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Minnesota Sports Betting Bill Takes One Step Forward, One Step Back

Minnesota Rep. Zack Stephenson made significant changes to his Minnesota sports betting bill Thursday that gained the support of Minnesota charities but further alienated horse racing tracks.

Minnesota Wild Sports Betting
Photo by Alex Gallardo/AP photo
Matthew Kredell Avatar
7 mins read

Minnesota Rep. Zack Stephenson made significant changes to his Minnesota sports betting bill Thursday that gained the support of Minnesota charities but further alienated horse racing tracks.

The amendment, added in the House State and Local Government Finance and Policy Committee, provides an estimated $40 million in annual tax cuts for charities.

Stephenson also added language to tax and regulate the existing daily fantasy sports industry in Minnesota.

The committee voted 8-5 to advance HF2000 to the House Taxes Committee.

Tax cuts for Minnesota charitable gaming

The sports betting bill now adjusts lower charitable gaming tax rates in phases over the next several years. Ultimately, Stephenson says these tax breaks will result in more than $40 million in charitable gaming tax relief.

From July 2027 on, charitable gaming taxes will cap out at 26% for revenues over $157,500. Small charities with net receipts of $87,500 and under pay just 3%.

The tax breaks are in response to changes made by the legislature last year restricting electronic pull tabs used by charities.

Stephenson said he believed that charities would now make more money than they did before the restrictions.

“Under current law, the tax on charitable gaming is high enough that if you look at the proceeds after prizes are paid out, the state actually gets most the money out of charitable gaming, followed by the game developers, followed by the charities. When this is fully implemented along with the changes that were made last year around taxes and capping developer fees, I think you’ll see that flip. I think you’ll see the charitable mission being the No. 1 beneficiary of charitable gaming, and I think that is a good thing and appropriate.”

Rachel Jenner, executive director of Allied Charities of Minnesota, confirmed with PlayUSA that she worked with Stephenson on these changes and Allied Charities now supports the bill.

Kristy Janigo from the American Legion Department of Minnesota praised the charitable gaming changes.

“It’s difficult for me to fully describe how much this means to us. … This amendment includes a historic amount of tax cuts for charitable gambling, adding $40 million more to the approximately $15 million in tax cuts that you gave us last year with the tax omnibus bill. We say historic because we’ve never before seen this level of tax cuts. Our state taxes have been higher than the amount of money we’ve been able to deploy to help our communities. And we believe what you’re doing with this bill will reverse that to the benefit of all Minnesotans.”

The charities see the House changes as much more advantageous to them than a Senate proposal providing 20% of online sports betting revenue.

Minnesota Indian Gaming Association Executive Director Andy Platto expressed support from the tribes for the charitable gaming changes.

Historical horse racing ban added to bill

Stephenson’s amendment does a lot for charities but little for the state’s two horse racetracks. Canterbury Park and Running Aces would like to participate in sports betting.

However, if the legislature wants to move forward with this plan to give Minnesota Indian tribes exclusivity over sports betting, the tracks ask for revenue share to make up for the hit they believe this expanded gaming in the state would have on their operations.

Stephenson’s amendment provides a small stipend, $625,000, to the tracks from sports betting revenue. But it then adds language prohibiting the Minnesota Racing Commission from authorizing historical horse racing at tracks.

The tracks have asked the Minnesota Racing Commission to permit them to offer historical horse racing (HHR), arguing that it falls under voter-approved pari-mutuel wagering.

Running Aces CFO Tracie Wilson said at the hearing that she was shocked to read Stephenson’s amendment.

“This bill is supposed to be about the legalization of sports betting. But in this amendment the bill directly targets the Minnesota statute regulating pari-mutuel horse racing. … This bill will cost the racing industry millions in lost revenues while only contributing $625,000, a small amount, to purses. The horse racing industry in Minnesota would be badly damaged by this unfair amendment.”

Rep. Jon Koznick questioned Stephenson as to why HHR was being targeted in the bill when it has helped horse racing tracks in other states.

Stephenson responded that he was clarifying the law to reflect the legislature’s policy decision not to allow slot machines at racetracks.

