Audit Uncovers Flaws in Colorado Sports Betting

The Colorado Office of the State Auditor has uncovered flaws in how the state Division of Gaming regulates sports betting. The audit found that the division conducted inadequate background checks of licensed operators during the first year of regulated sports betting.

A recent audit of the Colorado Division of Gaming (CDG) detected alleged flaws in how the division regulates sports betting, including inadequate background checks for licensed operators.

The probe, which was just released to the public, was conducted by the Colorado Office of the State Auditor. It found that during the state’s first year of regulated sports betting—which began in May 2020—the CDG lacked “an effective process to investigate sports betting operations for temporary licensure, or to collect sufficient documentation to determine if sports betting operations’ monthly tax filing were accurate.”

The audit revealed that 90 percent of temporary licenses were issued with limited background checks, but allowed licensees to operate as if they had permanent licenses.

This prompted the auditors to conduct its own background checks on the suitability of five randomly selected operators. It also looked at 22 tax filings and “found wide variation between the amount of wagering activity (i.e., bets, free bets, and payments to players) that operations reported after each gaming day compared to the totals they reported in their monthly tax filings.”

The variances totaled about $1 million. The audit also found that “the Division could not demonstrate if or how it verified that the tax filings were based on accurate data.”

The audit found that the CDG inadequately monitored sports betting operators. It concluded that the state is losing out on significant gaming revenue.

It concluded, “Between May 2020 and April 2021, the State collected $6.6 million in sports betting tax.” It added, “Our analysis of the 324 tax filings reported during this time period determined that if operations had not been allowed to deduct and carry forward operating losses, the State would have collected $7.3 million, or an additional $706,600, in sports betting tax during that first year.”

A recent law signed by Governor Jared Polis will eventually end tax write-offs for sports betting promotions.