PROMOTIONAL PLAY
PRESENTATION
MASSACHUSETTS GAMING COMMISSION
DECEMBER 12, 2022
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What is promotional play or free play?
Promotional Play or Free Play –
Is a way a casino or online operator can invite a
known player to return or a new player to sign-up
or create an account. It takes one of many forms of
credits toward playing a slot machine, table game,
or sports wager. In order to use it a player must
wager it and if won it turns into real money from
cashing out or it is placed into their account.
2 | MASSACHUSETTS GAMING COMMISSION
Why is it used by operators?
An operator uses promotions to ensure customers are aware
of the operator's existence in a competitive market place as
well as to achieve the following:
-Increase brand awareness
-Provide appropriate information
-Increase Customer Traffic
-Build sales and profits
Promotions also help operators to introduce products easily
in the ever-so-competitive market.
3 | MASSACHUSETTS GAMING
COMMISSION
Recent offers found in the Sports Wagering realm
Use promo code
WIN aNd receIve a
$1,000 deposIt
boNUs.
Bet $5 get $200
$1,500
bonus for
World Cup
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A&K Legal Presentation
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July 2021 - Colorado, Pennsylvania, Michigan, and Virginia stood
out as the few that allowed licensees to adjust their revenue by
deducting unlimited free play and promotional bets from their
taxable base. This has since changed in Colorado and Virginia.
States that allow and don’t allow promotional bets to be deducted from the taxable win.
MONTH AND
YEAR
NUMBER OF STATES
WITH COMMERCIAL
SPORTS BETTING
NUMBER OF STATES THAT
ALLOW UNTAXED
PROMOTIONAL CREDITS
GAMING GROSS REVENUE (GGR)
ADJUSTED GROSS REVENUE
(AGR)
DIFFERENCE IN
DOLLARS (GGR-AGR)
Feb-22 26 9 $387,507,164 $262,989,268 $124,517,896
Dec-21 26 8 $375,176,988 $259,156,688 $116,020,300
Oct-21 24 8 $446,890,754 $334,338,789 $112,551,965
34.6%
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State
Allow Promo deduction or %
Retail Online
Arizona
8.0%
10.0%
Are allowed to deduct up to 20% of their revenue for
promotions such as "free bets" in the first two years they
are open.
Colorado
10.0% 10.0%
At first allow total deduction. Now they are tiering it
down to eventually 1.75% of their monthly handle
Michigan
8.4% 8.4% Can deduct all
New Jersey
8.5% 13.0%
A4002 specifies that promotional credits for land-based
sportsbooks can only be deducted for betting credits in
excess of $8 million each year. For online books, the tax
break kicks in after $12 million in gaming credits are
issued.
New York
Falls under
casino's
tax rate
51%
No deduction allowed
Pennsylvania
36% 36% Can deduct all promotional play and bonuses
Virginia
15% 15%
Started with full deduction of promo. Passed law in July
2022 to stop all deductions from the tax responsibilities.
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Colorado collected just $6.6 million in its first full year of legal
sports betting, equivalent to a 4% net tax rate. (From the previous
slide Colorado’s tax rate is 10%)
For comparison, New York generated more than $216
million in tax revenue from sports betting in just four months.
An operator said this equals a more than 100% net tax rate.
https://www.legalsportsreport.com/70580/no-
more-tax-breaks-colorado-sports-betting-
promos/#:~:text=Per%20the%20bill%2C%20tax%20
write,be%20deducted%20as%20free%20bets.
A Change for Colorado
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Per the bill, tax write-offs for promo spend will be phased out gradually:
•From January 1, 2023 through June 30 2024, up to 2.5% of an
operator’s monthly sports betting handle can be deducted as free bets.
•Declines to 2.25% from July 1, 2024 through June 30, 2025.
•Declines to 2% from July 1, 2025 through June 30, 2026.
•Finally, from July 1, 2026 onward, 1.75% of an operator’s monthly
handle can be deducted as free bets.
The new policy licensees in Colorado must follow
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Options for Regulating Promotional Play
Included in Gross Sports Wagering Receipts and Not Deducted for Taxation:
• Maximizes Tax Revenue
• Minimizes Profit of Operators
• Not Consistent with Treatment of Promotional Play with Other Tax
Applications
Excluded from the Gross Sports Wagering Receipts, and Deduction for
Taxation:
• Maximizes Operator Profits
• Potential to Create a Perverse Incentive to Minimize Taxes
• Closer Treatment to Corporate Tax Structure
Partial Exclusion From the Gross Sports Wagering Receipts and Partially
Deducted for Taxation:
• A Tool Other Jurisdictions are Utilizing
• Attempts to Balance Operator Profits with Tax Receipts
• Eliminates any Potential Perverse Incentive to Minimize Taxes
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c. 23N Statutorily Defined Terms
Adjusted Gross Fantasy Wagering Receipts:
The total gross receipts from fantasy contests as defined in section 11M1/2 of
chapter 12, less only the total of all cash prizes paid to participants in the fantasy
contests; provided, however, that the total of all cash prizes paid to participants
shall not include the cash equivalent of any merchandise or thing of value
awarded as a prize.
