Will Regulators Allow Kentucky Sportsbooks To Write Off Promo Spend?

Written By Adam Hensley on June 14, 2023 - Last Updated on June 15, 2023
tax write offs for promo spend from Kentucky sportsbooks

As more operators announce their sports betting partnerships in Kentucky, bettors will become inundated with promos and bonus offers from them.

Kentucky sportsbook promos come as bonus bets or special registration offers. None have been announced, as we’re still months away from a launch date.

But in this regard, the Kentucky sports betting industry is no different than other states. The bonuses will be on their way.

Some states pass legislation that outlines most of the sports betting industry’s regulations. On the other hand, Kentucky passed a bill that didn’t establish much aside from tax rates. As a result, operators are waiting to see if regulators will allow sportsbooks to use their promotional spend as tax write-offs.

What are sportsbook promos and what is promotional spend?

It’s simple: Promo spend is a way for sportsbooks to incentivize their offerings to customers.

Different sportsbooks offer a variety of promos. Some offer deposit bonuses or bonus bets just for signing up and placing your first wager.

Promotional spend is one of the most effective ways the sportsbooks market their product. They’re using their money to entice customers to spend a little of their own. And it’s often successful.

Promotional spend essentially becomes a race to secure as much of the betting demographic as possible since customers appear to be loyal when choosing their books.

“Late entrants (into the market) can still win meaningful market share,” Boom Sports CEO Stephen Murphy told Legal Sports Report in 2021. “But operators need to begin to establish that relationship sooner rather than later.”

The closer we get to Kentucky’s launch date, the more we’ll know about these promotions. But expect some of the sign-on bonuses to be hefty, considering it’s a brand-new state.

Do most states allow tax write-offs for sportsbook promos?

It’s not uncommon. But not all states do it.

Colorado was one state that did. For a couple of years, sportsbooks wrote off their promotional spend. But after seeing tax numbers significantly lower than what they could be, Colorado officials passed a bill to reduce sportsbook write-offs to 2.5%. That number will continue to decrease to 1.75% by 2026.

Virginia was a state in a similar situation. It allowed for the write-off, but similarly to Colorado, the state adjusted its write-off policy. Currently, sportsbooks in Virginia can only write off their promotional spend during the operators’ first 12 months within the state. Current legislation aims to tweak that, though.

Additionally, Ohio launched its sports betting industry in January. But unlike Virginia and Colorado, it didn’t allow for sportsbooks to write off their promotional spend. At least not right away.

Ohio law allows it. But starting in 2027, operators can only write off up to 10% of gross revenue. If they spend more than 10% of gross revenue on promo spend, anything beyond that threshold is taxable income. That number will jump to 20% in 2031.

It’s a unique approach, but one that takes into account the market maturing over time. Because in the first year or two of a launch, promo spend is the highest, as books aim to secure new customers with bonuses and other promotions.

Massachusetts could be a blueprint for Kentucky

Massachusetts — one of the newest states to introduce legalized sports betting — banned sportsbook promotional credit deductions.

Sportsbooks wanted to use that promotional spend as a tax write-off. But Massachusetts regulators voted against it in late May.

So how does Kentucky fit into this?

Jordan Maynard, one of the commissioners on the Massachusetts Gaming Commission, told Gaming Today that he spoke with Kentucky Horse Racing Commission Chair Jonathan Rabinowitz.

Maynard advised Rabinowitz to absorb as much information about other states and jurisdictions as possible.

At one point, Robinowitz asked Maynard what he would say to himself going back in time prior to Massachusetts’ launch.

Maynard told him to be “as open-minded as you can.”

“Any minute that goes by when you’re in a state surrounded by legal jurisdictions as well as having illegal bookies being in the state, any day that goes by once legislation passes that and the governor signs it is a missed opportunity,” he said. “It’s a missed opportunity to bring tax revenue into the commonwealth. It’s a missed opportunity to help someone who may have addiction behaviors get into assistance.”

He also told Robinowitz to keep an eye on current gambling regulations as a blueprint.

So, will promos become tax write-offs in KY?

Again, nothing has been decided.

But given how many states backtracked or adjusted their stance following a year or two of operation, there’s a clear pattern. States realize that by allowing promo spend to be a tax write-off, there’s money left on the table.

Anything’s possible, but expect Kentucky to pass regulations against promotional tax write-offs. Maybe Kentucky could take a page out of Ohio’s book and allow it down the line after the market matures and promotional spending decreases. But it would be surprising to see the state allow it immediately.

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Adam Hensley

Adam Hensley is a staff writer for PlayKentucky. His byline has appeared in the Associated Press, Sports Illustrated and sites within the USA Today Network. Hensley graduated from the University of Iowa in 2019 and spent his college career working for the Daily Iowan’s sports department, both as an editor and reporter.

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