When sports betting became legal in Arizona last September, it set the national record for most money bet in the first month of legal sports betting in any one state.
The new form of gambling still has room to grow in the Grand Canyon State, as more mobile sports betting apps and in-person casino sportsbooks have opened since September with more still planned.
“This is a brand-new market for the state, so I suspect it will continue grow over the next few years, for sure,” said Max Hartgraves, spokesman for the Arizona Department of Gaming.
There was $292 million in gross wagers placed in Arizona in the first month of legal gambling, edging out Nevada’s record of $287 million.
It’s still not clear what the lasting impact will be on tax revenue for the state.
In the first two months alone of legal sports gambling, Arizona already met the state government’s expectation for tax revenue: about $15 million.
However, $14 million of that $15 million came from one-time license fees that apps and sportsbooks pay when they open. The other $1 million came from the first two months of ongoing privilege fees — the state’s cut of sportsbooks’ revenues.
The Department of Gaming has not yet released data for bets placed in November and December, but Hartgraves said he expects they’ll be released by the end of January.
While the license fee revenue is going to largely dry up, the privilege fees should increase from the $500,000 per month during September and October.
The other moving target is that sports betting is not done expanding in the state. At the start in September, there were eight mobile apps and two in-person locations taking bets. That has risen to 12 mobile apps and 11 in-person locations.
“Arizona’s event wagering and fantasy sports is off to a strong start here in the state and will only increase as the market matures,” said Ted Vogt, director of the Department of Gaming in a news release. “We worked diligently with the public and stakeholders to efficiently and responsibly set up these industries in just under five months, and we are starting to see the culmination of this hard work.”
License fees
Arizona collected $750,000 for every sportsbook that was granted a license, as well as $100,000 from the few that applied and were denied because of the limit on legal operators under the new law.
Hartgraves said even operators that have not yet opened paid their license fees up front and are included in the $14 million collected.
Instead of the $750,000 one-time, upfront costs, operators will only have to pay a $150,000 annual renewal fee. With the law allowing a maximum of 10 tribal and 10 non-tribal sports gambling operators, a maximum of $3 million in annual license fees will be collected from renewals.
Privilege fees
The other form of tax collection from sports gambling should improve from the showing during the first two months because of what is likely to be an outlier of a first month.
This is because of tax breaks written into the law that legalized sports gambling that allow books and casinos to write off a portion of the free bets and promotions they offered customers.
During the first month of operation in September, when apps and sportsbooks were bombarding people with ads for promotions for new customers to get people to try their apps, those write-offs ate up all but $31,000.
October figures showed indications that first month was an outlier because of those new customer promotions, with tax revenues from privilege fees rising to just over $1 million. It should be noted there were only 22 betting days in September, as legal sports gambling began on Sept. 9.
The tax breaks for free bets and promotions will be phased out within six years and eventually won’t factor into the state’s haul of taxes at all.
In the meantime, it’s still too early to tell whether the state should expect roughly the same $1 million per month in privilege fees it received in October.
Hartgraves said he believed, based on the early data, the $1 million in privilege fees would be a safe floor to project moving forward.
“I would think the numbers of October, you’re going to see that going forward, if not more,” he said.
Aside from the small sample, the number of sports betting apps is growing. There were eight open in September and nine in October. That number has risen to 12, and Hartgraves expects it to reach 18 within a few months. The license agreements granted to sports gambling apps require they begin operations within six months, which would mean the remaining six apps would launch by early March.
Hartgraves noted most apps give out more free bets and promotions — resulting in a tax break in privilege fees — during their first month of operation. He expects the privilege fee revenues will look similar to how the original eight apps from September did — very little if any privilege fees paid to the state in the first month of operations before rising dramatically in the second month.
He said September’s low privilege fees, during a month where all eight operating apps were frontloading their free bets and promotions, should be an outlier as the state goes forward.
“I would expect that,” Hartgraves said. “It’s hard to speculate exactly what it will look like. This is how I view it: They’re only going to give out so many free bets or promotional credits. Obviously, they’re just not going to give everybody a free bet every time. And they’ve gotten a huge customer based already.”
The theory that apps will have high tax write-offs from free bets and promotions only in the first month has proven true from the early data. In September, all eight mobile apps were able to deduct 100% of their taxable revenue for the month. The state only collected privilege fees for the two operating in-person sportsbooks for that month.
