New York Sportsbooks Threaten Worse Odds If No Tax Cuts | LSR Podcast 180
A hearing in New York featured sportsbook executives pleading for a lower tax rate and hinting at consequences if they don’t get their wish. The crew also looks at the revamped PointsBet-NBC deal and Intralot’s latest struggles with sports betting, this time in Ohio.
Matt Brown (00:08):
Hello and welcome to episode number 180 of the LSR Podcast. My name is Matt Brown, joined each and every week by the brightest minds in all of the gaming industry. With me, I have but one of those minds, but boy, that mind is beautiful. It is Adam Candee. You can follow him on the Twitter machine at two E’s, no Y on that Candee. If you hate yourself, you can follow me, @MattBrownM2. Please subscribe, rate review. Everything we do, absolutely free. So that’s all we ask, just go ahead, hit that little pause button right now, hit that subscribe, hit the rate, review. We do appreciate everything with all of that. We will talk about some layoffs at one of the major sportsbook companies. We’ll talk about what’s going on in Massachusetts. We’ll also talk about some stuff going on in Ohio, Adam. But first, let’s kick things off in New York.
New York sports betting taxes
Adam Candee (00:54):
A very interesting hearing in New York yesterday featuring the state legislators who were behind the initial push to legalize online sports betting in New York, as well as the sportsbooks that are taking part in the market. And it wasn’t unexpected to have this hearing, but it was very curious to see how it would play out when sportsbook operators went back into the same legislators who created this market less than a year ago and said, “Hey, remember that 51% tax rate that we proposed and agreed to? We can’t make that work anymore.” And this was the playbook that everyone saw coming last year when it said that they were going to come in, get the first feet in the door and then try to fix it. And of course, legislators unsurprisingly were skeptical, right? Joe Addabbo among others said, “We don’t really see why there should be a reduction in the state tax revenue that comes in from sports betting.” Because we scoffed here at LSR at the $500 million tax revenue projection that they put forward initially for sports betting.
And not only did they beat that, but the New York state budget that was just revealed today with tax revenue projections for fiscal year ’24, they’re projecting just short of $900 million in tax revenue in New York, which is a whopping, overwhelming number for the market. And so the most interesting piece I thought with FanDuel’s president, with DraftKings CEO both talking in this hearing, Jason Robbins from DraftKings put out there a theory that we have talked about for the last five years behind the scenes on this podcast with the idea of if tax rates are too high, what will sportsbooks do in order to meet their goals for their shareholders? Well, he suggested a number of things, including that DraftKings might offer worse odds in order to be able to facilitate its entry in the market. And that’s the quiet part out loud, right? We’ve talked for years about the idea of what a sportsbook going into a market with a New York tax rate, with a Pennsylvania tax rate, and would they offer a less appealing product that ultimately might not be something that keeps their bettors with them-
Matt Brown (03:14):
Adam Candee (03:14):
To compete in the market? And so he’s not saying they’re going to do it; he’s basically saying that, “Look, if we don’t get this tax cut, this is among a number of things, including less promos and less free bets.” Not that that term is being used widely these days, in order to make ends meet essentially in New York. He calls it a different environment than the one in which they proposed the tax rate. So it’s going to be fascinating to watch this play out. Lawmakers were highly skeptical in that hearing according to our Mike Mazzeo, but it doesn’t mean that the push isn’t going to continue.
Matt Brown (03:47):
And Adam, like you said, we speculated about this on the pod multiple different times. And it’s one of those things where it’s like, yes, these guys came in and they agreed to all this, but then we also go back to what we talked about in the first place, which is the advantage that the black market has over these legalized books. And it comes down to the fact that when you don’t have to pay these licensing fees and you don’t have to pay these crazy tax rates and all the things like that, they can offer a better product. And therein lies this double-edged sword, where we want to push people toward legalized betting.
