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A Maryland legislator said he believes a bigger chunk of iGaming revenue can help him get Maryland online casino legislation across the finish line in 2024.
Sen. Ron Watson wants to increase the tax rate for online casino operators from his previously proposed 15% to 47%, including 1% for problem gambling and 1% to the State Lottery and Gaming Control Agency for regulatory activities.
Watson told PlayUSA that he had a simple explanation for proposing a substantially higher tax rate.
“Because the casinos can afford it. The margins are huge because there is no overhead. I believe there’s a lot more that can be done through iGaming to support the state’s financial deficit.”
Watson’s referendum bill SB 565 and potentially the implementation bill SB 603 will get a hearing Feb. 28 in the Senate Budget and Taxation Committee.
Details of Maryland online casino bill
Watson’s SB 603 has similar language to his bill last year except in a few key revenue-raising areas. Key details include:
- Assigns the State Lottery and Gaming Control Agency to regulate online casino.
- An initial license fee of $1 million for four years (up from $500,000 for five years).
- License renewal fee equal to 1% of annual revenue over the previous three years.
- A maximum of two skins for each Maryland casino, creating the possibility of 12 Maryland online casino apps.
- Tax rate of 45% going to the Education Trust Fund.
- An additional 1% of tax and licensing fees to a problem gambling fund.
- Another 1% to the State Lottery and Gaming Control Agency for regulatory activities.
- Provides gaming data to data analytics and esports programs at Morgan State and Bowie State universities.
“This bill is very thoughtful about problem gaming, a good start to solving our revenue hole, provides data to Murray State and Bowie State and jobs to live dealers,” Watson said. “All the pieces are there. Now it’s time to get some folks on board and get this across the line.”
The contribution to a problem gambling fund is another new addition. When Maryland legalized sports betting, lawmakers put no money toward problem gambling. Watson hopes to make up for that with online casino.
“We’re going to put 1% to problem gaming because that’s where I get the biggest pushback. A 1-800 number won’t just flash on the screen when patrons log in but when they log off. And users have the ability to put any kinds of limits or controls they want on their accounts.”
Watson seems willing to negotiate tax rate
Despite seeming like a steep increase compared to Watson’s prior legislation, the tax rate isn’t completely out of line.
Pennsylvania, the largest online casino market in the country, has a 54% tax rate on online slots.
It’s also not far off from the retail rates Maryland casinos pay. On video lottery terminals or online slots, Maryland’s six casinos pay the following varying rates between 39% and 60%:
- Rocky Gap Casino Resort 60%
- Casino at Ocean Downs 53%
- Maryland Live! 49%
- Horseshoe Casino Baltimore 46%
- MGM National Harbor 44%
- Hollywood Casino Perryville 39%
But casinos only pay 20% on table games.
Several industry representatives told PlayUSA they don’t love the tax rate but think they can work with Watson on a viable compromise. A couple of possibilities mentioned included making the online rate for table games 20% like with retail and perhaps using a tiered online slots tax rate based on revenue, similar to the Michigan model.
Watson said he would hear them out.
“I’ll put it out there and wait for them to say their price. I know how the game is played. You go low, I go high and we meet in the middle. No gaming company worth a salt is not going to try to make as much money as they can. My job is to make sure we close a very important revenue hole in our state.”
A study ordered by lawmakers last year and conducted by The Innovation Group provided a reason to keep the online casino tax rate lower than the retail casino rate. According to the study:
“To attract the black-market player into regulated iGaming channels, operators must be positioned to aggressively market to this group. With current gaming tax in Maryland at the level it is, it would be challenging to give online gaming a higher tax rate and simultaneously expect operators to aggressively market to players at illegal online casinos.”
Operators clearly will have to convince Watson that there are unseen expenses to running an internet gambling business.
“When I talk to the folks who helped us get sports betting off the ground, they say it’s literally a couple tweaks in software code give people access to iGaming,” Watson said. “This isn’t like opening a brick and mortar where they have all these employees, gas, electric and other utilities. There is no overhead, so the margins can be much higher and the revenue generated can be much higher.”
Maryland iGaming revenue could help fund educational initiative
In 2021, the legislature passed the Blueprint for Maryland’s Future Act. Now, the state needs $3.8 billion to fund the initiative during a time when Maryland faces a budget crunch.
Watson sees iGaming revenue as a key component of fulfilling this obligation without raising taxes. His bill will lay out that the 45% tax revenue goes toward education.
According to the Innovation Group study, a 45% tax rate would produce about $250 million in tax revenue for education in 2026 and more than $400 million annually by 2029.
“One of the biggest initiatives we put forward in the last couple years is to re-establish Maryland as the No. 1 state when it comes to educational outcomes for our kids. It’s going to take over a $3 billion investment. Meeting those objectives is a large part of what’s driving the state’s financial issues, and iGaming can help.”
Minority participation might not be roadblock
When Maryland passed sports betting legislation, it took adding a minority component to appease the legislative black caucus. Despite their best efforts, few are satisfied with how the inclusion attempts have played out for Maryland sports betting.
Watson, a member of the legislative black caucus, isn’t sure how minority participation could be handled better for iGaming. But he’s not sure it is needed.
“My fellow Black Caucus members have known this bill has been in the works for over a year,” Watson said. “If there are questions or concerns or a desire to do something within that space, I would have heard it by now.”
Watson said one suggestion he’s heard and would consider is adding a third skin requiring a minority component. But after watching how the minority component Maryland attempted to add to sports betting has been ineffective, he is unsure of the viability and legality of such a concept.
“I don’t see how we can force a minority component into something that’s tech-ready. It’s very challenging these days to try to force a business to take on a minority vendor. I’d hate to put something in place that gets challenged and overturned and has to go to the Supreme Court.”
Watson thinks there could be a minority component in the live dealer language. He would like to see the live dealer studios set up on the campuses of Morgan State or Bowie State, two historically black colleges and universities in Maryland.
“Those are real jobs right there,” Watson said. “From what I understand, 700 people could be employed as live dealers in Maryland.”
Senator optimistic about 2024 Maryland online casino chances
Watson believes increased state revenue from a higher tax rate can help him pass online casino legislation in 2024.
“Some people question whether the juice is worth the squeeze, that is balancing the potential for increased problem gaming versus the revenue that will help minimize tax increases. If the casinos are the ones making all the money and the state doesn’t see any benefits, it’s a non-starter. I think the revenue is very important to get people on board.”
The 2024 Maryland online casino push will begin on Jan. 18, when the Maryland State Lottery & Gaming Control Agency will brief the House Ways and Means Committee on the iGaming report. Industry representatives will have the opportunity to comment.
Watson said that Del. Vanessa Atterbeary, chair of the House Ways and Means Committee, will sponsor companion iGaming bills in the House. Getting a chair of a top House committee to champion the bills adds serious credibility to the 2024 effort.
Watson will run the Senate legislation through the Senate Budget and Taxation Committee.
“She will provide strong support in the House, I will push very strongly in the Senate and we’ll see where we end up,” Watson said. “At the end of the day, the bill has to pass both chambers, the governor improve the implementation bill and voters approve the referendum.”
The Maryland legislative session ends April 8. Watson expects to get iGaming to the finish line by that date, putting the question to Maryland voters in November.
“I believe this is going to pass,” Watson said. “The final form may be a bit different from what we’re starting with, but I don’t see how the state cannot take advantage of this additional revenue stream.”
