BetMGM CFO Gary Deutsch became the latest executive to take aim at New York’s 51% tax rate during the entity’s business update late last week.
“Players would never continue to play if the house always won, and the house cannot continue to play if it’s always going to lose,” Deutsch said Thursday.
Previously, FanDuel’s Peter Jackson and DraftKings’ Jason Robins were among those execs who made pointed remarks. But, so far, both lobbying and legislative efforts at a reduction have proven unsuccessful.
Why BetMGM diverted promo spend from NY
Deutsch explained the decision of BetMGM New York decision to cut back on pursuing new players in the Empire State. Instead, marketing and promotional spend was diverted to other states “with better economic returns,” according to the CFO.
“The specific problem in New York is that it has a high tax rate of 51% of gaming revenue, and it applies that rate to both real revenue and phantom revenue associated with non-cash promotional wagering.
“So even at lower than typical promotions levels for a new market operators in New York stand to experience effective tax rates that’s taxes divided by real revenue NGR of well over 100%.
“We have hoped that the New York tax environment will be updated and we can then again aggressively pursue New York players. However, as rational allocators of capital with sophisticated investors in Entain and MGM, we simply can’t apply can’t apply our capital against an irrational investment thesis.”
Massive tax revenue gives NY no reason to change
New York has 235.7 million reasons and counting not to change the 51% tax rate.
That’s how much money the state has amassed in tax revenue off of $6.6 billion in NY online sports betting handle since Jan. 8 launch — which has led to $462.2 million in total gross gaming revenue (GGR).
Local policymakers Sen. Joe Addabbo and Assemb. Gary Pretlow had tried to expand the number of operators, thereby lowering the tax rate over a two-year period to 35% and then 25%. But despite appearing in the one-house budgets — albeit with differing terms — they failed to advance.
BetMGM entered the NY market on Jan. 17. Since then, it has settled into fourth in market share behind FanDuel, DraftKings and Caesars. Overall, BetMGM has amassed $587.6 million in handle, leading to $19.7 million in total GGR — of which NY has taken $10 million in taxes.
That leaves BetMGM with a takeaway of $9.7 million, which may not be a positive figure after their marketing and promotional spend. Of course, the state could easily argue that the operators knew what they were getting into when they agreed to do business in New York.
New York needs in-state bettors to keep wagering there, as opposed to other states and unregulated offshore sportsbooks and bookies. Regardless, it’s an issue that isn’t going away.
MGM has other gaming hopes in NY
MGM also has a footprint in the Empire State via its Empire City video lottery terminal in Yonkers. The entity is hoping to secure a downstate license to turn that into a full-scale casino.
MGM could also benefit in the Empire State down the road with NY online casino gaming. Addabbo plans to make online casino gaming the featured item of next year’s NYS budget.
“IGaming in New York is not a matter of if; it’s a matter of when,” Addabbo said at the iGaming NEXT conference last week.
In the meantime, look for more executives to pull no punches when it comes to the 51% tax rate in NY. After all, everyone is doing it.
