CBC says high taxes will leave sports bettors in black market

Nonprofit Warns Lawmakers Against High New York Sports Betting Taxes

New York sports betting

The Citizens Budget Commission (CBC) has issued a paper to give advice to lawmakers as they consider New York sports betting legislation.

The “Hold Your Bets” paper is only five pages long. That’s short enough for politicians to digest, and offers four specific pieces of advice, including a warning against levying high New York sports betting taxes:

  • Revenue estimates should be conservative.
  • Taxes should be designed thoughtfully in a competitive marketplace.
  • Sports betting’s potential impact on other gambling revenues should be considered.
  • Legislation should take into account that gambling taxes are regressive, and increased prevalence of gambling will impose social costs.

CBC was founded in 1934 and describes itself as “a nonpartisan, nonprofit civic organization whose mission is to achieve constructive change in the finances and services of New York City and New York State government.”

In line with its non-partisan political position, CBC is not arguing for or against legal sports betting. Its position is to give advice to help avoid bad legislation being implemented if New York adopts sports betting.

High sports betting taxes will not work

The section on taxes first refers to the competition in surrounding states. It suggests New York should not set taxes that make its licensed businesses uncompetitive. It then concludes that high taxes deter people from leaving offshore betting operators to join the regulated market.

“Lower tax rates would arguably enable operators to spend more on marketing and customer service, invest more in technology, and potentially set odds that are more attractive to bettors. Conversely, setting higher GGR tax rates may result in fewer operators willing to enter the local marketplace, less investment in infrastructure and marketing, and less attractive odds. Ultimately this may result in fewer people transitioning from illegal to legal sports gambling.”

These points are all soundly based on US and European experience, but drawing on that experience, they could perhaps be refined.

It is not that fewer casinos will enter the market, but that fewer will actually find it profitable to do so. Some will go bust and exit if tax rates make their business non-viable with the market share they can secure.

Gaming taxes are regressive

CBC also raises a point not often considered in general conversations about gambling taxes. That gambling taxes based on a percentage of gross gaming revenue are disproportionally paid by poor people. Such taxes are known as “regressive.”

The paper references an article in Forbes by Adam Milsap which explains:

“Another pushback against government revenue generated from gambling is that it functions as a regressive tax, meaning that low income people bear an outsized burden. This runs counter to one of the components of good tax policy, vertical equity, which is the idea that the tax burden should rise with a person’s ability to pay.”

Mislap proposes that “there are more efficient and more equitable ways to raise revenue than special taxes on gambling, such as a broad sales tax that applies to all goods and services.”

Don’t believe the revenue dreamers

CBC’s warning that revenue estimates should be “conservative” refers to previous overly ambitious forecasts of gambling revenue, both in New York and in other states.

The New York licensed casinos — Tiago Downs in Nichols, del Lago Resort and Casino near Waterloo, Rivers Casino and Resort in Schenectady, and Resorts World Catskills — produced $112 million of tax revenues in FY 2017-2018. That’s far short of the revenue projections made when the new casino authorization law was passed in 2013.

Again, the point is valid, but perhaps not complete. Early forecasts of New Jersey online gaming revenues proved to be hopelessly optimistic for the first few years, particularly so for online poker.

However, the trajectory of online casino revenues has done nothing but accelerate over the last couple of years. If anything, it has exceeded the more moderate forecasts made when legislation was first envisaged.

Lottery revenues may be impacted negatively

Lottery revenues are a form of holy grail for many politicians. The lottery is so lucrative in many states that anything that interferes with it is treated as an existential threat.

CBC states:

“There is also the potential that sports betting could impact other types of gambling including state run lotteries, which generate more than $3 billion in revenue for education aid in New York State.”

CBC’s other concerns are about over-saturating the markets where new operators take market share from existing operators:

“The trend of newcomers taking share from incumbents is consistent with what has been occurring in other gaming markets, particularly in the northeastern portion of the United States.”

But these concerns are only about businesses losing money. Anyone with an astute political eye will know that it is the risk to lottery revenues which will focus political attention.

Don’t forget to account for the social costs

As always with any gambling expansion, there are fears about increased social costs. CBC sets out its opinion:

“Expanding the opportunities for gambling in New York is likely to increase the prevalence of ‘problem gambling,’ which has been shown to be at its highest level in disadvantaged neighborhoods and is associated with a range of behaviors, including crime, abuse, job loss, and bankruptcy, that impose social costs on others. Furthermore, pathological gamblers are more likely to suffer health problems.”

Too often, politicians jump on this argument to oppose gambling legislation, ignoring that the impact of legalizing gambling generally improves consumer protections.

Problem gambling already exists. Regulating gambling takes players away from the risks of gambling run by the black market and organized crime. It puts them in a safer environment where problems can be more easily diagnosed and help can be offered.

CBC sees benefits of New York sports betting regulation

CBC concludes its report with a broadly positive position.

“Sports betting in New York presents an economic opportunity. In addition to revenues from taxing sports betting, there are potential economic benefits from job creation, including additional income and payroll, and sales taxes. Nationally, the estimated state and local benefit is estimated at $3.4 billion, of which $254 million is attributable to New York. Furthermore, the demand for illegal sports betting could decline as bettors shift to a legal alternative, generating law enforcement savings as the costs associated with investigation and prosecution of illegal activity decline.”

“Hold Your Bets” is a solid contribution to the debate over legalizing sports betting in New York. It has a short bibliography of internet links, and will give its intended audience a balanced view of the issue.

There’s no chance of legislation this year. 2019 is the earliest that New York could pass a new sports betting law to supersede the one in place. The chances are that it probably will, but whether it will be “good legislation” is anybody’s guess.

Joss Wood
- Joss Wood, a former editor of Poker Industry Pro, has long focused on regulated online gambling issues and in particular the international market. For LegalSportsReport.com, Joss turns his attention primarily to regulated sports betting markets. With a degree in English from the University of Birmingham as well as a master’s degree in organisational development from the University of Manchester, Joss’s career has taken him from the British Army into the world of business and finance. For seven years he played poker professionally.