Despite only launching in March, North Carolina ranks 8th among states for generating gross wagering revenue from sports betting for the 2024 calendar year.

Last year, when devising the bill to legalize sports betting, policymakers largely underestimated the capacity for such wagers to generate revenue for the state.

Earlier this summer, in the House’s fiscal year (FY) 2024-25 budget adjustment proposal, legislators surprisingly recommended altering the uses of tax proceeds collected from sports betting. Policymakers aimed to increase funding for affluent universities and the North Carolina Youth Outdoor Commission at the expense of decreasing funding to less affluent universities, the North Carolina Major Events, Games, and Attractions Fund, and the General Fund.

This article analyzes the distributive effects of the House’s proposed change to sports wagering tax revenue uses.

From its inception in North Carolina on March 11, 2024, through the end of fiscal year 2023-24, which ended June 30, sports betting companies have earned approximately $275 million in gross wagering revenue. State law levies an 18 percent tax rate on the gross wagering revenue earned by each sports betting company operating in the state.

Initial 2023 biennial state budget projections estimated that sports wagering revenue would equal $8.5 million and $36.1 million for FY 2023-24 and FY 2024-25, respectively. However, the tax revenue generated from sports wagering in FY 2023-24 alone exceeded both figures combined, reaching more than $49.5 million.

The originally mandated allocations – previously discussed here – require distributing $8.4 million toward the following:

  • $2 million to the Department of Health and Human Services for gambling addiction education and treatment programs.
  • $1 million to North Carolina Amateur Sports to expand youth sports opportunities.
  • $1 million to the North Carolina Youth Outdoor Engagement Commission for grants.
  • $300,000 to each of the 13 athletic departments of institutions in the UNC system, excluding the University of North Carolina at Chapel Hill and North Carolina State University.
  • $500,000 in administrative costs to oversee the sports wagering system.

Any tax revenue generated that surpasses $8.4 million is devoted to the following:

  • 20 percent divided equally among the 13 athletic departments mentioned above.
  • 30 percent to the North Carolina Major Events, Games, and Attractions Fund.
  • 50 percent to the state’s General Fund.

However, the House’s proposal from this summer recommended the following changes to the allocation of tax revenue from sports wagering:

  • Increased funding for the North Carolina Youth Outdoor Engagement grants from $1 million to $6 million, of which $5 million must be apportioned to fund educational field trips and construct outdoor educational structures.
  • Decreased funding to the North Carolina Major Events, Games, and Attractions Fund from 30 percent to 25 percent.
  • Transfer the 5 percent decrease from the North Carolina Major Events, Games, and Attractions Fund to be distributed equally among the athletic departments at the following universities:
  • Appalachian State University
  • East Carolina University
  • North Carolina A&T State University
  • North Carolina State University
  • University of North Carolina at Chapel Hill
  • University of North Carolina at Charlotte

The table below depicts the distribution of the $49.5 million in sports wagering tax revenue generated from FY 2023-24 for the status quo established in 2023 versus the proposed changes made by members of the House this summer.

In summary, the effect of the House’s proposed modifications to the allocation of sports wagering tax revenue would be the following:

  • Increased funding for the NC Youth Outdoor Engagement Commission, Appalachian State University, East Carolina University, North Carolina A&T University, North Carolina State University, University of North Carolina at Chapel Hill, and University of North Carolina at Charlotte.
  • Decreased funding for the General Fund, NC Major Events, Games, and Attractions Fund, Elizabeth City State University, Fayetteville State University, North Carolina Central University, University of North Carolina at Asheville, University of North Carolina at Greensboro, University of North Carolina at Pembroke, University of North Carolina at Wilmington, Western Carolina University, and Winston-Salem State University (this is because the increase in funding for the NC Youth Outdoor Engagement Commission leaves less money to be split among these organizations).

Considering that the General Assembly approved the original allocations for the sports wagering tax revenue just last year, it is worth questioning why the members of the House think changes are needed so soon. Furthermore, UNC System officials promoted the original allocations as a mechanism to reduce rising student fees at smaller schools that do not have the capacity to fully fund their athletic departments through sports-related revenue, such as ticket and merchandise sales.

Nevertheless, the House’s proposed edits primarily benefit institutions whose athletic departments run budget surpluses and already have the odds stacked in their favor. In fact, the average endowment of the six universities that would benefit from the House’s proposed policy change is $1.37 billion compared to just $100 million for the nine universities that the policy change would hurt.