Would sports betting boost Missouri school funding? There's no guarantee, experts say

By Meg Cunningham and Maria Benevento 

Beacon: Missouri

October 22, 2024

Takeaways

1. The campaign backing legalizing sports betting in Missouri promises that revenue from sportsbook would generate tens of millions in revenues for schools. 
2. School districts and education groups are largely neutral on the ballot measure, but some are skeptical it will bring schools more money. 
3. The amendment does not state explicit paths for where the money should go, and experts say lawmakers could shift money in the state budget. 

Missourians are being bombarded with ads promoting Amendment 2, a constitutional amendment to legalize sports betting. 

The betting operators urging voters to legalize sports betting say it would bring “tens of millions of dollars in education funding for our children and our schools.” 

But others aren’t so sure. It’s a familiar guarantee about casino or lottery campaigns — that betting generates money for Missouri schools. Political scientists and experts on the Missouri state budget say promising gambling revenue to education doesn’t necessarily boost school spending. 

A review by the state auditor found that sports betting could generate anywhere from zero to almost $29 million annually. The number depends on a lot of factors, such as how much Missourians bet, the amount of promotional bets that are placed tax-free and how much the Missouri Gaming Commission spends on operating costs. 

No matter how much the revenue may be, there’s no guarantee that it will mean an increase to the state’s education budget. 

“During a campaign, supporters always tout the most generous forecast of revenue coming in,” said Peverill Squire, a political science professor at the University of Missouri. “The revenues probably won’t be as high as what’s being promised.” 

How will taxation actually work?

The revenue that comes from sports bets will be taxed at 10%, half the rate at which casino gambling is taxed. 

But skeptics say that the amendment’s language doesn’t detail the collection of that 10% tax. 

The ballot measure says that a 10% wagering tax will be imposed on any revenue. But it doesn’t outline who may collect that tax, or the methods for doing so. 

Compare that to 2022’s amendment to legalize recreational marijuana. That measure laid out a path for the tax revenue, stating the tax must be paid to the Missouri Department of Revenue. Then the department is allowed to retain a small percentage for its own costs and any remaining money should be deposited by the department into a specific fund for veterans’ health care. 

A similar path for sports betting tax collection isn’t laid out in Amendment 2. 

“There have been questions raised because the ballot measure did not include the mechanism for funding that it needs to,” said Amy Blouin, the president and CEO of the left-leaning Missouri Budget Project. 

“Some of this stuff might have to be figured out in court if it were to pass,” Blouin said. “There are legitimate questions about whether or not this was ready for prime time … if some basic requirements are missing from the language.” 

The Department of Revenue reached the same conclusion in the fiscal information it sent to the state auditor’s office about the amendment. 

“Without the identification of an agency to collect the tax, no tax can be collected. Therefore, it appears this section will not generate any revenue to the state, the (gaming) Commission or to the Compulsive Gaming Prevention Fund,” the fiscal note said. 

Lawyers representing the Amendment 2 campaign wrote in a memo in January that the Department of Revenue has the independent authority under the Missouri Constitution and state law to collect taxes. 

“The Department has authority to collect taxes (including this new tax) and it should know that,” the memo said. 

Outside of a potential fix in the courts, the top Democrat on the Missouri House Budget Committee said the legislature may have to work around the amendment and come up with language to actually collect the tax. 

But he’s not too optimistic. 

“Historically, it’s not easy to get a Republican legislature to pass a bill about this topic to begin with, let alone a tax collection bill,” said Rep. Peter Merideth of St. Louis. 

How do school districts feel about Missouri Amendment 2?

Public school districts and education groups are largely neutral on whether or not the amendment should pass. But some doubt whether it would put more funding in classrooms. 

During an Independence School Board meeting in October, Superintendent Dale Herl urged voters not to let promises of education funding sway their vote on Amendment 2. 

He said tax revenue isn’t likely to add to education spending, based on school districts’ experience with other gambling taxes in the past. 

“My belief is that all it’s going to do is further supplant money that we would already be getting,” he said.  

Voters should instead reflect on what they think about sports betting itself, he said. 

“If you don’t want to go across the state line to place your Chiefs bet or Royals bet, I would say vote yes,” he said. “If you’re opposed to sports betting in Missouri, then vote no.” 

Spokespeople for Kansas City Public Schools, North Kansas City Schools and the Lee’s Summit School District said they had no position on the ballot measure and no comment on its potential impact. 

The Missouri Association of School Administrators said it has no position on Amendment 2 and pointed to a handout from the Missouri School Boards’ Association. 

The MSBA also doesn’t take a position on Amendment 2. But its handout casts doubt on how much money would go to education, especially for public schools. 

Amendment 2 doesn’t lay out what grade levels or services the funding could cover, or specify whether it will go to public or private schools. 

In contrast, Amendment 5, a separate question on the Nov. 5 ballot about authorizing an additional casino in the Lake of the Ozarks, says tax revenue would go toward early literacy programs in public elementary schools.

The lack of specificity “means that the state revenues from Amendment 2 could go to private and parochial schools in the state, not just public schools,” the MSBA handout says. “This is relevant as the state legislature continues to expand the state’s voucher programs and moves towards privatization of public education.”

Missouri’s state-sponsored private school scholarship program is currently funded through a system of offering donors tax credits, but some lawmakers have proposed that it be directly funded by the state. 

The MSBA handout also notes that if estimates are correct, schools around the state would only receive about $29 million annually, about 0.7% of the approximately $4 billion of state general revenue used to fund the K-12 education budget last year. 

