Schuetz: On Gaming Taxes, The Industry’s Enduring Curse Of Frankenstein

Politics has become so expensive that it takes a lot of money even to be defeated.

– Will Rogers

Mary Shelley, in her book Frankenstein, had her creation, Victor Frankenstein, utter the following lines:

“I had desired it with an ardour that far exceeded moderation; but now that I had finished, the beauty of the dream vanished, and breathless horror and disgust filled my heart. Unable to endure the aspect of the being I had created, I rushed out of the room…”

This was Victor’s thought after he realized that the thing he had created was, well, Frankenstein. Such is the online sports betting industry as it begins its histrionics at the suggestion that New Jersey Governor Phil Murphy would like to raise taxes on the industry.

Murphy presents a challenge for the online sports betting space because of the relatively unique laws in the state that make it difficult to get money from the gaming industry and gaming-related institutions and personnel to the politicians. This means there will be much more public noise from lobbying entities, industry-related associations, and supposedly grassroots (actually astroturfing) efforts. Because of the rules, there will be less check writing to politicians.

It is much quieter in states that allow political contributions from the industry, for they just start writing checks to politicians and send a stream of lobbyists to do what they need done. 

Make no mistake: I am a fan of low taxes for the industry, because it is better for the player. 

But my response to the industry is that you deserve what is happening. Yes, you created this monster, and now you are whining because it becomes an even more incredible monster as it grows up.

The online sports betting industry has acquired a reputation of throwing money at things. They really are a one-trick pony in that regard. The stuff they throw money at includes politicians, lobbyists, influencers, lawyers, endorsers, ex-regulators, ad agencies, and the like. A great example of this was demonstrated in California.

In the Golden State, we witnessed hundreds of millions of dollars thrown at a ballot initiative to get essentially 17% of the vote. This demonstrated to the world that the sports betting folks had tons of money – and very bad consultants. In other words, they had more money than sense.

Notice taken at all levels

Here is a scoop – when a group foolishly spends tons of money on something, people notice, and those who notice will then gravitate towards the source of that money. And this is important; no group has a finer sense than politicians regarding someone being a soft spot for throwing money around. You don’t believe me, check out OpenSecrets.

One notes that the feds are increasingly eager to enter the online sports betting world. This is because their high moral compass drives them towards a commitment to ensure that the industry operates at a high level of character, honesty, and integrity. Okay, that was a joke. They are, as P.J. O’Rourke argues, a parliament of whores, and they want in because they are all about the Benjamins.

The 2024 Senate race between Sherrod Brown and Bernie Moreno in Ohio passed the $500 million mark in spending. The point is, federal politicians need money. And hardly a week goes by where the betting industry does not provide some occasion, such as destroying a family, athletic corruption, or some other silliness to again provide the feds with another talking point as to why they need to be in the middle of all of this, remembering that they want to be in the middle of all of this because there is a ton of money in the middle of all this. It also helps that some states are doing a lousy job of regulation. Don’t believe me, check out Kentucky.

The internet sports wagering brain trust must grasp that even lowly state politicians learn. They all noticed the industry agreed to a 51% tax rate in New York. That means anything up to that point is in play. Again, the industry brought this on themselves. 

A funny incident occurred at the National Council of Legislators from Gaming States (NCLGS) held in Pittsburgh last summer. An industry speaker was absorbed in victimhood over the New York tax rate. A legislator from New York reminded the speaker that his participants agreed to it.

Moreover, the states are now learning that if a state suggests an increase in the tax rate, well, the political and lobbying dollars start flowing. Again, the operators have taught this to the politicians. In short, a state that does not suggest a higher tax rate costs its politicians, lobbyists and other political hangers-on money. The politicians may not be even serious about the tax rate increase; it may just be a fundraising drive. It is like one of those plexiglass booths where dollars are whirled around, and the politicians and lobbyists go in and grab handfuls of money. The way they turn that machine on is to start talking about a tax increase.

The complaints by the heads of these companies about the tax rates are also disingenuous. A CEO whining may make financial and business television entertaining, and create engaging conference fodder, but they are sometimes silly. Here is a fun exercise – Click on this hyperlink. You can also click through the three pages on this link. These are Jason Robins’ insider stock transactions. One notes that this is not a terribly sympathetic figure to plead with the states about the hardships taxes bring to his life. Jason does not make a credible Oliver Twist.

One of the entertaining features surrounding a suggested tax increase is the ranting and raving by the enormous infrastructure of talking heads surrounding this industry. These are the lobbying entities in various forms, and nothing in gaming takes itself as seriously as a lobbying entity. These are the generally identified three or four-letter abbreviations groups that multiply in this industry like rabbits.

