Will Policymakers Allow NY Online Sportsbooks To Deduct Promotional Play With 51% Tax Rate?

Written By Mike Mazzeo on December 8, 2021
Tax Rate NY Online Sports Betting

During SBC Summit North America last week, multiple executives in the online sports betting industry suggested to PlayNY that policymakers in New York should change the language so that operators facing a drastic 51% tax rate can deduct promotional play.

As it stands, according to the existing language already in place prior to expected launch in early 2022:

“Promotional [gaming credits] spend shall not be [used in a sports wagering lounge] deducted from revenue or added to loss when calculating gross gaming revenue. No promotion related to sports wagering may be offered without the prior approval of the commission.”

And here’s where Sen. Joe Addabbo stands on the issue:

“Sometimes legislation is motivated by complaints or obviously people coming out and requesting a change. But I’ve heard nothing, to be honest with you.” Addabbo told PlayNY.

“So the idea is we start our business (session) on Jan. 5, and we’ll see. If we get enough people inquiring about making a certain change like that and we can get support in the (state) assembly and the senate, then we would entertain it. But the idea here is it has to show some type of momentum.”

Why a change in NY online sports betting language makes sense

Policymakers in the state want residents to do their online sports betting in New York and only in New York. Similarly, operators want to create a financially viable operation that yields sustainable success long-term.

And online sports bettors don’t want to get the shaft. Which could happen with such a high tax rate. Part of the potential ripple effect is lesser promotions and worse lines due to the 51% tax rate.

So it seems like everyone would benefit from regulators allowing operators to deduct promotional play from gross gaming revenue (GGR).

Operators provide promotional play — such as “free bets” — to online sports bettors in order to incentivize them to pick their app and (they hope) stick with it for the long haul.

Some estimates have pegged the potential revenues for NY online sports betting at around $500 million.

Of note: In nearby Pennsylvania, which has a 36% tax rate, allows sportsbooks to deduct promotional play from the GGR.

The 51% tax rate on NY online sports betting still a sore subject

DraftKings CEO Jason Robins has said plenty of controversial things recently.

His comments on NY, though, echoed many others. Robins sees the potential for financial growth in two to three years. But he also made no secret of the fact that promos could be lower and lines could be worse.

“We will have to see what New York does long term,” Robins said during a recent summit. “There could be changes in the tax rate. But if not, we will adjust accordingly. Maybe the best players still go to Connecticut and New Jersey because they get a better deal there.”

This has been a common refrain from many executives. New York is potentially too lucrative to skip out on, but will it actually make any money?

Asked about Robins’ specific statement that bettors “who are doing this for profit are not the players we want,” Addabbo responded that he “can’t be bothered with those statements.”

“I have to get the best product I can for my people in New York. I have to get a product that’s competitive, that’s fair. I have to have a sustainable volume to compete with New Jersey. I can’t have New Yorkers be one and done. They try us, they don’t like us and then go back to Jersey or Pennsylvania or they do something illegally. So I have to find something that’s a great product so they can stay with us.”

Creating a more viable situation for online sportsbooks in New York so as not to create a negative ripple effect for users could be the ultimate solution.

Where NY online sports betting process stands

First bets could come sometime during the NFL playoffs in January, with the entire legal online sports betting operation fully up and running by the Super Bowl on Feb. 13.

“Server negotiations are moving ahead at a great clip, and we should have no issue with the servers come January,” Addabbo said.

The Super Bowl could provide an early litmus test for the viability of the entire operation.

“Post Super Bowl is a perfect time to re-evaluate where we are,” Addabbo said. “Some people will say it’s too early. Some people will say give it a year. But I think there could be points leading up to a year, the Super Bowl being the first point, where there could be multiple points of evaluation, and the first one should be the Super Bowl.”

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Mike Mazzeo

Mike Mazzeo is a contributing writer for PlayNY, reporting on legal sports betting in New York while covering the potential legalization of NY online casinos and poker. He previously wrote for ESPN, the New York Daily News and The Ringer, among others.

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