DraftKings CEO Jason Robins suggested Monday to state legislators that without a reduction in tax rate, the operator might be “forced” to offer worse odds in NY sports betting.
Executives from DraftKings and FanDuel received pushback from state legislators after recommending a reduction of the 51% tax rate on online New York sports betting.
Robins and FanDuel president Christian Genetski attempted to make their case at a joint public hearing to skeptical lawmakers that reducing the tax rate would increase an already robust and record-setting New York sports betting market.
In its first full year of operation, legal online NY sports betting produced a combined $909 million in licensing fees and tax revenues.
“Our ask is counterintuitive. We have to acknowledge that,” Genetski said.
Operators knew 51% tax rate
The nine online sports betting operators in NY willingly proposed and accepted the 51% tax rate in order to enter the marketplace.
FanDuel and DraftKings rank Nos. 1 and 2 in New York in both handle share and revenue share.
“Everyone on the planet knew it was 51%” Assemblyman Jeff Gallahan said.
Robins: ‘No choice’ but to pay 51%
Yet Robins claimed they had “no choice,” citing New York’s massive population size in relation to the current legal market.
“It was a different time and a different market,” Robins said. “Operators, who were understandably excited about New York opening up, were focused far more on customer acquisition in the short term and far less on what would create sustainable market over time. …
“But the most draconian decisions — the actions that operators will likely need to take to make New York sustainable under the current tax regime — still have yet to occur.”
NY sports betting customers done for?
Robins expanded on those “draconian decisions.” As a result, NY bettors would head to other states, illegal offshore sites and local bookies to place their wagers.
According to Robins, DraftKings might be “forced” to take the following steps:
- New Yorkers would receive worse betting odds
- New Yorkers would receive significantly less promotions
- DraftKings would reduce marketing spend with New York’s professional sports franchises
Addabbo: Show us need for reduction
Sen. Joe Addabbo reintroduced legislation that would reduce the tax rate by increasing the number of operators. Yet Addabbo noted the numbers would have to make financial sense for that to gain traction.
“You agreed to it,” Addabbo said. “There’s no foundation to say these numbers are suffering at this point, so we need to change this. It’s a very hard argument to make. Do you have enough credible data that this makes fiscal sense to New York?”
Robins claimed he did, though he provided no concrete numbers.
NY sports betting tax rate math
The math is pretty straightforward, though.
A reduction in rate from the existing 51% to the proposed 35% reduces the tax obligations for operators by 31.4%.
That means revenue would need to grow by the same amount in order for such a change to have a net-neutral impact on the total tax revenue for the state. For 2022, that would have corresponded to a revenue increase from $1.36 billion to $1.98 billion.
“Color me skeptical,” Assemblywoman Carrie Woerner said. “To recover $600 million is a big jump. … I think this is a leap. I look forward to your analysis.”
Why 35% NY sports betting tax rate
FanDuel, which recommended the 35% tax rate for NY, said that a more competitive tax rate would allow it to:
- Invest $200 million to $250 million above its current plans for 2023
- Activate an additional 300,000 customers leading to an estimated $350 million-plus in additional total gross gaming revenue over a three-year period.
iGaming to make it all better?
DraftKings also advocated for New York to pass a bill to legalize online casino gaming.
Discussions included the idea of allowing operators to deduct promotional spend, which could lower the tax rate from what they term an effective 72% rate to a true 51% rate.
During his testimony, NYS Gaming Commission director Rob Williams advocated for additional funding in problem gambling funding, including to outside group Gamblers Anonymous, for research and awareness.