Colorado has taken a bold step in reshaping its sports betting landscape with the passage of House Bill 1311, signed into law by Governor Jared Polis. This legislation marks a significant shift by phasing out tax deductions that sports betting operators previously used to offset promotional costs.
The new law, effective from 2026, will eliminate the ability of sportsbooks to deduct promotional expenses, such as free bets and promotional payouts, from their taxable revenue.
This adjustment aims to ensure that the state maximizes revenue from its thriving sports betting market, which has grown substantially since its legalization in 2019.
The Evolution of Sports Betting in Colorado
When Colorado legalized sports betting in 2019, it introduced a tax framework that allowed operators to deduct promotional expenses and federal excise taxes from their net proceeds, as noted in a recent discussion with Jackpot Sounds.
However, with the industry now well-established, lawmakers argued that the original purpose of these deductions—supporting market growth—has been fulfilled. House Bill 1311, introduced earlier this year, reflects a shift in priorities, focusing on leveraging the industry’s success to fund public initiatives. The bill’s supporters contend that the increased tax revenue will provide a substantial boost to the state’s water conservation efforts, addressing a critical need in a region prone to drought and water scarcity.
By eliminating promotional deductions, HB 1311 is projected to generate an additional $3.2 million for the fund in 2026, with estimates reaching up to $12.9 million by 2027. These funds will play a crucial role in ensuring Colorado’s long-term water security, a priority for both urban and rural communities.
A Gradual Transition
To ease the transition for operators, HB 1311 introduces a phased approach to eliminating deductions. Starting January 1, 2026, sportsbooks will be limited to deducting only 1% of total wagers for promotional expenses.
By July 1, 2026, all such deductions will be completely phased out. This gradual implementation gives operators time to adjust their business models, but it also signals a clear shift toward prioritizing public funding over industry incentives.
Industry Implications and Concerns
While the law has been hailed as a win for public infrastructure, it has raised concerns among sports betting operators and industry analysts.
The elimination of promotional deductions is expected to increase operators’ tax burdens, potentially prompting them to scale back on bonuses and free bets.
These promotions have been a key tool for attracting and retaining customers, particularly in a competitive market where players have numerous options.
Critics of HB 1311 argue that reducing promotional offerings could weaken the position of legal sportsbooks, especially in the face of competition from unregulated offshore operators.
These offshore platforms, which operate outside U.S. jurisdiction, often offer generous incentives to lure bettors, posing a challenge to regulated markets.
“If legal operators can’t compete on promotions, some players might turn to offshore sites, which lack the consumer protections and responsible gambling measures we’ve worked to establish,” said Amanda Torres, a gambling industry consultant based in Denver.
Broader Legislative Context
The passage of HB 1311 comes amid broader discussions about gambling taxation in Colorado. Lawmakers are currently exploring a legislative package that would further refine how gambling winnings and losses are treated for tax purposes.
These proposals aim to create a more equitable tax system while ensuring that the state continues to benefit from its gambling industry.
The focus on responsible gambling is also gaining traction, with potential measures to expand funding for addiction prevention and treatment programs.
A Balancing Act
For Colorado, HB 1311 represents a delicate balancing act between fostering a vibrant sports betting industry and addressing pressing public needs. The state’s water infrastructure is a critical concern, particularly as climate change exacerbates drought conditions.
By redirecting gambling revenue to the Water Plan Implementation Cash Fund, lawmakers aim to secure a sustainable future for Colorado’s communities.
As the implementation of HB 1311 approaches, all eyes will be on Colorado’s sports betting market. The state’s ability to balance economic growth, public funding, and consumer protection will serve as a model for other states grappling with similar issues. For now, the passage of HB 1311 underscores Colorado’s commitment to leveraging its gambling industry for the greater good, while highlighting the importance of responsible gambling in ensuring a sustainable and equitable market.