For these entities, I have another link. Click on this. Now, gaze at the chart and notice what profession in the U.S. is at the absolute bottom of the rankings regarding honesty and ethics. You guessed it, lobbyists. That is to suggest that what the public thinks about you is that you are at the pond scum level of being respected for having a modicum of honesty and ethics. Call your parents, they will be proud. Hey – don’t get pissed at me if you don’t like these results – call Gallup.

The point is that the only people who take lobbyists seriously are lobbyists and the other shills and talking heads; after all, the public thinks you are essentially devoid of honesty and ethics. 

One of the more interesting of these entities is the Casino Association of New Jersey. They recently came out against the tax increase because it would be bad economically for the Atlantic City casinos. They even dragged the old reliable argument about this working to encourage player participation on the offshore sites. Understanding that banning and limiting winning or competent sports bettors is also argued to help the offshore sites, but they are very quiet about all that.

One does want to understand that this group also was in favor of smoking in casinos, which indicates a curious morality. Here is what science tells us about smoking in casinos:

• Working in an environment of second-hand smoke has material risks to the health of those exposed.
• Ventilating and cleaning the air are unsuccessful in removing health risks.
• Special non-smoking areas in casinos do not eliminate second-hand smoke in casinos.
• The disorders of smoking and problem gambling have a high degree of co-morbidity. Essentially over 50% of gambling disordered people smoke.

What all of this science says is that smoking in casinos damages people’s health, up to and including death. That special non-smoking sections do not work, and ventilation does not eliminate health risks. Furthermore, permitting smoking is akin to placing a welcome mat in front of the casino for problem gamblers.

The point is that this association is arguing that increasing taxes on the industry is terrible, but killing and damaging the health of your guests and employees is cool with them – primarily because it is attractive to problem gamblers. What a fun association to belong to.

What happens in Vegas…?

One also wants to understand that the taxing issue is multidimensional. Nevada has a very low tax rate on gambling, allowing for a healthy industry. Unfortunately, much of that money leaves the state. Mr. Wynn took his billions to Florida. The Sands has sold its assets in the state. Many casinos are owned by REITs based in New York and other locations, and Apollo and others are becoming increasingly involved in companies with a strong presence in Nevada. An important point to understand is that much of that benefit is to people and entities outside of the state.

It is also essential to understand that Nevada’s per pupil spending on public education for grades K-12 (including Washington D.C.) is 47^th in the nation. It is also crucial to understand that Nevada’s public schools K-12 typically rank in the bottom three of the US states for the quality of education offered. In short, they are among the worst at funding education, and the educational product stinks compared to the other 50 states.

Year after year, Nevada demonstrates that a very low taxed industry is more important than its education system. Gaming taxes are low, so what if Nevada has many educationally challenged kids? The REITs, Apollo, and others could apparently care less.

The point is that people like Governor Murphy have to make choices, and possibly he believes there are more critical issues in the state than having a vibrant environment for people to bet sports on the internet. Moreover, his challenges have been exacerbated by the question of what types of support will be received from the federal government in the Age of Elon. Governor Murphy may have a bunch of new budget holes to fill, and if this forces an increase in the betting tax, the internet sports betting industry will just have to enhance its limiting, banning, and bankrupting.

We cannot lose sight of the fact that the present betting model in the U.S. is perverted in that it really is not about sports betting. Instead, it is a model that aggressively encourages participation by people who are bad at betting or may suffer a betting disorder – and bans or limits players who are intelligent and have better models and/or are smarter than the operators. 

I also believe many operators are upset because they were upstaged in brilliance by the financial exchange and prediction markets, as best demonstrated by Kalshi’s hiring of Donald Trump, Jr. as a strategic advisor. Maybe the feds in the form of the Commodity Futures Trading Commission are already on the way to take over gambling at the federal level. Watch your back, boys. And did I mention Donald Trump, Jr. is on their team?

Governor Murphy has a treacherous path before him and is doing his best to serve the people of New Jersey. I am sure that helping Jason Robins make a few more trips to the feeding trough is not on that list. Moreover, the public schools ranking in New Jersey K-12 is the best in the nation. I guess Governor Murphy wants to keep it there, which will not be easy in today’s world. 

I just mentioned this to help the incredibly self-centered, socially insensitive, and morally bankrupt betting industry understand that there just might be a few things in the world that are more important than you.

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Richard Schuetz entered the gaming industry working nights as a blackjack and dice dealer while attending college and has since served in many capacities within the industry, including operations, finance, and marketing. He has held senior executive positions up to and including CEO in jurisdictions across the United States, including the gaming markets of Las Vegas, Atlantic City, Reno/Tahoe, Laughlin, Minnesota, Mississippi, and Louisiana. In addition, he has consulted and taught around the globe and served as a member of the California Gambling Control Commission and executive director of the Bermuda Casino Gaming Commission. He also publishes extensively on gaming, gaming regulation, diversity, and gaming history. Schuetz is the CEO American Bettors’ Voice, a non-profit organization dedicated to giving sports bettors a seat at the table.