02/26/2004 12:00AM

Sports bet excise tax is targeted

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Taxes are a hot topic at this time of year, with April 15 looming less than seven weeks away, plus with this being an election year.

Sen. Harry Reid (D.-Nev.) has pretty much guaranteed he'll be getting the vote of just about every sports book director in the state. Reid is the second-highest ranking democrat in the Senate and has been effective in fighting for Nevada in general and the gaming industry in particular over the years.

While we hear most of the time about taxes increasing (or tax breaks being eliminated), Reid tried to do something last week that could save the state's sports books millions of dollars in taxes in the coming years.

There's a little-known federal excise tax of 0.25 percent that all casinos must pay on all sports bets they accept. That tax is applied to gross wagers, so the books are paying it even if they end up losing. Last year, Nevada sports books handled $1.864 billion in wagers. That works out to $4.66 million that was paid to the IRS. Overall, sports book winnings were $122.6 million but would have been nearly $127.3 million, or 3.7 percent higher without the tax.

What Reid did was attach an exemption to the six-year, $318 billion transportation bill that was passed by the Senate last week. The excise tax used to apply to all wagers, but over the years exemptions have been granted to parimutuel horse racing bets, state lotteries, and slot machines. Two senators - Chuck Grassley of Iowa and Ben Nighthorse of Colorado - attached an excise tax exemption for Indian tribes, so Reid thought it was unfair that Nevada sports bets are still subjected to this tax and added his rider.

The bill now must pass in the House of Representatives later this year, and it also faces a potential veto by President Bush, who has said he would only support a six-year, $256 billion transportation bill. So there are more hurdles to be cleared and no one is saying it's a done deal by any stretch, but Reid's efforts have not gone unnoticed.

"Reid and the rest of the Nevada delegation has fought hard for the good of the industry," said Art Manteris, vice president of race and sports for the Station Casinos. "When Congress was trying to pass the college betting ban a few years ago, they really dug in their heels and fought very hard for us against pretty long odds. I didn't expect them to fight that hard, and it's really appreciated."

The history of the excise tax is interesting. It's a holdover from the days when Las Vegas casinos were mostly family-owned businesses. The tax evolved from the Estes Kefauver hearings on organized crime in the U.S. Senate in the early 1950's. The federal government decided if it couldn't catch the mob involved in illegal activities because of lack of evidence or witnesses, it could catch them on tax evasion, sort of the Al Capone model of law enforcement.

So the federal excise tax was enacted in 1954 at a whopping 10 percent. You can see how that made it difficult for sports books to be profitable. Over the next two decades, sports betting in Nevada was available but there weren't any sports books in the casinos because the profit margins were far less than ideal. That all changed between 1973 and 1979, when the excise tax was gradually lowered from 10 percent to 2 percent, and that opened the doors to the casinos seeing the profitability of having sports books on site. The Stardust opened the first casino sports book on the Strip in 1976, and others soon followed, ushering in the golden age of sports betting in Las Vegas.

The tax was lowered to its present level of 0.25 percent in 1983, so it's been a fact of life for every current sports book director in town, one of those costs of doing business that they've learned to live with. But the thought of getting that money back in their coffers brings a smile to their faces.

"Our departments are not as profitable compared to other areas of the casinos, so this will definitely help," Manteris said. "If it passes, it's found money. We wouldn't have to do anything to see an impact."

But Vinny Magliulo, who is currently director of corporate development for the Las Vegas Dissemination Company but is also in charge of starting up the race and sports book when the Wynn Las Vegas megaresort opens next year, said it could also lead to more profits.

"Whenever the tax has been decreased, it's led to increased handle," Magliulo said.

"That is borne out by the fact that statewide sports betting handle was $41 million in 1973 but grew to $258.7 million by 1979.

"Before the lowering of the tax, you would have seen a bigger spread in the odds [between favorite and underdog] because they had to make the odds they offered cost-effective," said Magliulo.

"With the reduction in the tax, that made it easier for the books to tighten the lines, and that led to bettors betting more."

Now, obviously the deletion of a 0.25 percent tax will not have the impact that it did when the tax dropped from 10 percent to 2 percent, but every little bit helps in making Nevada try to remain competitive with that 800-pound gorilla that is the offshore betting industry. It would also give sports book directors a little more leverage in dealing with their bosses if they're showing larger profits.

And, hopefully, the savings are passed on to the customers in the form of more attractive odds.