“First I think we need to be clear about what historic horse racing is because it’s I think a name that gives a misleading impression of what’s going on. Historic horse racing are slot machines, and we should just be honest about that. … It’s on a video console that looks just like a slot machine because that’s the intent. The intent is to have an experience like the slot machine.”

Randy Sampson, CEO of Canterbury Park, did not speak at the hearing but voiced his opposition to the amendment to PlayUSA later in the day.

“Unfortunately, we continue to go backwards, which isn’t helping reach a reasonable solution that allows for a viable horse racing industry in Minnesota.”

Minnesota sports betting taxes and fees increased

To help pay for the tax cuts provided to the charities, Stephenson increased the tax rate and licensing fees for sports betting.

The tax rate doubled from 10% to 20%, matching the increase made to the Senate bill earlier this month.

The bill allows 11 mobile sports betting operator licenses for tribes, 11 mobile sports betting platform licenses for sports betting companies that would partner with tribes, and sports betting supplier licenses for parties that will work with them both. Tribes still only have to pay an annual licensing fee of $2,125.

Licensing fees increased as follows:

  • Application fee for a mobile sports betting platform from $6,000 to $50,000.
  • Initial three-year licensing fee for mobile sports betting platforms from $38,250 to $250,000. Renewal from $25,500 to $250,000.
  • Initial three-year licensing fee for sports betting suppliers from $38,250 to $100,000. Renewal from $25,500 to $100,000.

Distribution of sports betting revenue also changed. Now 80% goes to the general fund and 20% to a sports betting revenue account.

From the sports betting revenue account, half goes to address problem gambling and half goes to promote youth sports and activities.

Essentially, that’s 10% of sports betting tax revenue to problem gambling. The amendment specifies that one-third of that money go to problem gambling treatment, one-third to emergency services and one-third for public gambling awareness and education.

Daily fantasy sports regulations added

Daily fantasy sports regulations take up the most real estate in the amendment.

Key details include:

  • Companies currently offering daily fantasy sports in Minnesota can continue to do so as long as they submit an application for licensure within 90 days of the commissioner making them available.
  • Initial three-year licenses cost the higher total of 10% of adjusted gross fantasy contests receipts over the previous year or $5,000.
  • Renewal fee equal to 1% of adjusted gross fantasy contests receipts over the previous three years.
  • Application fee of $10,000.
  • A 10% tax on gross fantasy receipts.
  • Age requirement of 21 or older for participants.

Stephenson explained why he thought Minnesota should regulate the daily fantasy industry.

“Daily fantasy sports is a gray market activity in Minnesota right now. It’s happening all the time. It’s not illegal but it’s not expressly sanctioned by the state. In other states that have legalized sports betting, the regulatory authority that was responsible for sports betting is attempting daily fantasy sports as unlicensed sports betting. And so, in discussing this with stakeholders, the thought was it would be better to have a actual regulatory structure around DFS to make clear to the regulator that this is a permissible activity. It’s not unlicensed sports betting.”

What’s next for Minnesota sports betting bill

Getting support from charities is a significant step that points to HF2000 being the sports betting vehicle with legs in Minnesota this year.

Sen. Matt Klein’s SF1949 also is stuck in a committee with a chair who opposes the bill.

Jenner told PlayUSA that charities will be pushing strongly for the passage of HF2000.

“We support Stephenson’s bill, HF2000. I think it is the vehicle and hope it will pass, because without the sports betting bill we don’t have any path to getting more money for charities this session. So sports betting and Stephenson’s bill is definitely our vehicle to undue some of the harm done at the end of last session by clipping our e-games. There’s a lot of time left in the session so hopefully they can come together and pass a bill because our industry definitely needs it.”

That’s one two major stakeholders in support with the tribes and charities.

Getting the tracks on board would presumably give legislators the green light to pass Minnesota sports betting this year. However, with the addition of the HHR prohibition, horse racing support seems further away than ever. Legislators have until May 20 to work on a solution.

If the state can overcome the hurdles to approve sports betting, Minnesota online casinos could be the next logical step, although that is currently not on the table. Keep track of Minnesota and other state iGaming legislation with our online casino bill tracker.

Matthew Kredell Avatar
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Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and has interviewed more than 300 state lawmakers around the country.

View all posts by Matthew Kredell

Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and has interviewed more than 300 state lawmakers around the country.

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