With New Measure, Colorado First US State to Adjust Free Play Write-Offs

Written By Ken Pomponio on 05/25/2022 - Last Updated on June 1, 2022
Colorado capping free play deductions

Colorado’s recent gaming legislation was focused on better funding the state’s responsible gambling efforts.

And State House Bill 22-1402 will do just that, providing up to $3 million annually to that cause once it is signed into law by Gov. Jared Polis. A Colorado state government source said Thursday that signature is expected soon.

But the Responsible Gaming Grant Program, introduced by outgoing House Speaker Alec Garnett and co-sponsored by Sen. Chris Hansen, also contained other significant gambling legislation.

Section 6 of that bill certainly shouldn’t be overlooked.

That section addresses the calculation of retail and online sportsbooks’ “net proceeds” and the deductions they’re allowed for free play and promotional offers.

Free bet deductions to be gradually limited

Colorado sportsbook operators are taxed according to their monthly net sports betting proceeds.

Under current statutes, those NSBPs are calculated as such:

“the total amount of all bets placed by players in a sports betting operation or internet sports betting operation less all payments to players, LESS FREE BETS and less all excise taxes paid pursuant to federal law.”

That tax rate is currently 10 percent with proceeds benefitting the Colorado Water Plan.

Under HB22-1402, though, those free bet deductions will be gradually decreased on a percentage basis, beginning Jan. 1, 2023.

The measure sets the schedule for those decreases as follows:

  • 2.5 percent of an operator’s total monthly sports betting handle can be deducted as free bets from Jan. 1, 2023 through June 30, 2024.
  • 2.25 percent of an operator’s total monthly sports betting handle can be deducted as free bets from July 1, 2024 through June 30, 2025.
  • 2 percent of an operator’s total monthly sports betting handle can be deducted as free bets from July 1, 2025 through June 30, 2026.
  • 1.75 percent of an operator’s total monthly sports betting handle can be deducted as free bets from July 1, 2026 onward.

State’s bottom line to benefit

Once the measure becomes law, Colorado will become the first U.S. state to amend its promotional/free play deduction agreements.

Virginia and Louisiana have recently attempted to alter theirs via new legislation. But both of those proposals failed. 

With Colorado passing the May 1 two-year anniversary of legalized sports wagering, the state’s market is approaching maturation. 

As a result, sportsbooks are offering fewer promotional deals and free plays.

“As the market matures, as things kind of settle down, there will probably be (fewer free bet offers),” Colorado Gaming Association executive director Peggi O’Keefe recently told the Colorado Sun. “So we believe having this percentage of handle will probably coincide with where the market is going.”

In any case, Colorado’s tax revenue bottom line will benefit.

From sports betting’s launch through March 2022, state sportsbooks had totaled approximately $408.4 million in gross revenue.

But, including the $236.5 million reported in free bets and promo offers, the total sportsbook NSBP over that span dwindled to $155.5 million.

And the sports betting tax collected by Colorado has totaled $17.7 million. That equates to tax rate of roughly only 4.3 percent over those 23 months.

State officials say it’s time for that percentage to start moving much closer to 10 percent.

Once HB22-1402 becomes law, it will.

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Ken Pomponio

Ken is a fourth-generation Coloradan and career sports journalist with more than 30 years covering the gamut from the preps to the pros. A lifelong Front Range resident and son of 1960s Denver Broncos season-ticket holders, he is a long-time sports betting enthusiast whose insight and passion shine through in his coverage at PlayColorado.

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