But at the same time, the offshore market is able to offer more markets, more affordable markets, better odds, all these different things like that, because they don’t have some of this prohibitive stuff that the legalized books do have. And so I get where New York’s coming from; I get where the sportsbooks are coming from, and it really is, is there any way to meet in the middle? Is there anything that can be done to where it’s like, “Hey, look, we don’t want to push people back into the streets with their bookies or offshore with some of these other books and things like that. But unfortunately it might come down to that.”
Adam Candee (05:02):
What’ll be interesting to see is how the other topic of that hearing ultimately plays into this discussion, Matt. Because we in the LSR newsroom did not miss the fact that iGaming was also discussed in this hearing. And not surprisingly, FanDuel, DraftKings among others are going to push for online casino in New York, like they have in New Jersey and in other places, because we know that those are far more profitable customers for those companies, that those are games with much higher hold, definitely doesn’t have the same fluctuations in terms of the amount that they win that comes with sports betting.
And could that potentially be a tradeoff? Could we see something where, yes, you get iGaming, but no, you don’t get a reduction in the tax rate? Could that be seen as a compromise? Could there be a way in which the promotional deductions, which are not allowed in New York in any way right now, which the operators claim leads to a 72% effective tax rate – I would like to see the books opened on that one. But would there be something where the bill that’s working through Virginia right now where we see a change in the promotional environment in which they are in some way allowed to deduct some measure of the promos that go out there? So a lot to be done in New York, but this is probably going to be one of the more fascinating discussions to watch in all of the country in terms of legislation, even for a state that already has legal sports betting this year.
Matt Brown (06:30):
So you were just talking about some of the big boys there that we’re talking over in the New York hearing. One of those other ones is DraftKings, and some news came out yesterday about some of their division that was overseas.
Adam Candee (06:47):
Yeah, we’ll give credit to iGaming Next, who reported this news initially that 140 positions are going to be eliminated for DraftKings. And that comes a couple of weeks ahead of their earnings presentation, so not surprising in that regard. We saw similar with Bally’s when its initial filings first came out, that Bally’s is cutting up to 15% of its interactive workforce. We’ve discussed that previously on the podcast. In talking to DraftKings, they are trying to push the idea that it’s not a layoff, that it’s a reorganization. We are a news organization and are happy to give them their say. In terms of that it looks like a layoff, because there are going to be people losing their jobs and certain roles are going to be shifted around.
But most of those are going to be in the Eastern European operation according to the reports that have been out there. Some of that in Ukraine, winding down some fantasy sports services that were offered overseas. So they mentioned also in terms of their talent acquisition and in terms of their engineering, some changes. I thought the talent acquisition part was the part that was interesting, in terms of there being some restructuring there. And what they said in their note to us, was that the pace of hiring isn’t what it was in the past. And realistically how could it be?
Matt Brown (08:04):
Adam Candee (08:04):
The kind of ramp-up that these companies have had to do over the last five years is something you only do in startup mode. And we know that most of these companies are going to start to see themselves as being beyond that startup mode as we’re now that five years into the market. So it’ll be interesting to see how investors ultimately react to that with the earnings call coming up. And again, most of it, we hear, is from overseas.
Matt Brown (08:29):
We did get some news with NBC and one of the major books out there. They’re going to re-up a partnership. And Adam, this just goes back to where do some of these companies stand? Where are they going to invest money? Where are things going to go? And this answers at least a little bit of the question with PointsBet.
Adam Candee (08:49):
PointsBet and NBC, which we know that PointsBet stepped away from its exclusive sponsorship of Sunday Night Football on NBC earlier this year, MGM took that spot. But they announced that they are restructuring their agreement with NBC, and essentially they’re spreading it out two years longer to be able to make their full marketing commitment that they made to NBC. So there’s going to be a 43% reduction in how much PointsBet spends with NBC this year. They’re also reorganizing how that’s done. Instead of it being with the big national broadcasts, they’re going to try to target more locally, which they say will be targeting more efficiently. So ultimately, what does it mean? When we look at PointsBet, it is an operator that we know has spent a lot of money to achieve a market share that is not insignificant but certainly is not among the top in the market. They’re definitely a second-tier operator when it comes to market share.
