Guaranteed Winners

On May 14, the Supreme Court struck down the Professional and Amateur Sports Betting Act that had made Nevada the only state where bettors could gamble on college and professional sports. 

Dozens of states are expected to legalize betting within the next few years. Naturally, there will be winners and losers. The American Gaming Association estimated that legal sports betting would generate up to $26.6 billion of economic activity and 152,000 jobs. 

But there's one group we can count on to win big no matter who else loses, and that's the federal, state, and local tax collectors sharing the juice from the new action. 

Gambling winnings are taxable as ordinary income — you don't pay any more if your favorite quarterback connects with a Hail Mary than you do for hitting blackjack at the casino. The biggest winners can even find their good luck pushing them into higher tax brackets. 

Gambling losses are deductible, but only if you itemize (which eliminates about 90% of taxpayers), and only up to whatever amount of actual winnings you report. That means that if at the end of the year, you're in the black, you'll owe tax on your winnings — but if you're in the red, there's no deduction for your loss. That gives Uncle Sam the perfect "heads I win, tails I don't lose" proposition.  

Of course, the IRS won't be the only tax collector profiting from this cash explosion. State treasuries, which generally start with federal adjusted gross income or taxable income for their own collections, will also share the bounty. State and local governments may impose their taxes directly on gambling activities as well. And they'll collect even more in sales and liquor taxes from bettors flocking to sports books and other venues. 

There's one more quasi-tax worth considering here. Sports leagues like the NFL and NBA are pushing to collect an "integrity fee" equal to 1% of the total amount bet. (Sportsbooks generally collect a 10% commission on winning bets, so 1% of the amount bet equals about 20% of their gross revenue.) The leagues say this compensates them for their intellectual property rights in statistics used in betting. But critics say the integrity fee is more like just a simple shakedown: "Nice place you got here . . . it would be a shame if anything happened to it!"