On Monday, the Colorado Office of the State Auditor released an audit analyzing the state’s first year of sports betting. The report also covered how the Division of Gaming regulated the new industry. The report indicates that the Division was heavy-handed with temporary betting licensing, and the state may be losing out on tax revenue earnings.

Details of the Report Regarding Temporary Betting Licensing

The audit report is 56 pages long and covers a time frame from May 1, 2020, to April 30, 2021. In that time frame, players wagered close to $2.3 billion. The audit uncovered that the Division and the Colorado Gaming Control Commission did not effectively investigate operators. Officials did not ensure that each entity given a sports betting license was qualified to have one.

The Auditor’s office also accused the Commission and Division of not collecting enough documentation to ensure that monthly tax filings would be accurate. The lack of investigation leads to an increased risk of temporary licensing decisions that are not defensible or fully supported.

The Office of the State Auditor found that by March 2022, 35 of 39 casinos had a temporary license. The temporary license does not require as extensive of a background check as a permanent license. Despite this difference, the temporary option gives the operator the same service privileges.

When reviewing the licensing, the auditor found that the Division did not complete the minimum background investigation procedures required by the state of Colorado to give a temporary license. The auditors want to see the Division improve its effectiveness and efficiency in investigations for sports betting licenses.

Auditors have asked the Division to implement written rules and procedures connected to background check investigations for licensing. Officials within the gaming division have agreed to the terms. The Division says its goal is to ensure that all policies are in line with the rules the Commission and Division have put forth with uniformity.

Tax Issues Due to Licensing Investigation Problem

As operators report net sports betting earnings, the state takes a 10% cut. For the fiscal year 2021, the state gained a total of $8.6 million. However, the auditor’s investigation revealed a variation between the wagering activity operators reported after each game day and the totals of monthly filings for taxes.

The report noted one case in particular. A single operator reported $1.4 million more in earnings within its daily reports than the monthly tax report. Another case had $1 million more in its tax reports than its daily data.

The auditor found that the Division does not require operators to provide documents to show why there is a change to wagering activity. This doesn’t make sense because the amount impacts the taxes the operator must pay to the state.

The report indicated that the auditor was unhappy with the Division allowing sportsbooks to deduct free bets from proceeds reports. Operators could also carry forward monthly operating losses. This also cuts down on the overall earning totals. Investigators say that operators did not pay over $700,000 in additional sports betting tax in the first year due to the free bets and losses in reporting.

The Gaming Division says they are working with the Office of Information Technology to create a sports betting data management system.  The system will help better regulate the industry. The Division plans to add policies and procedures as needed to verify wagering data regarding operations reports and taxes paid.