DylanLysen or email him at dlysen (at) kcur (dot) org.
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