Louisiana to Raise Sports Betting Tax 21.5% for College Athletics

Louisiana is set to increase taxes on sports betting to allocate over $24 million to athletic departments at the state’s most prominent public universities. This move comes after a judge approved a landmark settlement with the NCAA, allowing schools to directly pay athletes for the use of their name, image, and likeness (NIL). The legislation, pending before Gov. Jeff Landry, aims to make Louisiana the first state to raise taxes specifically to fund college sports. Arkansas has already taken a step in this direction by waiving state income taxes on NIL payments made to athletes by higher education institutions.

As the landscape of college sports evolves rapidly, more states are expected to adopt innovative strategies to stay competitive. David Carter, founder of the Sports Business Group consultancy and an adjunct professor at the University of Southern California, noted that these legislative efforts are designed to make states more attractive to college athletes. However, they also raise questions about the perceived preferential treatment given to athletes.

The new NCAA rules, effective from July 1, allow each Division I school to share up to $20.5 million with its athletes in the first year. This figure may be more manageable for larger programs compared to smaller schools, which may need to divert funds from other areas. The settlement also permits college athletes to receive NIL money from third parties, such as donor-backed collectives supporting specific schools.

The Louisiana legislation, which passed just two days after the judge approved the NCAA settlement, had been in the works for months. Athletic directors from Louisiana’s universities collaborated with lawmakers to address financial pressures by sharing a portion of the state’s sports betting tax revenue. The initial proposal sought to double the state’s 15% tax on net proceeds from online sports betting, but a compromise was reached at a 21.5% tax rate.

One-quarter of the tax revenue from online sports wagering, estimated at $24.3 million, will be divided equally among 11 public universities with Division I football programs. This money must be used for the benefit of student athletes, including scholarships, insurance, medical coverage, facility enhancements, and litigation settlement fees. While the state tax money won’t provide direct NIL payments to athletes, it could indirectly facilitate such payments by freeing up other university resources.

The legislation passed overwhelmingly in the final days of Louisiana’s annual session. Republican state Rep. Neil Riser, who sponsored the bill, emphasized the state’s love for football and the need to support smaller universities that have been financially strained. These universities have had to shift funds from their general budgets to sports programs to remain competitive, while the state has generated millions in tax revenue from sports bets.

Riser highlighted the fairness in giving back to the athletes who contribute to the revenue and helping the general funds of the universities. Louisiana would become the second state, after North Carolina, to dedicate a portion of its sports wagering revenues to college athletics. North Carolina’s law earmarks part of an 18% tax on gross gaming revenue to the athletic departments at 13 public universities, excluding the two largest institutions. However, recent budget plans in North Carolina aim to include these institutions and potentially double the tax rate.

Other schools are also taking action due to deficits in their athletic departments. The University of Kentucky trustees approved a $31 million operating loan for the athletics department as it begins making direct NIL payments to athletes. This move follows the conversion of the Kentucky athletics department into a limited-liability holding company to better navigate financial pressures. Patrick Rishe, executive director of the sports business program at Washington University in St. Louis, noted that the significant financial stakes in college athletics are driving states to provide tax money to athletic departments or tax relief to college athletes. This trend is expected to continue as states seek to attract better athletes and boost their visibility and economic activity.