Pros & Cons Of New York Sports Betting Tax Rate Debate

Written By Russ Mitchell on February 22, 2023 - Last Updated on February 23, 2023
pros and cons of new york's sports betting tax rate debate

New York isn’t killing the goose that laid the golden egg with its 51% sportsbook tax rate.

But if the idea is to keep the biggest market in the US lively and prosperous, the NY sports betting tax rate won’t cut it with the state’s biggest operators. And, the companies warn, the benefits will be fewer and further between if the tax rate doesn’t change.

Legal Sports Report caught up with Caesars CEO Tom Reeg at the Indian Gaming Association Mid-Year Conference last fall.

“Well, the tax rate is ridiculous,” Reeg said of New York’s sportsbook policies. Then, he added:

“New York chose a big cut of a smaller pie than they could’ve had in sports betting.”

Some of Reeg’s competitors agree about the state’s future and current trajectory.

DraftKings CEO Jason Robins and FanDuel President Christian Genetski testified at a Joint Senate-Assembly public hearing. The Jan. 31 hearing in Albany served as a chance for state leaders to review the first year of New York sports betting and its impact on the state budget.

The executives heard from senators and assemblypersons who are thrilled with a huge first year of sports bets.

NY state Sen. Joseph Addabbo Jr. opened the hearing with some big first-year numbers:

  • $16.2 billion in the first year of betting and
  • Almost $700 million for public education.

“We have a great fan base and we certainly saw our residents going to other states so the fact that they get to stay here is great,” he said.

“What amazed me, and what I marveled at, is that we did these record-setting — number one in the nation — numbers within the first year. And with only nine operators.”

NY sports betting tax rate has ruffled some feathers

Genetski and Robins look after budgets too. FanDuel and DraftKings lead the online sports betting market both nationally and in New York.

Robins said the nation’s biggest market is built on an unstable foundation in New York.

“In our view the state’s revenue projections are simply unsustainable with this tax rate,” he told the committee.

Genetski didn’t waste time after Addabbo introduced him to the Jan. 31 panel. He said FanDuel could lose 10% to 20% on a year-to-year basis in NY if the tax rate doesn’t change.

“Although it’s only been one year since the market launched, there are clear signs that the New York market has already peaked whereas other states remain on a solidly upward trajectory.”

FanDuel made “an inordinate” investment in the first three months, according to its company president. But,”the market is not growing handle nor customer base like every other state,” he testified.

Genetski gave NY lawmakers a flyover view of high tax rates in Europe as well. He cited France, Germany, Poland and Portugal as examples. They all established punitive tax rates. It eventually drove diverse sportsbook operators away and stunted revenue that could have otherwise been taxed.

When some of the regulated producers left Europe, it allowed for offshore sportsbooks to swoop in. That could happen in New York as well.

High tax rates ground the fight against offshore sportsbooks

The major sportsbooks haven’t slashed their NY marketing budgets just yet. But, Genetski suggests operators will feel pressure to “make the numbers work.”

Anyone who makes a bet on sports in NY will start seeing the difference.

At 51%, the tax rate may force companies to offer fewer NY sports betting bonuses and free bet offers. They’ll also reduce pricing — how much it costs to place a bet — to offset the lost revenue.

Plus, the actual bets may be tougher to win. Robins told lawmakers as much:

“New York customers would receive worse odds than DraftKings offers in other states — and that you can find in the illegal market. Many customers are very sensitive to this, naturally.”

New Yorkers didn’t just start betting a year ago. They just placed their bets New Jersey or Pennsylvania instead. Worse yet, some NY customers tested the murky illegal sportsbook waters. That revenue went untaxed until NY sportsbooks finally launched in January 2022.

So if:

  • The cost to place a NY sports bet goes up
  • Customers get worse odds at New York’s regulated sports books
  • Sportsbooks end sports franchise partnerships to stay in the black
  • And overall marketing goes down

Well, New Yorkers will know if the odds don’t suit them. They’ll go back to old patterns. Every dollar bet at illegal sportsbooks is a dollar New York can’t tax for the education budget.

New York lawmakers don’t represent sportsbooks

Sen. Addabbo doesn’t hate gaming. In fact, he just introduced legislation to add online casinos to the list of NY online gambling options.

But the senator doesn’t represent Draftkings, FanDuel or Caesars either. He sees that the first year of sports betting in New York topped all other states — and at a 51% tax rate, no less.

It’s hard for NY Senate or Assembly members to support any bill that gives a break to the sportsbooks — if that tax break cuts the state education funding. Parents outnumber bettors. Families with voting parents might not understand the longterm benefits of an entertainment tax break.

And, the tax rate wasn’t a surprise when sportsbook operators ponied up their licencing fees.

Nonetheless, Robins and Genetski both assured the hearing panel that New York will miss out on taxable sportsbook revenue because of the high tax rate. They’ve seen how lower tax rates help operators in other states invest in better odds and increase promotions. That in turn fends off the illegal market and spurs growth.

“We would much prefer to see the New York market grow to its full potential rather than invest minimally into marketing and promotions at the current tax rate,” Robins said.

Is it time to add more NY sportsbooks?

DraftKings and FanDuel can offer growth projections, but not promises however. Committee members at the hearing wanted hard numbers before they’d consider a sportsbook tax rate.

That’s a tough ask for the companies. NY’s legal sportsooks have no way of knowing exactly how much money they lose to the illegal market.

Bill Miller, President and CEO of the American Gaming Association said the illegal market is the single biggest threat the industry faces.

“Americans bet more than a half a trillion dollars with illegal offshore sportsbooks casinos, bookies and unregulated machines. This comes at a cost of $44 billion to the legal regulated businesses and deprives communities of more than $13 billion in tax revenue.”

Robins and Genetski know it would take time for a lower tax rate to recharge the New York sports betting market. So, they’d agree to more competition in exchange for a more favorable tax rate. Right now, nine sportsbooks have the New York market cornered.

The one-time, $25 million licensing fees from new rivals would help backfill early losses from a lower tax rate. It’s fair to note that the biggest competitors for DraftKings and FanDuel are already in the New York market. New arrivals would be hard-pressed to capture a significant part of the marketshare.

Still, any introductory offers from the new arrivals could spur new revenue growth as well.

New York also could coax more revenue from operators already in the state. That’s were Addabbo’s online casino bill comes in.

“The legislature should authorize iGaming, which taps into a potential revenue stream currently funneling to illegal offshore operators that lack any of the consumer protections a regulated operator would provide,” Robins said.

As the adage goes, what’s good for the goose is good for the gander.

We’ll soon find out if what’s good for the tax base is good for the handle.

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Russ Mitchell

Russ Mitchell covered news and sports in Iowa since 1997, including 11 years as managing editor for one of the most decorated community newspapers in the state. He joined PlayIA as a lead writer and managing editor in 2021. He anxious to explore the growing New York gaming industry.

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