By October, six of the eight mobile apps were paying privilege fees. The one new mobile app, Rush Street Interactive or RSI, deducted all its revenue.
The apps not paying privilege fees in October were pretty small potatoes. The new app plus the two existing apps that didn’t pay any privilege fees that month accounted for less than a percent of the total revenue operators collected in October.
Legislature’s expectations
When the bill to legalize sports gambling was passed in April 2021, the state legislature’s financial analyst forecasted $16.8 million in annual tax revenue. Ten percent of that would go to administrative costs, leaving $15.2 million generated for the state general fund each year.
The analyst forecasted $12.3 million per year from privilege fees, meaning the state would only need only a slight increase to its monthly pace over the $1 million it saw in October.
The state forecasted $4.5 million per year from license fees that only accounts for ongoing renewal fees and does not include the $14 million in one-time license fees the state collected from sportsbooks last fall. The state will collect an annual $150,000 annual license renewal fee from each sportsbook. With 20 operator licenses and 10 more limited licenses for racetracks and off-track betting sites, the financial analyst anticipated all 30 allowable licenses to be issued, resulting in the $4.5 million per year.
Aside from the $15.2 million from sports betting, the legislature also anticipates $1.2 million toward the general fund per year from fantasy sports betting and $17.8 million from keno and mobile draw games run by the state lottery.
In total, the financial analyst projects $34.2 million per year toward the state general fund as a result of revenues from new types of betting allowable by the new law. However, the forecast says this level of revenue is only expected starting in the 2024 fiscal year, which begins in July 2023, allowing the new markets some time to get a foothold.
Top apps
Through the first two months, the four most popular mobile betting apps in the state, in order, have been DraftKings, FanDuel, BetMGM and Caesars.
Arizona’s record of the most money bet in the first month of legal sports gambling isn’t likely to last. New York, with a population nearly three times Arizona’s, legalized sports gambling on Saturday, Jan. 8.
In-person sports betting
The new sports betting law also legalized in-person sports gambling, and sportsbooks have been popping up at casinos across the state.
Desert Diamond Casino – West Valley opened its in-person sportsbook in early December and is in the process of developing a mobile sports betting app as well.
While the casino eventually will provide the mobile option as well, the in-person sportsbook offers a unique experience.
“Place your wagers on one of our convenient digital kiosks and then watch the games in comfort with great food and drinks at our Winners Sports Bar. Our friendly team members are available to assist with any questions,” said Treena Parvello, director of government and public relations for the Tohono O’odham Gaming Enterprise in an emailed statement.
The casino soon will take over-the-counter bets in addition to the digital kiosks.
View a full list of in-person sportsbooks at bit.ly/3fpPEXo.
Under the renegotiated Tribal-State Gaming Compact, which was renegotiated in tandem with the bill to allow sports better, new casino games including craps, roulette, baccarat are now offered at some tribal casinos in the state for the first time.
Gambling addictions
Hartgraves stressed the importance of responsible gambling. He suggested the resource haveagameplan.org, which helps bettors set a limit and stick to it.
Those struggling with gambling addiction or otherwise problem gambling can reach the Department of Gaming’s Division of Problem Gambling by calling 1-800-NEXT-STEP, texting NEXTSTEP to 53342 or visiting problemgambling.az.gov.
At the website, bettors can fill out a self-exclusion form, which will make it impossible for that person to place a bet through the mobile apps or at in-person sportsbooks.
Mark Carlisle can be reached at mcarlisle@iniusa.org or found on Twitter @mwcarlisle.
Mark Carlisle
Associate Editor | Phoenix
@mwcarlisle
mcarlisle@iniusa.org
Meet Mark
Mark Carlisle joined Independent Newsmedia, Inc., USA, in 2017, covering Glendale. He has since moved to the Daily Independent team, primarily covering the city of Phoenix along with other topics affecting the Valley at-large.
Community: Mark enjoys taking his two young sons to parks, the Phoenix Zoo, the Phoenix Public Library and other fun events around the Valley. He also participates in a local book club.
Education: Chapman University with a BA in English Journalism and one in Screenwriting.
Random Fact: Mark worked at a tuxedo shop in college. Just don’t ask him to tie a bowtie.
Hobbies: Spending time with his wife, sons and dog, watching sports and TV shows, listening to audiobooks and occasionally writing fiction or designing a board game.
By 
Comments
No comments on this item Please log in to comment by clicking here