Does It Make Financial Sense For New York Policymakers To Expand Online Sports Betting?

Written By Mike Mazzeo on March 22, 2022

On March 7, Assemb. Gary Pretlow introduced a bill amendment to expand online sports betting in New York.

Increasing the number of operators — with an emphasis on minority inclusion — would result in a reduction in tax rate based on the matrix introduced by the New York State Gaming Commission during the initial license bidding process.

The bill called for the Empire State to go from nine NY sportsbooks to no fewer than 14 by Jan. 31, 2023 (thereby lowering the tax rate from 51% to 35%) and no fewer than 16 by Jan. 31, 2024 (decreasing the tax rate further to 25%).

Pretlow’s counterpart, Sen. Joe Addabbo, has been amenable to the change — so long as it doesn’t impact the tax revenue going to the state. As per the regulations, 98% of all tax revenue from NY online sports betting goes to educational funding.

As it stands, the Senate one-house budget proposal didn’t include a change in tax rate — even if the number of operators expands.

“Does the expansion equate to a reduction in the tax rate? And if it does and there’s a reduction in educational funds, then forget it,” Addabbo said last week. “We’re not going to do it because why would we do that? Our version does not reduce the tax rate. Let’s have the analysts look at this. I think it’s a great way to start the conversation. That’s what the next two weeks are for. Let’s see.”

How would lowered NY sports betting tax rate look now?

From Jan. 8 to March 13, online sports betting in NY generated $274.6 million in total gross gaming revenue (GGR) and $140 million in tax revenue (at the 51% rate) off $3.9 billion in handle. That means $137.2 million will go to educational funding.

Currently, there are eight betting apps in New York, with Bally Bet projected to launch in H1 2022. Assuming things stayed the same but the rate changed:

  • Total GGR with a 35% tax rate: $96.1 million ($94.2 million to education)
  • Total GGR with a 25% tax rate: $68.7 million ($67.3 million to education)

In order for tax revenue to stay the same, total GGR would need to increase by 46% if the rate drops to 35%. And GGR would need to go up 104% if the tax rate lowers to 25%.

It’s also worth noting that the top four operators in New York dominate the market share:

Would additional operators make up for the decline in tax revenue?

PlayUSA analyst Eric Ramsey weighed in.

“Any adjustment to the tax rate will have a near-direct impact on annual tax revenue, at least for the foreseeable future. The biggest operators in the country are already licensed in New York and predictably dominating the market early on. Even doubling the number of operators in the state would likely only boost total revenue by a single- or low-double-digit percentage,” Ramsey said.

“I’d go so far as to say that lowering the tax rate will lower the annual tax revenue totals, regardless of how many more operators are added.”

Lawmakers steadfast against sports betting tax rate adjustment

New York’s 51% tax rate has been — and continues to be — a significant point of contention in the industry. Former Gov. Andrew Cuomo wanted to follow in New Hampshire’s footsteps. Local policymakers didn’t. But Cuomo got his way, and massive money has flowed into the state’s coffers ever since. Sportsbooks, on the other hand, continue to complain about the tax rate as it pertains to long-term stability and profitability.

The state’s position (at least to date) has been: “Tough. You knew what you signed up for going in.” In fact, legislation was introduced that would prohibit operators from asking for a reduction in tax rate. But increasing the number of operators — with an emphasis on minority inclusion — could potentially bring about a change.

Fanatics — under the direction of Michael Rubin and former FanDuel CEO Matt King — had plans of making Jay-Z vice chairman of its sportsbook and a member of its board of directors. But the operator was left out of the mix, along with Penn National Gaming/Barstool Sports, Bet365, FoxBet and theScore. Nevertheless, Fanatics has continued its lobbying efforts in NY, which are on par with titans FanDuel and DraftKings.

Since November, Fanatics has made $52,000 in total contributions.

  • Nov. 8: $25,000 to NYS Democratic Assembly Campaign Committee
  • Nov. 9: $25,000 to Democratic Senate Campaign Committee
  • Jan. 11: $1,000 to Addabbo For Senate
  • Jan. 14: $1,000 to Friends Of James Gary Pretlow

Rubin has touted the potential of exponentially growing Fanatics given its massive customer database. But it still could be a daunting challenge for what is essentially a sportsbook startup trying to make in-roads in a New York marketplace quickly dominated by industry giants.

If 51% rate stays, would other sportsbooks still enter New York?

What is the incentive for newcomers to join the NY competition at the existing 51% tax rate?

“The current framework does seem to maximize state revenue in my eyes. It’s hard to imagine that trading a lower tax rate for more operators would put the state on a better trajectory in that regard. Even adding additional operators under the existing rate would only have a modest impact on total revenue,” Ramsey said.

“The picture could change a bit if we look beyond the immediate horizon, to a time when some of the international leaders might look to make a run at the US market. Creating space for a brand like bet365 might become relevant for New York in the future. But for now, with the current crop of brands? There’s no measurable benefit to the state.”

Ramsey continued:

“Adding brands like Barstool and perhaps Fanatics certainly wouldn’t hurt, of course. But how much extra milk does this cash cow have to give? Are we talking about attracting new customers and increasing overall volume, or just slicing up the current market into more pieces?”

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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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