Minnesota sports betting bill evolves, path forward remains uncertain

A Senate proposed Minnesota sports betting bill has undergone a bevy over changes over the last few weeks and received further amendments after its latest committee stop.

The Minnesota Senate Committee on Taxes recently moved Sen. Matt Klein's (DFL-53) sports betting bill, SF 1949, forward to the Senate Committee on Finance, but not before the bill's tax rate was doubled and sports betting tax revenue distributions were altered.

This came a week after the bill was amended to prohibit in-game sports betting, a measure that was not well-received with Minnesota tribes.

Klein presented his bill to the Senate Committee on Taxes with a number of amendments. The changes included a tax rate increase from 10 percent to 20 percent, alterations to the sports betting tax revenue distribution, and new revisions to how promotion and free bets are deducted by licensed sports betting operators.

While the committee member did eventually approve the amendments, one prominent legislator noted that the bill is still a work in progress. Sen. Jeremy Miller (R-26) said he would vote in favor of the amendments to move the bill forward, but the legislation "isn't there yet."

"It's a work in progress. I'll be advocating for even more tax relief for our charitable organizations. This is a step in the right direction, but I feel we need to do more for our charities. I'll also continue to advocate for more money and more flexibility for the horse racing tracks to help enhance the horse racing industry in the state of Minnesota," he said.

Earlier this month, the Minnesota Senate Commerce and Consumer committee approved an amendment to prohibit in-game sports betting in the bill. Proposed by Sen. Jordan Rasmusson (R-9), the amendment aims to allow regulators to take a "product safety approach" and add common sense tools to "mitigate some of the harms that can come from problem gaming."

No state with legalized sports betting has a similar prohibition.

The prohibition on in-game sports betting required an increase to the proposed tax rate, Klein explained. The bill originally estimated more than $40 million in annual sports betting tax revenue for Minnesota, but with the in-game sports betting prohibition, and even with the new tax rate of 20%, the revenue estimate is now at just $18 million for the state, he reported.

"Despite doubling the taxation rate, those two protection measures have had a massive impact on expected revenues. That will be something to consider moving forward," Klein said.

Tax revenue distributions changed

The distribution of sports betting tax revenues will also be changing in the bill. Under the new distribution method, proposed sports betting tax revenues to Minnesota racetracks will not be capped and state charities will receive a higher cut.

The original bill called for 30 percent of the state's sports betting tax revenues to be dedicated to the Minnesota Racing Commission for grants to licensed racetracks. However, after the first $20 million just $3 million would be dedicated annually to the commission.

Under Klein's amendment, the racing commission will now see just 5% of sports betting tax revenue, but the revenues will not be capped after $20 million. With the new fiscal estimates, however, it's unlikely the revenue figures will reach $20 million anytime soon.

Klein presented the following tax revenue distributions:

• 5% to the Minnesota Racing Commission for grants to licensed racetracks
• 5% to the commissioner of education for grants to the Minnesota State High School League
• 10% to the commissioner of human services for compulsive gambling treatment and problem gambling awareness programs
• 15% to the director of Explore Minnesota Tourism for grants to Minnesota sports and events
• 20% to the commissioner to issue payments to charitable organizations
• 45% to the general fund

Finally, Klein also changed how licensed sports betting operators can deduct free or promotional bets. Operators will be able to deduct these types of bets from launch through Jan. 1, 2028, and then the deductions will be reduced by 25% each year over the next four years. The deductions will no longer be available starting Jan. 1, 2031.

Challenges remain for passage

Klein did reveal during the committee meeting that the in-game prohibitions and its negative impact on wagering has "created some difficulties for our stakeholders." The potential reductions in revenue due to the in-game sports betting prohibition are not supported by Minnesota tribes, he said.

Earlier this month, a representative for the Minnesota Indian Gaming Association reported the organization was not in favor of the approved prohibition for in-game sports betting.

Andy Platto, Executive Director of the Minnesota Indian Gaming Association, said the gaming association supports the bill moving forward in the Senate, but was not in favor of the approved amendments.

"MIGA tribal leaders continue to evaluate the bill. Some of these policy changes are of serious concern to MIGA tribes, however tribal leaders do ask for the committee's support of the bill as amended today so it can continue its progress in the Senate," he said.