By Tim Jensen
In 2016, the Missouri legislature was refreshingly proactive in becoming one of the first states to regulate and tax fantasy sports. At first glance, the passage of legislation was great news for fantasy sports companies — not just the big names you know, like DraftKings and FanDuel, but also Missouri small business owners like me.
I helped launch RealTime Fantasy Sports, a small but successful fantasy sports business, and a part of growing tech economy in St. Louis. When the legislature and then-Gov. Nixon said they would regulate fantasy sports, it seemed like a forward-looking position for the state, embracing this new and growing industry.
But then I heard claims of how it would quickly bring tens of millions of dollars to the state, and I realized what they had in mind: high taxes and killing business growth. The taxes and regulatory fees on fantasy sports enacted last year were a plain-and-simple cash grab.
Maybe when they wrote these regulations, policymakers did not consider the entire fantasy sports ecosystem and the economic impact. This industry includes hundreds of small businesses like ours, and we were already subject to state and federal taxes in Missouri like any other business. Yet, the current law tacks on an additional 11.5% tax on fantasy sports businesses, plus fees which bring the effective tax rate for a small businesses to 21.5%. In short, they’re putting us out of business.
The current structure gives Missouri the second highest tax rate for the industry in the country, behind only New York (not exactly a state we want to follow if we are pro-business) and the highest effective tax rate of any state for small businesses. Many states, like Colorado and Indiana, have no additional taxes in their fantasy sports laws. Innovative, successful companies in this industry are going to flock towards those states.
It’s not too late, though: the Missouri legislature is trying to correct this mistake. House Bill 502 would amend the missteps of 2016 and treat all fantasy sports companies fairly, and in a way that won’t bury them in regulatory fees and unreasonably high taxes.
For Missouri, a pro-business state and a state that loves its sports, this should be a no-brainer. Fantasy sports is a growing industry, so encouraging its growth today could amount to a sizable boost to the state coffers in future years. The industry includes not only companies offering fantasy sports contests, but also an entire ecosystem of news and analysis sites, content providers, data and analytics companies, podcast producers and more. Venture capital firms are pouring dollars into this industry, and the jobs and growth are there for the taking – for states that take the right regulatory approach.
Establishing laws promoting growth in this industry makes the most sense, which is why the Missouri legislature should advance House Bill 502 to relieve the undue tax burden. If you play fantasy sports, or believe small business should have the ability to grow and create jobs in our state, call your state legislator and tell them you support this bill.
Missouri was ahead of the curve on fantasy sports, with a prescient move to embrace an industry seeing explosive growth. But taxing small business owners to death would eliminate all the potential the state hoped to create.
Tim Jensen is the co-founder of RealTime Fantasy Sports, a St. Louis-based fantasy sports company.