Virginia Caps Sportsbook Promo Deductions in Growth vs Revenue Trade-Off

22 October 2026

Virginia lawmakers and the state lottery moved last week to cap promotional deductions for mobile sportsbooks in an effort to preserve tax revenue, as the state's expanded legal betting market shows signs of aggressive competition. The revised language, included in the 2023-24 budget bill, would allow new sportsbook operators to exclude bonuses and promotions from adjusted gross revenue during their first year, but would then limit those deductions to 1.75 percent of monthly wagering activity.

The Legislature has been debating how to handle sportsbook promotional offers since the market launched in early 2021. Initially, new mobile books were allowed to deduct 100 percent of their promotional spending as a business expense, in an effort to encourage competition and merchant investment in what was then a new product. But the unlimited deduction period, combined with Virginia's 15 percent tax rate, led to state taxpayer groups lobbying for a crackdown on what they saw as excessive deductions by the sportsbook operators. With no cap in place, some operators paid very little or no tax at all.

The proposed budget language would address that. For new permit holders, the clock starts when they first begin to accept bets from Virginia customers. They would then have 12 months to run loss-leading sportsbook promotions and deduct the cost as an expense, such as a $1,500 bonus for a $1 wager—a competitive incentive most sportsbooks offer. But after that introductory period, the company would lose the right to deduct promotions for tax purposes, unless the total bonus spending as a percentage of wagers falls below 1.75 percent. Above that threshold, any promo spending becomes taxable and subject to Virginia's 15 percent gambling tax.

Industry sources said the 1.75 percent figure resulted from budget negotiations rather than being a carefully considered cap.

The Sports Betting Alliance, which lobbied against the limit, argued it would make it too difficult for new books to compete against established operators that don't need to offer aggressive promotions. However, the Legislature appears poised to move forward with the plan. State officials estimated the partial promotional deduction would reduce annual state gambling-tax revenue by approximately $12.6 million, based on the $81.39 million in allowable bonuses and deductions reported by the Virginia Lottery for 2022.

Newer books, including bet365, Hard Rock, Betway, and SI Sportsbook, were still eligible for the promotional deduction as of early 2023, according to SportsHandle. Overall, licensed casinos and online sports betting operators reported $7.8 million in promotional deductions for February 2023, suggesting the new cap could significantly impact a costly business practice.

The bipartisan Senate vote to restore promotional deductions this year was 31-7-1. However, the House Appropriations Committee halted the standalone bill, shifting the issue to budget negotiations. Virginia state Senator Jill Vogel, co-chair of the Virginia Senate Finance and Appropriations Committee, said she would work to implement the cap without reopening broader debates on sports betting. "This is not a discussion about rolling back sports betting," she told the Virginia Mercury. "It's about making our tax system fair and protecting taxpayer dollars." Governor Glenn Youngkin has threatened a veto, creating another obstacle.

Virginia requires operators to submit promotional packages for approval by the Virginia Lottery before launch. It remains unclear how the new cap will affect existing promotions or whether they will be grandfathered in. A spokeswoman for the Virginia Lottery declined to comment. One expert noted that operators are preparing for the cap and may adjust their bonus structures accordingly. Virginia's sports-betting tax rate is 15 percent, and the Lottery's sports-betting page provides no national listing of bonus terms.

With these changes, Virginia aims to balance mobile sportsbooks' need to attract customers—such as through $1,500 loyalty bonuses—with preserving tax revenue as promotional spending increases. The state's 15 percent tax, combined with new promotional restrictions, may favor established operators and reduce state sports-betting revenue by an estimated $12.6 million. However, Virginia bettors will still have options as the state seeks equilibrium between competition and financial sustainability.