Colorado sports betting earns $11.4 million for water plan in FY 21-22

Published on: September 18, 2022, 01:59 am.

Last update: September 18, 2022, 02:00.

Colorado sports betting generated $11.4 million in tax revenue last fiscal year that will be used to help fund the state’s Water Plan. This is according to a release from the Colorado Limited Gaming Control Commission (CLGCC).

Welcome to the Colorado sign
A wooden welcome sign greets visitors from Colorado. The state announced Thursday that $11.4 million in sports betting taxes will be allocated to help fund part of its Water Plan. Lawmakers earlier this year passed a law to ensure more tax revenue goes toward the state’s long-term plan to improve water resiliency. (Image: Tomasz Zajda/Adobe Stock Images)

Funding for the Water Plan is the bulk of the revenue from the 10% tax on the net income of sportsbooks. For the 2021-22 fiscal year, which ended June 30, the state received $12.4 million, with $12.2 million approved for appropriations.

In addition, a Hold-Harmless fund received more than $746,000, which represents a mandatory allocation of 6%. The fund was set up to reimburse organizations that can prove their sports betting activity has cost them revenue. Another $130,000 went to the Office of Behavioral Health, which oversees problem gambling services and the hotline.

The Hold-Harmless Fund saw its funding increase by 52.8% from the 2020-21 fiscal year, while the Water Plan share increased by more than $3.4 million, or 43%, from the previous fiscal year. However, funding for the Water Plan is still well below the expectations that were set when legalizing sports betting was proposed three years ago.

Money flowing out

Colorado voters approved the legalization of sports betting in November 2019 when they passed Proposition DD, and the first operators were approved to launch on May 1, 2020. On that date, four online sportsbooks launched in the state, and then, the market grew to 24 online applications and 15 physical facilities.

Sports betting proponents’ main selling point was using tax revenue to help fund the Colorado Water Plan, the proposed framework to help the state become more water-resilient and strengthen its resources by 2050.

The multibillion-dollar plan was expected to cost $40 billion from all sources in 2017. A draft of an update to the plan is currently under review by the end of the month, and that plan calls for betting fees sports to help cover, in part, the $2.35 billion the state will need for the plan over the next 30 years.

When voters passed Prop DD, state officials said they expected sports betting to provide an average of $14.9 million annually to the water plan for the first five years. The measure also caps the annual amount at $27.2 million.

Changes coming in January

A major issue with why Colorado’s sports betting tax credits were designed was the language that allowed sportsbooks to write off bonuses to deduct their tax liabilities.

A state audit conducted in April and released in June of sports betting noted that some auditors believed operators intentionally reported large losses in an effort to gain market share.

Lawmakers changed that earlier this year when they passed a bill that would limit the amount sportsbooks can deduct. Starting in January, operators can only deduct up to 2.5% of the monthly hand. This lasts until June 30, 2024. After that, the deduction rate drops by 0.25% for the next three tax years, meaning that starting in July 2026, sportsbooks will only be able to deduct 1.75% of the handle each month.

The bill, which Gov. Jared Polis signed into law in June, also prohibits free bet deductions from being carried over to another month.

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