Investigation Uncovers Potential Issues within Colorado's Gambling Regulatory Agency
Here's a refreshed take on the Colorado sports betting audit:
The claws of the most recent Colorado sports betting audit have left quite a mark on the Colorado Division of Gaming. In a nutshell, the audit, conducted by the Colorado Office of the State Auditor, sheds light on numerous regulatory flaws.
During the state's maiden year of regulated sports betting - Colorado legalized the activity via a referendum in November 2019, with mobile sportsbooks launching in May 2020 - the Division of Gaming was found lacking when it came to investigating sports betting operations for temporary licensure or collecting sufficient documentation to verify the accuracy of operators' monthly tax filings.
Of the 90% of Colorado's 39 licensed sports betting operators holding temporary licenses in March, limited background investigations were performed, raising questions about the operators' suitability. Quite astonishingly, none of the five licensees scrutinized by the auditor were subjected to minimum background investigation procedures by the Division of Gaming.
Tax filing mishaps and loopholes
The audit also raised concerns regarding inconsistencies in tax filings, as auditors examined 22 sports betting tax filings from May 2020 through April 2021. The auditors discovered wide variations between the amount of wagering activity each operation reported after each gaming day compared to the totals in their monthly tax filings.
In certain instances, the variances were roughly $1 million, causing concern among auditors. Furthermore, operators were not always submitting supporting documentation to justify changes to their reported net sports betting proceeds, making it impossible for the Division to demonstrate whether tax filings were based on accurate data.
Critical concerns and adjustments
A major theme of the audit seemed to be the Division of Gaming's inability to adequately monitor sports betting operators. Against the backdrop of regulating legal sports betting in a state, Colorado's Division of Gaming appears to have fallen short in crucial areas like properly investigating operators and scrutinizing tax filings.
One interesting recommendation from the auditors highlighted the potential lost tax revenue due to an operator's monthly losses. With Colorado boasting a tax rate of 10% on gross gaming revenue, the auditors suggest that the state may be missing out on tax revenue. The legislature may want to reconsider a Commission rule allowing sports betting operations to deduct and carry net operating losses forward, positing that this practice may not align with voters' and legislative intent.
According to the audit, Colorado forfeited hundreds of thousands of dollars in tax revenue as a consequence of its policy. However, recent legislation, including a bill signed June 7 by Gov. Jared Polis, addresses these issues. Moving forward, the new law progressively eliminates tax write-offs for sports betting promotions like free bets, with the goal of increasing tax revenue and tightening financial compliance.
To better tackle problem gambling, the new law also boosts state spending on responsible gambling initiatives, raising spending from $130,000 per year to around $3 million, marking a significant shift in state commitment.
Sources 1. McQuillan, S. (2022, June 14). Colorado's inaugural sports betting audit finds $millions in reporting irregularities, operators haven't undergone thorough background checks. Colorado Politics.
[Enrichment Data]Background Checks:
- The enrichment data does not contain specific findings regarding thorough background checks in the Colorado sports betting industry. Consequently, no detailed information on this aspect can be gleamed from the search context.
Tax Revenue:- Colorado taxes online sports betting at a rate of 10%, which is relatively high compared to other states.- Recent legislation aims to phase out deductions for sports betting promotions like free bets, intending to increase taxes. The measure aims to generate an additional $12 million annually for state projects like water infrastructure.- The ongoing policy changes suggest attempts to tighten financial compliance, maximize tax revenue, and address lost tax revenue due to these deductions.
- The audit of Colorado sports betting revealed irregularities in operators' monthly tax filings, with some variations being as much as $1 million, raising concerns about potential financial mismanagement.
- The Colorado Division of Gaming has been criticized for not scrutinizing sports betting operators' tax filings and backgrounds adequately, potentially affecting the accuracy of financial reports and potentially allowing unsuitable operators to enter the industry.
- In the wake of the audit, Colorado has adjusted its sports betting regulations to progressively eliminates deductions for promotions like free bets, aiming to generate additional revenue and enhance financial compliance, while increasing funding for problem gambling initiatives. The legislature has also considered potential lost tax revenue due to deductions for net operating losses and may reassess this practice.
