The Social Gaming Leadership Alliance recently commissioned Eilers & Krejcik Gaming (EKG) to project California state tax revenue from sweepstakes casinos. The projections came at approximately $300 million in annual tax revenue from licensing fees and player purchase taxes. This demonstrates the high upside that regulation could have for California.
EKG is a prominent consulting firm that specializes in the gaming industry, including sports betting and sweepstakes casinos. Thus, the Social Gaming Leadership Alliance hired EKG due to its experience combining operator data with economic modeling tools to highlight potential benefits of the sweepstakes industry.
The plan set forth by EKG would involve charging each sweeps brand $500,000 as a licensing fee. This would mean that sweeps giants like VGW, which operate Chumba Casino, LuckyLand Slots, and Global Poker, would have to pay $1.5 million in licensing fees.
The idea here is that the licensing fee is a large enough fee to generate significant revenue, but not high enough to deter large brands like VGW from continuing operations there. EKG also suggested a 7.25% tax on player purchases, which would generate approximately $175 million in additional revenue for the state.
Ellers & Krejcik Gaming researchers estimate that sweepstakes casinos already provide almost $1 billion in economic benefits to California, with VGW as one of the main brands that generate revenue.
They broke it down with over $700 million in advertising spending with California-based companies like Google. There are also over $30 million in payment processing fees to Visa, which is also based in California.
In short, with so many of these sweepstakes casinos partners located in California, the state has significant potential to benefit from this industry, Ellers & Krejcik Gaming argue.
With sweepstakes casinos facing increased scrutiny across the country, larger operators may not be able to handle higher licensing fees, even in large markets like California.
Recently, VGW was hit with a class action lawsuit in California. While the results are yet to be determined, if they were forced to settle the suit, it would make paying these fees more difficult.
The state put a gut-and-amend policy on Assembly Bill 831, changing the terms of the original bill to emphasize a ban on sweepstakes casinos, which has fast-tracked it through the legal process. This increases the likelihood that the ban can be passed. If it does, the option to regulate the sweeps industry within the Golden State and benefit from additional revenue from licensing fees becomes a moot point.
However, increased regulation through higher licensing fees that yield additional tax revenue could ultimately be a resolution to the anti-sweeps movement in California. With the state facing billions of dollars in deficit, this may be seen by law makers as a valuable resource for funding.
There’s a chance that this new model outlined by Eilers & Krejcik Gaming could be the kind of policy that keeps sweepstakes gaming operational in the state.
