Kansas tax revenue well below expectations

As Kansas continues to navigate the evolving landscape of sports betting, legislators are increasingly scrutinizing the state's tax structure. With the expiration of contracts between the state and various sportsbook operators on the horizon, the conversation around maximizing revenue from this burgeoning industry has gained momentum. This article delves into the current state of sports betting in Kansas, the challenges faced, and the potential reforms that could reshape the future of gambling in the state.

The Current Landscape of Sports Betting in Kansas

Since the legalization of sports betting in Kansas in 2022, the state has seen a significant influx of wagering activity. However, the revenue generated has not met initial expectations. In the fiscal year 2025, Kansas reported approximately $17.4 million in revenue from sports betting, a figure that represents only a fraction of the total bets placed, which exceeded $2.7 billion. This disparity has raised concerns among lawmakers about the effectiveness of the current tax structure.

The current tax rate of 6.5% is one of the lowest in the nation, prompting discussions about potential adjustments to better align Kansas with other states that have adopted higher rates.

Revenue Breakdown

 - Total Bets: Over $2.7 billion in fiscal year 2025.
 - State Revenue: Approximately $17.4 million, equating to about 0.6% of total wagers.
 - Projected Revenue: Legislators believe that the state could have collected significantly more had the tax rate been set at the originally anticipated 10%.

Legislative Discussions and Concerns

The Special Committee on Federal and State Affairs recently convened to address the shortcomings of the current sports betting tax framework. Lawmakers expressed frustration over the state's inability to capitalize on the popularity of sports betting, with some calling the existing system an "absolute failure."

Key Voices in the Debate

Rep. Francis Awerkamp (R): A vocal critic of the current tax structure, Awerkamp emphasized that Kansas ranks poorly in terms of tax revenue generated per million dollars wagered. He advocates for a reevaluation of the tax rate and the deductions allowed for promotional credits.

Rep. Tom Kessler (R): Kessler echoed concerns about maximizing revenue, suggesting that the state explore alternative paths to enhance collections without harming the industry.

The Impact of Promotional Credits

One of the primary factors contributing to the low effective tax rate in Kansas is the allowance for sportsbooks to deduct promotional credits. These credits, often used to attract new customers, significantly reduce the taxable revenue base, leading to millions in lost potential revenue for the state.

Lawmakers are considering the possibility of limiting or eliminating these deductions to increase the state's share of sports betting revenue. By doing so, Kansas could potentially raise its effective tax rate without increasing the nominal tax rate itself.

Comparisons with Other States

The debate in Kansas is further fueled by comparisons with other states that have adopted more aggressive tax structures. For instance:

New York: Taxes sportsbooks at the highest rate in the country, an astonishing 51%.
Pennsylvania: Maintains a tax rate of 36%.
Illinois: Recently implemented a "per-bet tax" of up to 50 cents on top of a sliding tax rate of up to 40%.

These comparisons underscore the urgency for Kansas to reassess its approach to sports betting taxation, especially as neighboring states begin to attract bettors with more favorable conditions.

The Future of Sports Betting Contracts

As the contracts between Kansas and its sportsbook operators approach expiration in August 2027, the timing of these discussions is critical. Lawmakers have implemented a moratorium on renewing contracts until mid-2026, allowing for a thorough review of the current system.

Potential Changes on the Horizon

Single-Operator System: Some legislators are exploring the possibility of transitioning to a single-operator model, similar to what Oregon has implemented. This could streamline operations and potentially increase revenue.

Increased Tax Rates: Proposals to raise the tax rate to 15% or even 20% have been floated, with the additional revenue earmarked for essential state services such as education and healthcare.

However, opponents of these changes caution that higher taxes could drive bettors to unregulated markets, complicating oversight and potentially undermining the state's revenue goals.

The Role of Problem Gambling

As Kansas considers changes to its sports betting framework, it must also address the rising concerns surrounding problem gambling. A recent study indicated a significant increase in gambling-related issues among residents, with many citing financial stress as a primary motivator for their betting behavior.

Lawmakers are advocating for improved state-funded treatment and gambling screening services to support those at risk. Regulators are also looking into advertising practices by sportsbooks. There is a growing call for stricter regulations on gambling advertising to mitigate the potential for increased problem gambling behaviors.

The Importance of Public Opinion

As lawmakers deliberate on potential changes to the sports betting tax structure, public opinion will play a crucial role in shaping the outcome. Engaging with constituents and understanding their perspectives on gambling will be essential for crafting effective policies. Recent surveys indicate that a significant portion of Kansans supports reforms aimed at increasing state revenue from sports betting. However, there is also concern about the potential for increased gambling-related issues.

Unknown Path Forward for Kansas

The future of sports betting in Kansas hinges on the state's ability to adapt to the changing landscape. By reassessing its tax structure, addressing problem gambling, and engaging with the public, Kansas can position itself as a leader in the sports betting industry.

As the expiration of contracts approaches, lawmakers have a unique opportunity to implement meaningful reforms that will benefit both the state and its residents. The discussions currently underway could pave the way for a more prosperous and responsible sports betting environment in Kansas.