The Rapid Rise of Legal Sports Betting: What It Means for Your Business and Tax Strategy in the DMV

Key Takeaways:

• The legalization of sports betting since 2018 has opened new markets and revenue opportunities, especially for online platforms and investors.

• Maryland, Virginia, and D.C. have each established their own sports betting regulations, creating jurisdictional differences that affect tax reporting and business operations.

• Business owners, especially in the tech, gaming, or hospitality sectors, may face new compliance obligations, licensing complexities, and strategic investment choices.

• Individuals who wager — or earn income through affiliate marketing, advertising, or partnerships with sportsbooks — face evolving tax rules that can impact quarterly filings and long-term planning.

• Estate planning professionals should be aware of sports betting-related income streams and assets, particularly those held in LLCs and trusts, to ensure proper valuation and succession planning.

Why This Matters in the DMV

In 2018, the U.S. Supreme Court issued a landmark decision in Murphy v. NCAA, striking down the federal ban on sports wagering and returning regulatory control to the states. Since then, the online sports betting industry has surged across the country, and the Washington D.C., Maryland, and Virginia region — known as the DMV — has been no exception.

For high-net-worth individuals, business owners, and professionals in the DMV, this shift is more than just a cultural phenomenon or entertainment trend. It presents real financial, legal, and tax implications. Whether you're investing in related technology, operating a business that touches gaming or hospitality, or simply engaging as a participant, understanding the nuances of your state's regulations is crucial.

A State-by-State Regulatory Patchwork

Each jurisdiction in the DMV has adopted different legislative structures to approach sports betting.

Maryland

Maryland legalized sports betting in 2021, with online platforms launching in late 2022. The state permits both in-person and mobile wagering and licenses are available to casinos, racetracks, and qualifying sports venues. Mobile sportsbook operators must partner with a local entity, creating opportunities for Maryland-based businesses. Maryland imposes a 20% tax on gross online gambling revenue, and sportsbooks are subject to robust compliance and reporting requirements. In-person retail betting remains at 15%.

Virginia

Virginia launched mobile sports betting in early 2021. Virginia allows retail sportsbooks at casinos. Multiple locations are currently operational as of December 15, 2025. Sports betting is regulated by the Virginia Lottery, and licenses are restricted to a limited number of operators. Virginia applies a 15% tax on adjusted gross revenue and requires operators to hold a valid license and submit to regular audits.

Washington, D.C.

Washington, D.C.'s sports betting market is unique. The city allows both private platforms operating in designated areas (like hotels or stadiums). The current D.C. structure is:

• FanDuel: District-wide mobile access (since March 2024)

• BetMGM: 2-block radius of Nationals Park only

• Caesars Sportsbook: 2-block radius of Capital One Arena only

• Fanatics Sportsbook: Northwest Stadium venue

The tax structure, platform limitations, and location-based restrictions have made this one of the more complex jurisdictions from a compliance standpoint.

Why This Matters:

If your business operates across the DMV region—or serves customers who do—you need to navigate overlapping, and sometimes conflicting, regulatory frameworks. Failing to understand jurisdiction-specific rules can result in penalties, denied licenses, or worse, missed revenue opportunities.

Tax Implications for Businesses and Individuals

1. Income Recognition and Reporting

Let's say you're a marketing firm assisting a licensed sportsbook with digital advertising in Maryland and Virginia. Any income derived from that contract—e.g., ad revenue sharing or marketing bonuses—should be reported. However, because your income may be sourced to different states, your business may owe taxes or need to file informational returns in multiple jurisdictions.

A change in 2026 occurs under the One Big Beautiful Bill Act (OBBBA). Gambling loss deductions will be limited to the lesser of 90% of losses or 90% of gains starting in 2026. This is a material change not disclosed in the article.

The same is true for independent contractors, influencers, and streamers promoting betting platforms. If you're receiving affiliate income from clicks or referrals, that revenue must be reported—even if it's informal or one-off.

2. Gambling Winnings and Losses

For individual taxpayers, betting winnings are taxable federal income, and they may be taxable by the state—depending on where the bet was placed and where the bettor resides. If you're a Maryland resident who placed a winning bet online while in Virginia, both states may claim a right to tax that income. In D.C., filers must include it in their local filings regardless of where the bet was placed.

