For over a year, from the rulemaking process for online sports betting in New York to the Empire State becoming the top industry in the country, sportsbooks have clamored about the sky-high tax rate on the industry.
While legal efforts have attempted to lower the 51% rate, each attempt fell short of passage. Now, lawmakers who once spearheaded those legislative pushes are now changing their stances:
The NY sports betting tax rate is here to stay.
“That’s not going to change,” Assemb. Gary Pretlow told PlayUSA. “It’s not going to change ever, as far as I know. I can’t see it changing. It’s going to stay at 51%.”
NY sports betting tax rate not changing anytime soon
Pretlow was an advocate for decreasing the tax rate at some point. Last year, for example, the assemblyman introduced a bill to add NY online sports betting skins, thereby lowering the rate. Now, though, as the industry continues to flourish despite a tax that cuts into the number of promotions available for users, Pretlow has backed off.
So, too, has Sen. Joe Addabbo, to an extent. Similar to Pretlow, Addabbo has efforted to decrease the tax rate, including a bill earlier this year that resembled Pretlow’s plan. While Addabbo agreed that the 51% rate is here to stay, he did not go as far as to say that it would never be changed.
“Ever is a strong word because nothing in politics is forever,” Addabbo told PlayUSA.
“But nobody has made a credible argument that lowering the tax rate is going to increase education funds. I don’t think a credible argument exists, but I’m all ears if someone wants to submit something.”
Sportsbooks warn of NY sports betting future at current rate
In February, several executives representing New York sportsbooks aired their grievances in front of state lawmakers. In particular, DraftKings Sportsbook NY and FanDuel Sportsbook NY warned that sports betting industry sits on “unstable foundation,” as DraftKings CEO Jason Robins put it, with the 51% rate in effect.
While New York has pocketed nearly $825 million in state tax revenue from $20 billion in bets placed, sportsbooks are apparently limping. As the New York Post reported a month after the industry launched, NY sports betting operators likely lost $200 million.
At the hearing, Addabbo emphasized that incoming NY sportsbooks “knew it was 51% going forward. You negotiated it. You agreed to it. And now we have these numbers, and there’s no real foundation to say these numbers are suffering at this point.”
But Robins noted that the high tax rate might forced DraftKings and other sportsbooks to offer worse odds in New York compared with other states featuring legal sports betting. If that happens, the DraftKings CEO warned, customers may return to the illegal market.
“My fear is that because of the early success that we’re going to wait and see,” Robins said, “and by the time we see, it might be some of the loss and revenue, and the loss in customers back to the illegal market might take a long time to recover even if we did make a change, even if you all did make changes at a later date.”
Lowering even a little could help everyone
Christian Genetski, president of FanDuel, estimated that the New York sports betting handle will decrease up to 20% annually if the tax rate remains unchanged. Already light on marketing spend and promotional offerings for customers, the state could also see even less. In addition, some sportsbooks could up and leave.
Even dropping the tax rate a tad, perhaps even down to 36% seen in Pennsylvania, the country’s next-highest rate, would do wonders, Genetski said.
“We believe that lowering the tax rate to one commensurate with the next-highest tax rate in the country can fundamentally alter the long-term outcome in New York.”
NY sportsbooks have cut back, could potentially get tax break on promos
Last year saw two notable sportsbooks in New York cut back on additional spending. Gary Deutch, CEO of BetMGM Sportsbook NY, noted during a business update that bettors “would never continue to play if the house always won, and the house cannot continue to play if it’s always going to lose.”
Deutch explained that BetMGM diverted marketing and promotional spend from New York to other jurisdictions that feature “better economic returns.”
Along those lines, Peter Jackson, CEO of Flutter, parent company of FanDuel, said that New York bettors should get used to “lower levels of generosity” as a result of the tax rate, noting that FanDuel did “something similar” by cutting back on promotional offerings.
During the hearing last month, DraftKings and FanDuel pleaded for lawmakers to not tax promotional credits. In doing so, Robins noted, sportsbooks essentially pay a 70% tax rate.
As reported by PlayUSA, Addabbo remains open to this request. In fact, he may look into the topic in the near future.
“I was in favor of promotional credits,” Addabbo said. “That can be part of the discussion. That’s a little relief for some of the operators who then may do more marketing. That’s a good conversation to have post-budget.”
