Q&A of the Day – Is Florida’s proposed sports betting bill a rip off?
Each day I’ll feature a listener question that’s been submitted by one of these methods.
Email: brianmudd@iheartmedia.com
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Today’s entry... Love the show. I wanted to voice my opinion to you about this sports gambling bill. First off, I have no problem with it and would vote yes on a realistic bill for it. But the way it's been packaged, as that Senator on your show was saying, is nothing more than another greedy money grab by our state officials that are in dire need of more revenue to waste. First, they want to charge people $100,000.00 to get their license then they want to take half of their generated revenue too? That's nothing more than legal extortion. The Senator on your show, (I didn't catch his name.), should be ashamed of himself. What Senator was that BTW? If you would please let me know his name it would be greatly appreciated. Now I ask you, what person in their right mind would willingly start a business to let the state take 50% of their income? That's just insane!
Bottom Line: I hear you and, on the surface, what’s you’re saying makes sense. Having 50% of anything confiscated does sound insane. There’s more consider in this case... I’ll explain.
The Senator who proposed the legislation for legal sports betting in Florida is Jeff Brandes. He’s a Republican, an Army veteran and has represented a district that’s predominantly in Pinellas county in the senate since 2012 (after one-term in the house). Incidentally he is the highest rated member of Florida’s state legislature according to the pro-business/limited government organization Americans for Prosperity. In other words, he’s not the type to typically support government overreach in business. On that note, states that have opened for sports betting since the Supreme Court’s ruling have the following revenue share rates:
- Arkansas: 12.5%
- Delaware: 50%
- Mississippi: 12%
- Pennsylvania: 36%
- Rhode Island: 51%
- West Virginia: 10%
Brandes’s proposal, while much higher than states like Arkansas, Mississippi and West Virginia, is in line with Delaware and lower than Rhode Island. Both states have successful operators currently. The difference in an industry like sports betting, compared to retail – typically the lowest margin business, is massive. The average net profit margin across all businesses in 2018 was 8%. That includes a range of a net profit margin that was as high as 51% for railroads, to –4% for electronics companies. In fact, five industries had negative profit margins last year. But again, the average profit margin was 8% - so that’s your baseline.
In 2018, the gaming industry averaged a gross profit margin of 54% and a net profit margin of 18% making it one of the highest margin industries in the country, and like the restricted cousins of gaming – alcohol and tobacco. With a profit margin that’s 225% higher, with existing taxes that range in the single digits in Nevada to greater than 50% in Rhode Island, there’s obviously lots of cushion within the business model to make it highly profitable with well above average taxes and/or revenue shares with the state.
The difference is operating expense. The overhead/operating costs associated with operating sports betting kiosks and/or websites is extremely low once the upfront expenses have been accounted for. I’m not advocating specifically on the state’s proposed revenue share. I agree it sounds high, but when you consider that two of the six states to have opened into this space recently have similar rates and unlike, Delaware and Rhode Island, we don’t have personal income taxes – it might look a bit more reasonable than it sounds without additional context.