Six months into the legal online sports betting era in New York, Assemb. Gary Pretlow says he feels like Carnac the Magnificent, the psychic character played by Johnny Carson on “The Tonight Show.”
“I said New York would be the sports betting capital of the world if we let it happen,” Pretlow told PlayNY this week. “Unfortunately, the former governor didn’t want to let it happen — but now it’s coming to fruition. We’ll get the kinks out in a little bit, and it’ll flourish.”
Indeed. The Empire State exceeded the $1 billion threshold in NY online sports betting handle in each of its first six months in business while generating US-record tax revenue.
“We’re on pace to shatter the previous governor’s projection of $500 million in terms of revenue for the year, and we turned out to be one of the leading — if not the leading — state in terms of online sports betting nationally,” Sen. Joe Addabbo told PlayNY.
“If we were to look back in January and say where do you think we’re going to be in six months, I don’t think we would’ve projected this. Although I’m not surprised given our potential.”
Pretlow (who is running for re-election in District 89) and Addabbo (who is running for re-election in District 15) plan to further discuss the state of online sports betting in NY during the fall. With the industry generating $8.5 billion in handle, $607.2 million in NY sports betting revenue and a whopping $309.7 million in state tax revenue, what’s next?
Can anyone change the 51% tax rate on NY sports betting?
Pretty much every executive has complained about the 51% tax rate.
Morgan Stanley reported that the average American tax rate on sports betting is 19%. New York also does not allow for deductions on promotional spending, which, when combined with federal tax, equates to a 77% rate, Morgan Stanley said.
Pretlow and Addabbo introduced matching legislation to increase the number of operators, reducing the tax rate as a result. Their bill — which ultimately differed in the Senate and Assembly one-house budgets and was rejected — called for the Empire State to go from nine NY sportsbooks to no fewer than 14 by January 2023 (which would lower the tax rate from 51% to 35%) and no fewer than 16 by January 2024 (lowering the tax rate from 35% to 25%).
With NY rolling in record tax revenue from online sports betting, there was no incentive for the state — at least in the short term — to change anything. And operators knew about the 51% tax rate when they agreed to join the coveted NY sports betting market. They just figured they’d be able to lobby for changes. But so far, those efforts have been unsuccessful.
Balancing lowering tax rate vs. maximizing money for state education
Long-term viability and sustainability remains a question as New York sportsbooks attempt their respective paths to profitability. This issue will be revisited during next year’s state legislative session.
“It’s difficult for me to change the law and take money from school kids (98% of tax revenue from online sports betting goes to education) and give it to millionaires,” Pretlow said. “It’s hard to explain that if we give them some (promotional) money back, we’ll make more because total revenue will be higher.”
A compromise of sorts would be not changing the tax rate but allowing for the deduction of promotional spending. Conceivably, this first full NFL season for NY online sportsbooks could be the final time significant promotions are offered to in-state bettors. Further growing the market is important. It could depend on how the tax rate policies go moving forward.
“Other than the 51%, it’s a way of helping, and there’s a rational argument to be made for that, there is,” Addabbo said. “So I do think that’s something else where if we don’t get the 51% adjusted, we do that. And if we hit that lever, what’s the fiscal impact? So I do think that’s lower hanging fruit than the 51%. But you give them an incentive other than the 51%, and that might work.”
Will New York add more betting markets?
Addabbo and Pretlow have both been open about their desire to add markets — such as player award futures (MVP, Cy Young, Heisman) and events (NFL, NBA draft) — that would put NY more on par competitively with neighboring states like New Jersey and Pennsylvania, in addition to the unregulated offshore market.
But doing so will require a change in legislation.
“(Awards and events) aren’t ‘competitive sports’ as listed statutorily, so that’s a conversation that Gary and I will have,” Addabbo said. “But again, credit to the Hochul administration for allowing that conversation so we can improve upon it.”
“That’s in the works now. Nothing is going to happen on that end until January (budget), and Sen. Addabbo and I are talking as to how we can implement that.”
Separating kiosks from fixed-odds horse racing
Addabbo and Pretlow both said they wanted to re-attempt getting betting kiosks into stadiums and arenas in New York. During last session, the kiosks bill was the same as the fixed-odds horse racing bill (to include on all apps).
However, succeeding in the authorization of self-service kiosks might require introducing legislation that separates this issue from horse racing.
“I think it’s a separate animal, a separate issue, so yeah I would like to deal with that separately from fixed odds,” Addabbo said. “There’s a lot to think about here leading up to the 2023 session, but we’re fortunate enough to have an administration that wants to have these discussions.
“Our obligation as legislators is to make this the best product that New Yorkers deserve.”
Pretlow would also like to add off-track betting parlors, “bringing back betting parlors before they meet their demise, because OTBs are going down fast. Catskills OTB is working with NYC to open it up, but they need something other than horseracing to bet on,” he said.