Importantly, while gambling losses are deductible up to the amount of your winnings, you must itemize to claim that deduction. For high-net-worth individuals who've transitioned to the higher-standard-deduction regime under recent tax law reforms, that may not provide any practical relief.

Practical Tip: Be diligent about recordkeeping. The IRS expects you to report gambling income and maintain records of each bet, including date, amount, and outcome.

Implications for LLCs, Partnerships, and Pass-Throughs

Businesses operating in the sports betting space—whether through technology, hospitality, sports media, or retail partnerships—should examine their entity structure closely. Here are a few scenarios:

Example 1: A Tech Startup Partnering with Sportsbooks

A Maryland LLC developing odds-calculation software may partner with a licensed sportsbook to integrate its platform. That LLC needs to report royalty or development income and may be subject to state taxes in every jurisdiction where the game platform is used or offered, especially if it has nexus there.

Example 2: A Bar Offering In-House Sports Wagering in D.C.

In D.C., businesses can host private betting kiosks through exclusive partnerships. If your S-Corp owns such a bar, the income derived from these machines is considered gambling income and must be carefully tracked and separated from your standard operating revenue for accounting and reporting purposes.

Example 3: Partnerships and Multi-Member LLCs

For partnerships that accept income from multiple jurisdictions (e.g., cross-border affiliate earners), the complexity increases. Operating agreements must be updated to reflect liabilities and assign tax burdens equitably. K-1s become more complex when multiple state-apportionment rules come into play, often requiring the assistance of both a tax attorney and CPA.

Estate and Succession Planning Considerations

Sports betting income—especially passive or recurring income through licensing arrangements or digital properties—can influence estate planning conversations. These assets can be:

• Valued incorrectly if not properly reported

• Misclassified as intangible vs. tangible

• Harder to transfer if held in non-transferable platform accounts

Unique Insight:

Many sportsbooks or related tech platforms do not allow for transfer of account ownership. Digital rights or recurring commissions from promotional share agreements might not survive death or transfer to a trust unless structured properly.

For clients with significant side income from affiliate programs or tech partnerships, we recommend:

• Creating a holding company or single-member LLC to centralize control

• Structuring agreements to provide assignment flexibility

• Notifying your planner or trustee of the nature of the revenue stream

Risk Management and Compliance for Business Operators

Businesses operating in or adjacent to sports betting face elevated risk profiles. Here are steps to reduce exposure:

1. Validate Jurisdictional Licenses

If your services touch any betting-related activity, ensure that you are not considered an unlicensed operator. This includes services like app development, advertising, data aggregation, or user acquisition. Even indirect involvement can trigger licensing needs in certain jurisdictions.

2. Protect User Data and Stay Compliant with AML Rules

If you're gathering user data or facilitating bet placements (even in a backend role), ensure compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. Failing to encrypt data or prevent fraud could compromise your business's license eligibility.

3. Monitor State Tax Nexus

The more active your relationship with betting partners in different states, the greater your risk of establishing taxable nexus. Evaluate whether you need to register, collect sales or use tax, or file franchising reports.

4. Review Contracts for Revenue-Sharing Agreements

Ensure your agreements are drafted to withstand scrutiny. Revenue-sharing tied to gambling proceeds is often regulated differently than standard commission agreements. Add provisions for indemnity, tax withholding, and audit support.

Final Thoughts

The expansion of the sports betting market since Murphy v. NCAA has created substantial economic opportunity. But it has also shifted regulatory and tax burdens in ways that many individuals and business owners haven't fully realized.

Whether you're investing in a startup, hosting an app, marketing a sportsbook, or simply betting for fun, your activities could have a ripple effect on your tax filings, business strategy, and estate plan.

If you're unsure how this applies to your business or personal situation, we're here to help. Schedule a consultation with Steve Thienel to get advice tailored to your goals.

At Thienel Law, we help clients across Maryland, Virginia, and Washington, D.C. make confident decisions at the intersection of business and tax law. When the rules change—as they did in 2018—we help you stay ahead.