If someone in the 1990s told you that esports would become as popular as many traditional sports, you probably wouldn’t have believed it. This claim would be even more unbelievable when it comes to esports betting. However, as we all know, participating in esports and betting on such events is a trending activity today.
Although most people think of first-person shooters, real-time strategies, and multiplayer online battle arena games when someone mentions esports, the truth is that sim-racing titles are also very popular.
Sim-racing and Betting
Sim-racing is the practice of competing in realistic virtual racing simulations with the help of specialized software and hardware setups to mimic real-world racing experiences. Even though many simulation racing games exist, a few dominate the esports arena.
First, we’ll mention the Formula 1 official games, which include several real-life racers. Formula 1 has promoted a professional esports program known as FIA Formula One Esports Series since 2017. Then there’s Gran Turismo Sport, endorsed by FIA, and its Gran Turismo World Series, founded in 2017.
Of course, NASCAR promotes a separate competition – the NASCAR iRacing.com World Championship Series. Other well-known sim-racing esports titles include rFactor 2, Projects CARS, Trackmania, and Kart Rider.
Each competition provides unique things, but the truth is that they also have many things in common. So, what exactly do they have that makes gamblers interested in wagering real money on sim-racing?
When compared to other esports, sim-racing may look a bit simpler. In some MOBAs, you must analyze the game rules to understand what is happening on the screen. With sim-racing games, you don’t need that because it’s clear who’s in the lead and what the objective is. Of course, you may need more knowledge to place rare/complex bets. Still, generally speaking, this betting and following sim-racing events is not challenging.
While discussing the rare/unique bets, we should also note that sim-racing offers special markets you can’t find in regular sports betting. The latter include fan engagement metrics betting, driver communication (whether a driver will use emotes, talk to fans, etc.), and more.
Other reasons behind sim-racing gambling popularity include specially designed bonuses for esports gamblers, attractive odds, and fun live streaming features.
Introducing Sim-racing Gambling Taxation Basics
There’s no doubt it’s a good feeling when you win a bet on a sim-racing event, but before you get carried away with your luck, let’s remind you that these winnings sometimes (if not always) come with liabilities. Of course, we are talking about taxation.
There are many reasons why some governments decided to tax sim-racing betting. Also, the reasons and how this activity is taxed can vary from jurisdiction to jurisdiction.
Generally, the main reason why simp-racing gambling is subjected to taxation is to boost government revenue. In theory, the taxes are used to support public services such as education, healthcare, infrastructure, etc.
However, there’s another reason that many authorities like to point out: consumer protection. According to officials, taxation is a handy tool for supporting responsible gambling and protecting players. They use the revenue from these taxes to fund organizations that fight problem gambling.
Finally, with the help of taxation for sim-racing gamblers, the government regulates and oversees the betting industry, prevents excessive growth, and discourages overly aggressive practices among bookmakers.
The betting markets used by players don’t affect the taxation process. So, you can bet on an outright winner of a tournament or a match, on the margin of victory (in terms of seconds/milliseconds), or prop bets and expect the same tax rules.
The Legal Aspect of Sim-Racing Gambling
As noted, different countries have specific laws and regulations regarding sim-racing betting and taxing the winnings from this activity.
According to the latest stats, online esports betting is legal in 26 US states. In addition, it’s regulated by specific rules and comes with certain restrictions in a few more. In all these states, sim-racing betting winning is considered taxable income like regular sports betting.
The tax rate depends on the state and can be anywhere from 0% to 37%. Of course, it’s not just the state where the gambler comes from – it’s also the income size. For instance, in Arizona, you can expect winning of up to $26,500 to be taxed at 2.59%, but this percentage foes up to 3.34% when the income is between $26,501 and $53,000. Regardless of the state, a federal income tax of 24% is applied to substantial winnings.
Another thing we should note is that in most cases, sim-racing bettors should report their winnings (and losses) once a year through the Form 1040 individual income tax return.
In Canada, the situation for sim-racing gamblers and gamblers is much better. In this country, winnings from gambling activities, including sim-racing, are not taxed. According to Canadian law, gambling, and betting are not regular sources of income, so they shouldn’t be taxed. This is stated in paragraph 40(2)(f) of the Income Tax Act. There’s one exception, though. Namely, when players earn interest on their winnings, these earnings are taxable. In this case, they must highlight this fact in their T5 form.
Lastly, we’ll mention the United Kingdom, a country with a long history of betting. Like in Canada, sim-racing winnings aren’t taxable. The best part is that it doesn’t matter how much money you’ve won in the past year ($100 or $1,000,000); you don’t have to pay a cent. Remember that this rule is applied to other forms of gambling like winnings from slots, bingo games, lotteries, sports betting, etc. Of course, you still pay indirectly through the bookies and casinos, which pay taxes and contribute to the country’s economy.
Potentially Deductible Expenses
Since Canada and the UK don’t practice taxation for sim-racing gamblers, we will focus on the United States in this part of our article. So, the question is whether there are deductible expenses that can help you improve your budget.
Generally, it’s possible to deduct gambling losses in specific situations. First, gamblers must itemize their deductions to claim their losses. So, you must be clear about your losses which is not tricky when gambling online. In other words, you should check your history and send the reports to the IRS.
Another thing you should know is that US-based sim-racing gamblers can deduct losses up to the gambling income they have claimed. Let’s take an example – you won $1,000 but lost $4,000. You can deduct your gambling losses up to $1,000 in this case.
Comparing Online Gambling Platforms with In-Person Venues
Even though in-person venues still have higher incomes than online gambling platforms, the latter tend to bridge this gap in recent years. It’s expected that online betting will have an equal share in the following two years and surpass in-person venues after that.
This is no surprise because more and more people use the Internet through their computers and mobile devices for different activities, including betting and gambling. The truth is that online gambling is much more convenient and offers perks that you can’t find in in-person venues, like attractive bonuses.
Regarding taxes, there may be some differences between the taxes paid by land-based venues and online platforms. Still, how you wager money on sim-racing events and other esports and sports doesn’t affect your winnings in terms of taxation because the authorities treat them the same, at least for now.
The rise of esports and esports betting has reshaped the landscape of modern entertainment, defying 1990s skepticism. Sim-racing, a prominent genre within esports, has emerged as a respected player, captivating enthusiasts worldwide. Games like Formula 1, Gran Turismo Sport, and NASCAR iRacing.com World Championship Series (eNASCAR) have harnessed this momentum, offering unique betting markets that embrace the excitement of virtual racing. Sim-racing’s appeal for gamblers lies in its relative simplicity – outcomes are visibly clear – attracting both novice and seasoned bettors.
Taxation, a pertinent concern, varies across jurisdictions. Governments justify taxing sim-racing gambling as a means to enhance revenue and advance responsible gambling initiatives, channeling funds into vital public services. The US, Canada, and the UK illustrate these diverse tax regimes. While the US imposes taxation on gambling winnings, Canada and the UK generally exempt sim-racing earnings from tax obligations, fostering an environment favorable to bettors.
As the popularity of online gambling platforms burgeons, they progressively rival traditional in-person venues. While tax disparities may exist between these platforms, sim-racing gamblers currently experience similar tax treatment regardless of their chosen wagering medium. As the future unfolds, the taxation landscape for sim-racing gamblers may evolve alongside the growing esports phenomenon, necessitating caution and adaptability to ensure equitable and informed tax practices.