That’s without factoring in the hit casino tax revenue for schools could take from competition with sports betting, MSBA said. 

The Missouri National Education Association, a teachers union, also takes no position on Amendment 2. The group’s summary notes that the amendment doesn’t authorize any specific entity to collect the tax and has few requirements for how the money can be used. 

The Missouri State Teachers Association, a professional organization, also doesn’t take a position on the amendment. 

“While there may be financial implications relating to education, the heart of this ballot question asks if Missourians would like to expand gambling in our state,” Matt Michelson, director of education policy, said in an email. “MSTA has a long tradition, and guidance from members, to maintain a strong focus on issues that directly impact public education.”

The measure has backing from both of Missouri’s candidates for governor, Democratic Rep. Crystal Quade and Republican Lt. Gov. Mike Kehoe. It also has backing from major sports teams in Missouri, including the St. Louis Cardinals and the Kansas City Chiefs, as well as The Kansas City Star and the St. Louis Post-Dispatch. 

“It is currently estimated that roughly $2 billion a year are placed in bets using offshore gaming websites, money that is currently not going back into our education system,” the campaign’s website reads. “By legalizing sports betting we are ensuring tens of millions of dollars in education funding for our children and our schools bringing that economic activity back to Missouri.” 

An August poll from St. Louis University and YouGov found that 50% of Missourians supported Amendment 2, while 30% were opposed.. 

That support hasn’t come without major spending from the campaign backing the amendment. The latest campaign finance reports show that the group has raised $21.5 million since its launch. 

The rocky relationship with gambling revenue and the General Assembly

Aside from the unknown path to collect revenue, the amendment’s language doesn’t outline a guarantee that schools will actually get more funding when it comes to the overall state budget. 

The amendment’s language says the revenue will be appropriated to elementary, secondary and higher education schools in the state, after two conditions are met. First, the revenue will be used to reimburse the Missouri Gaming Commission for any costs it takes to oversee sports betting in Missouri. Second, a maximum payout of $5 million will go to Missouri’s compulsive gambling fund. 

Whatever revenue is left over would then be appropriated to schools after those two payouts are made. Critics of the measure say states such as Kansas and Indiana haven’t seen as much revenue as what was promised. Part of that reason is because revenues from promotional bets or free credits aren’t taxed.

Plus, a provision that accounts for “negative revenues” for sportsbooks might actually limit how much is being taxed. If exemptions and deductions exceed how much money sportsbooks take in, they aren’t taxed for the month. 

“If the amount of adjusted gross receipts in a calendar month is a negative figure, the licensee shall remit no sports wagering tax for that calendar month,” the constitutional amendment reads. “Any negative adjusted gross receipts shall be carried over and calculated as a deduction in the subsequent calendar months until the negative figure has been brought to a zero balance.”

The largest exemption for sportsbooks is always paying out the winners. That cuts into the company’s profits on paper and, consequently, its obligation to pay taxes. In February 2023, Kansas only collected $1,134 in taxes on sports betting because so many people won their bets. There were $194 million in wagers and $194.8 million in payouts.

To counter that problem, the campaign argues that because Missouri’s amendment includes a 25% cap for promotional or free credit bets for each sports betting operator, the state will collect more revenue. 

A study prepared for the campaign backing Amendment 2 found that Missouri sports betting operators would see $3.4 billion in bets placed in the first year of operation. The study estimated that total revenue would be $335 million, but more than $272 million of that would be from tax-deductible promotional credits. After deducting federal fees and uncollectible fees, Missouri would generate approximately $4.7 million in state tax revenue outside of license fee revenue. 

Lawmakers, though, could move around other parts of the state’s education budget. 

“The reality is there’s really not a lot you can do to protect monies from the General Assembly,” said Squire, the University of Missouri professor. “It’s very hard to limit their ability to shift budgets or shift monies around.” 

Squire pointed to the formula for funding public school transportation. It’s something that lawmakers put on the back burner in the overall education budget and haven’t always fully funded, leaving districts to take up the costs themselves of running buses and hiring drivers. 

“They can say, ‘Well, here’s new money coming into one area,’ and then slip money out in another area,” Squire said. “Given the experience that we’ve had with various programs that are supposedly protected, the legislature really won’t be constrained by any of the promises that have been made.” 

The campaign directed The Beacon to an Oct. 9 memo prepared by Alixandra Cossette, a Jefferson City attorney who filed the initiative petition. The memo says that the General Assembly will be tasked with interpreting Amendment 2’s language plainly, and that the money should be used as a supplement to already existing education budgets. 

A 2007 study of nationwide state lottery revenue spending from lawmakers found that some states outline in their legislation that lottery revenue must be used to supplement, not replace, funding that goes to education. Other states aren’t as specific, leaving room for money to be swapped with other parts of the budget. 

Some states also direct lottery revenue to specific funds related to K-12 public education, while others say the money should be spent on education more broadly. 

“While earmarking on this level falls short of ensuring lottery dollars are not fungible, its transparency and independence from the general education fund make it easier to measure the extent to which lottery dollars supplement previous public education spending,” the study concluded. 

Merideth also pointed to the year-to-year process of outlining the state budget. What happens with the revenue one year may not happen the next, he said. 

“The budget is the budget, and essentially, the legislature can’t tie the hands of future lawmakers on the budget,” said Merideth, the representative from St. Louis. “So it’s going to be a fight every year, basically, to try and make sure that they’re funding schools, just like it’s been every year.” 

This article first appeared on Beacon: Missouri and is republished here under a Creative Commons license.