New York sports betting went off to a flying start over the weekend. But not everyone is convinced the flurry of activity is a positive for operators.
Analyst firm Regulus Partners suggested the strong launch weekend for NY sports betting was a bug rather than a feature, driven as it was by promo spend.
“The early signs are that bonuses are as generous as anywhere else,” Regulus said in a note on Sunday. “In other words, operators are being driven to take unsustainable tax losses by adopting their unworkable standard business model out of a fear of losing initial market share.”
Free promo in NY sports betting
Over the weekend:
- Caesars Sportsbook offered $3,300 in free money using their promo codes
- DraftKings and FanDuel offered $1,000
- BetRivers Sports Betting offered $250
Crucially, promotions are not tax-deductible in New York, as they are in other states with high tax rates like Pennsylvania. With current bonusing levels, the actual tax rate is something like 130% of GGR, Regulus calculated.
Based on that, New York is “dead on arrival in underlying terms,” Regulus said.
“Early aggressive bonusing to try to gain share … is basically the industry digging a hole for itself faster,” the analysts continued. “With nine brands currently or soon to be in action, there is just enough competition for the industry to engage in mutually assured destruction.”
Upside for New York sports betting
Operators, of course, espouse a different view.
DraftKings said it expects New York to be profitable in two to three years, similar to other states. To achieve that though, NY online sportsbooks will have to cut back on promo spending after this initial splurge.
“I think you adjust, so we’ll run less promotions [in NY],” DraftKings CEO Jason Robins said at an investor conference last year. “We’ll spend less in the long term on marketing. Early on, we’re going to approach it the same way.”
The initial spending is key, because early adopters are the most valuable customers.
“I think the early days in the golden cohort are important,” DraftKings CFO Jason Parks told investors last year. “So we’re incorporating that into our logic. It’s harder with such a punitive tax rate, but we do see a path to typical contribution profit levels.”
That said, there are five more operators set to join New York sports betting soon that also want their share of the golden cohort. When do firms start cutting back? How long can a smaller company sustain massive losses?
Different ways to skin a cat
Clearly, not all operators agree on the strategy in New York.
Consider: BetRivers is offering less than a tenth of the free money that Caesars is. It is not surprising, then, that BetRivers reported less than $1 million in handle on launch day, while Caesars reported nearly 1 million bets on opening weekend.
Which strategy pays off in the long run, though, remains to be seen.