And so that to me suggests that it’s something that we have to watch carefully as this continues over the next few reporting periods for PointsBet. Because it obviously suggests that they need more time to be able to make the level of commitment that they initially put out there to NBC. You can really get into the story and dig a little bit deeper when it comes to some options that NBC has to purchase a certain amount of PointsBet shares at a price that is listed in the agreement at $13 Australian. If you look at where the stock price is now, it’s basically almost impossible that NBC would ultimately want to exercise those options, because the price would be way above where the stock price is right now for PointsBet. So more of a note I think to put a pin in it and say, “OK, from this point on, we need to keep a really close eye on what’s going on here.”
Massachusetts legal sports betting update
Matt Brown (10:47):
We know that Massachusetts has been the state that we have talked about forever here on this podcast, and do we finally have some great news to report here, Adam?
Adam Candee (10:59):
You officially can park the car at a sportsbook in Massachusetts and go place a bet. In fact, there’s one casino where you can place a bet in the parking garage.
Matt Brown (11:11):
Adam Candee (11:11):
The parking garage kiosk plan came to fruition. Three casinos in Massachusetts launched their in-person sportsbooks yesterday, obviously in time for the Super Bowl. And we still anticipate that online will launch in early March, probably in time for March Madness. So not randomly picked dates here in Massachusetts as they try to capture the two biggest betting events, in terms of single day and for the entirety of that event in the Super Bowl and March Madness respectively. It’ll interesting to me to see how much we get in the February report to see what exactly is the pent-up demand, right?
That’ll give us a little preview of what the pent-up demand looks like in Massachusetts, because we know the Northeast is compressed, and people have been able to go over the borders and place bets with New Hampshire or Connecticut or places that have mobile apps, Rhode Island, where you have some form of mobile available. And will the in-person sportsbook be any draw for those who have been placing those wagers on mobile apps, a short drive away. It’s just a small experiment, I think that that will be interesting to me, to see if there is any sort of bleed before we see in March the real thing get started.
Matt Brown (12:31):
Regardless, a win to get it done in advance of the Super Bowl. I mean, even if it is not optimal and even if it is only in person and only at a few different places, at the very least you do get that initial wave for the Super Bowl, which as we know is the most casually bet event of the entire year.
Adam Candee (12:52):
And when we say casually bet, it’s not just talking about bet amounts, right? We’re talking about folks who don’t have much of an interest and might be more interested in the voluminous props menu that’s out there on the Super Bowl, than betting a side on the Chiefs or the Eagles. And not really much in terms of Chiefs or Eagles backers in New England that we are aware of. But that there are plenty of people who might just want to go in and throw a little something down on one of the crazier props that’s out there. We know there are hundreds available in legal markets and many more available in offshore markets as well, so it draws people in. And we know that FanDuel has its promotion out there involving Rob Gronkowski that we know will probably get some people’s eyes at least thinking about sports betting. So interesting to see how it plays out.
Ohio legal sports betting update
Matt Brown (13:45):
And before we get out of here, let’s talk a little bit about Ohio and what’s going on there.
Adam Candee (13:51):
Oh dear, sweet Intralot. If only we weren’t always talking about you with a skeptical eye.
Matt Brown (13:58):
We’ve not said one good thing about them on this pod-
Adam Candee (13:59):
Matt Brown (14:00):
No, literally we have not said one good thing about them, Adam. We have not.
Adam Candee (14:02):
Matt Brown (14:03):
No, we haven’t.
Adam Candee (14:05):
If your parents ever told you, “If you can’t say something nice, don’t say anything at all.” We didn’t listen when it came to Intralot.
