NY sports betting, and its industry-high 51% tax rate, continues to drive revenue not only for Albany but operators as well.
Since New York sportsbooks launched online in January 2022, operators have cleared $3.54 billion in revenue while the state has collected $1.81 billion in taxes.
Tax policy can be a delicate dance between raising enough revenue and not suppressing business growth. The topic is working its way through statehouses across the US after Ohio doubled its sports betting tax rate last year and Illinois and New Jersey lawmakers are considering increasing their tax rates as well.
LSR recently spoke to Rich Azzopardi, founder of Bulldog Strategies and former senior advisor to New York Gov. Andrew Cuomo, about brokering NY sports betting legislation, how regulators arrived at 51% and the challenges other states may face with changing tax policy.
LSR: When did New York start to seriously consider legal sports betting?
Rich Azzopardi: There was a movement for a couple of years to legalize sports betting. It piggybacked on the debate over the constitutionality of daily fantasy sports.
It was coming anyway, though. I remember stories about people riding their bicycles to the halfway point plus a couple of inches on the George Washington Bridge so they could make sports bets in New Jersey and then come right back.
We were agnostic towards sports betting until 2020. It was all around us, then we hit a cash crunch with the COVID-19 pandemic.
We looked for potential revenue raisers, and a user-fee-generated recreational activity was among the more attractive options.
How did the legislature determine the 51% NY sports betting tax rate?
Azzopardi: Legalizing sports betting was not a license to make other companies rich.
If we were going to allow it in New York and deal with some negative associations with it, we would need an increase in problem gambling and addiction services. Those are social costs borne by the state, too.
We wanted to get as much tax revenue as possible, and the operators were crying poverty at the time. They said it would not be possible to do business in New York, and it would not work for them. And frankly, they had legislators bought and paid for by them that were parroting the issue.
As negotiations went on on the inside, I cannot tell you how many stories the lobbyists planted and the press planted. We always said the tax rate was good, and it worked for the state. We were proven right at the end of the day.
Why did operators ultimately agree to the tax rate?
Azzopardi: They had no choice. Gov. Cuomo had the high hand in the negotiations.
We would not take sports betting outside the budget because it had an actual fiscal cost attached to it. New York sports betting presented so much potential, so the companies were eager to get here. We knew this.
In 2020, the economy was shut down for several months, and anyone with a service-related job was laid off.
We had a mounting unemployment issue, and you are going to tell me you are going to hold up a revenue source because you are bought and paid for by these big gaming companies? At the end of the day, we put those chips on the table, and they blinked.
It was not an argument about whether 51% was feasible. It was an argument about whether these guys got a jet ski or a boat for Christmas.
Do you see any future tax policy changes for the NY sports betting market?
Azzopardi: The legislature could always change the NY sports betting tax rate. The companies can always make more money, and the state can get less.
But, if the state gets less, there is a cost to that. Responsible regulators and responsible public servants will ask those questions before they do it.
Right now, there is a demand for sports betting. It is a recreational activity for people. It is no different than slot machines in that regard. However, there is a compelling argument that, at some point, gaming will cannibalize itself.
For now, though, this combination of gaming and sports and how ingrained it all is keeps sports betting as an outlier to the cannibalization argument.
What challenges might other states face with changing sports betting tax policy?
Azzopardi: Frankly, I’m surprised New Jersey is only going as high as they are after seeing New York’s success.
Regulators must pay attention to whether there is a tipping point or if an activity is not profitable enough for the companies to play. They also need to pay attention to whether the operator threats are real. Will they increase the odds and make it harder to win?
You can always look at that and figure it out. New York is at 51%, and the sky is not falling. I think that says everything you need to know.
Given recent state-level moves, is a tipping point approaching for regulators?
Azzopardi: I do not see a scenario where people who want to participate in sports betting would be more inclined to go to a corner loan shark where you either pay your vig on time or your medical bills will skyrocket.
A regulated, safe and fair system is always going to be preferable.
On the advertising front, I’m interested in seeing what happens in the vice industries. Nature always finds a way. You can put up all the regulations you want. With innovation and technology, someone will always find a way around it.