Adjusted Gross Sports Wagering Receipts:
The total gross receipts from sports wagering less the sum of: (i) the total of all
winnings paid to participants; and (ii) all excise taxes paid pursuant to federal
law; provided, however, that the total of all winnings paid to participants shall not
include the cash equivalent of any merchandise or thing of value awarded as a
prize.
Promotional Gaming Credit:
A sports wagering credit or other item issued by an operator to a patron to enable
the placement of a sports wager.
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Taxation Formulas of Options for Promotional Play
Adjusted Gross Sports Wagering Receipts:
(Gross Sports Wagering Receipts) – (Payouts to Players) – (Federal Excise Tax)
Included in Gross Sports Wagering Receipts and Not Deducted for Taxation:
• Gross Sports Wagering Receipts = (Player Funded Bets) + (Promotional Funded Bets)
• AGSWR = ((Player Funded Bets) + (Promotional Funded Bets)) – (Payouts to Players) –
(Federal Excise Tax)
Excluded from the Gross Sports Wagering Receipts, and Deduction for Taxation:
• Gross Sports Wagering Receipts = (Player Funded Bets) + (Promotional Funded Bets) –
(Promotional Funded Bets)
• AGSWR= ((Player Funded Bets) + (Promotional Funded Bets) – (Promotional Funded Bets)) -
(Payouts to Players) – (Federal Excise Tax)
Partial Exclusion From the Gross Sports Wagering Receipts and Partially Deducted for
Taxation:
• Gross Sports Wagering Receipts = (Player Funded Bets) + (Promotional Funded Bets) – (%
of Handle)
• AGSWR= ((Player Funded Bets) + (Promotional Funded Bets) – (% of Handle)) - (Payouts to
Players) – (Federal Excise Tax)
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Promotional Play Scenarios (For Discussion Only)
Assumptions for Scenarios of How Treatment of Promotional Play Impacts
Taxes
• Handle = $1,000,000,000
• Player Bets = $960,000,000
• Promotional Bets = $40,000,000 (4% of Handle)
• Hold = $60,000,000 (6% of Handle)
• Partial Deduction for Promotional Play for Taxation Scenario is up to
2.5% of Handle
• Tax Rate of 20% (equal to mobile and digital operators)
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Revenue
Coupons/
Promotional
Handle (player +
promo)
Payouts Hold
Player Bet Promo Bet Total Bet Player Win Hold
Taxable Base Taxes
960,000,000.00 40,000,000.00 1,000,000,000.00 940,000,000.00 60,000,000.00 20,000,000.00
4,000,000.00
96.000% 4.000% 94.000% 6.000%
With Promotional Play Deducted
(Total Bet-Promo-Player Win)
Revenue
Coupons/
Promotional
Handle (player +
promo)
Payouts Hold
Player Bet Promo Bet Total Bet Player Win Hold Taxable Base Taxes
960,000,000.00 40,000,000.00 1,000,000,000.00 940,000,000.00 60,000,000.00 35,000,000.00 7,000,000.00
96.000% 4.000% 94.000% 6.000%
With Partial Promotional Play
Deducted
(Total Bet-2.5% of Handle-Player Win)
Revenue
Coupons/
Promotional
Handle (player +
promo)
Payouts
Hold
Player Bet Promo Bet Total Bet
Player Win Hold
Taxable Base Taxes
960,000,000.00 40,000,000.00 1,000,000,000.00 940,000,000.00 60,000,000.00
60,000,000.00 12,000,000.00
96.000% 4.000%
94.000% 6.000%
Without Promotional Play
Deducted
(Total Bet-Player Win)
Scenario 1: Promo Not Deducted
Scenario 2: Promo Fully Deducted
Scenario 3: Promo Deducted up to 2.5% of Handle
Promotional Play Scenarios (For Discussion Only)
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Interactive Promotional Play Demonstration
• Demonstrate the Discussion Around Promotional Play
Minimizing or Eliminating Taxes.
• Demonstrate the Impact of a Theoretical Multiplier for Use of
Promotional Play to the Tax Base.
15 | MASSACHUSETTS GAMING COMMISSION
Carry Forward of Negative AGSWR
c. 23N Section 14b (4) allows an operator to carry negative amounts of
Adjusted Gross Sports Wagering Receipts to subsequent months for purposes
of calculating taxes:
(4) When an operator’s adjusted gross sports wagering receipts for a
month is a negative number because the winnings paid to wagerers and
excise taxes paid pursuant to federal law exceed the operator’s total gross
receipts from sports wagering, the commission shall allow the operator to
carry over the negative amount to returns filed for subsequent months. The
negative amount of adjusted gross sports wagering receipts shall not be
carried back to an earlier month and taxes previously received by the
commission shall not be refunded unless the operator surrenders its license
and the operator’s last return reported negative adjusted gross sports
wagering receipts.