Matt Brown (14:11):
Adam Candee (14:12):
We are disappointing our parents left and right in so many ways in life, Matt, but especially in this way when we can’t say anything nice about Intralot. Look, part of the plan in Ohio was that beyond having in-person sportsbooks — and beyond having the mobile apps — that lottery retailers and some other smaller places, gas stations, would be able to get in on sports betting, because they would have these kiosks that were provided through the lottery. And it’s just a way for bars and other places to say, “Hey, you can bet here if you want to just come in and have a drink and bet here. You don’t want to go through the whole downloading an app, right? Yeah, it’s over there, just like the jukebox, just like the pinball machine. You can throw 10 bucks in there and place your wagers.” Well, what’s happening is that a lot of these retailers are not in possession of their kiosks a month after the launch of sports betting. And there are a few of them that are quite upset, because they were advertising it, they were telling their patrons-
Matt Brown (15:11):
Adam Candee (15:12):
“Hey, come on in, bet on sports. We’re ready to go.” And then their patrons come on in, say, “We’re ready to bet on sports, we’re ready to go.” And they say, “About that, we don’t have our kiosks yet.” And unsurprisingly, the bulk of those kiosks that have not been delivered were supposed to be provided by Intralot, which is the, we’ll kindly say embattled, provider in both Washington, DC, and Montana. And if you paid attention recently, you might also have seen a little bit of controversy out there on gambling Twitter about some women’s basketball odds being offered in Montana on Intralot for the bargain price, the low, low get-in of minus $1.41 on both sides. Matt-
Matt Brown (15:57):
Adam Candee (15:57):
We can talk about how bad it is to go away from -110 in general on sides. But I got to say what really frosts my tips is the one.
Matt Brown (16:06):
Adam Candee (16:06):
It’s not just the -140
Matt Brown (16:07):
Adam Candee (16:10):
It’s the -141 just for the one extra cent on there on the line.
Matt Brown (16:13):
Adam Candee (16:13):
That just gets me a little bit crazy. So we’re following what’s going on in Ohio. But just know when it comes to Intralot, if you’re thinking about getting involved, if you are a legislator or regulator thinking, “Hey, we’ve gotten a lottery contract with Intralot, maybe they can do sports betting.” Well, the answer we’ve seen in the first five years of the US market is no, they cannot do sports betting.
Matt Brown (16:33):
And for people out there that are saying like, “Ah, so what? It’s kiosks.” Or something like that, listen specifically for Super Bowl time, this is actually a big problem, because as we just mentioned, it’s such an incredibly casually bet event by casual betters who are intimidated by walking up to a counter or by going to whatever. Kiosk around the Super Bowl, I’m not even kidding, I’ve been told get over 20 times the action than they get any other time of the year because it is so much more approachable for someone who has no idea what they’re doing to just walk up and not have to interact with another human being and just touch a few buttons and do whatever and stumble their way into the bet that they wanted to make. And so it actually is, for pre-Super Bowl, it actually is a big thing.
Adam Candee (17:19):
Matt, I’m going to repeat a story that I’ve told on this podcast that you know well. And it is the one about when you and I were both working at VSiN a couple of years ago and having someone walk up to the door of the studio, which is right near the sportsbook. And sometimes people don’t realize it’s a studio.
Matt Brown (17:34):
Adam Candee (17:35):
They think it’s somewhere related to the casino to come ask questions. And someone answered the door from inside the studio and the man did not have a question about betting advice. He wanted to know what the minus next to the number meant on the board. That’s the kind of person who is using a kiosk at a bar.
Matt Brown (17:52):
Adam Candee (17:53):
And for the bigger operators who might be interested in a gateway to getting people interested in sports betting in the first place, those are the sorts of things that are important.
Matt Brown (18:02):
It really is. And so hopefully you got 10 days, come on, come through for the people of Ohio. You got 10 days to get those things in there.
Adam Candee (18:11):
Matt Brown (18:11):
Guys, everything we do, absolutely free here, so please head over to legalsportsreport.com. Take in all the good words that Adam and company are getting done over there. And again, since everything we do is free, the only thing we ask, go ahead. Hit that subscribe button down below. Go ahead, subscribe, rate, review, if you’re listening to the audio-only version of this, it really does help us out and helps more people find this here podcast. If you want to find Adam over on the Twitter machine, @AdamCandee, that is two E’s, no Y. And of course, follow all of our accounts over there as well. For Adam, I’m Matt. Talk to you guys next week.