BetMGM is pulling back its investment in NY sports betting because of what it calls an “unsustainable” tax environment.
The operator held its 2022 Investor Day last week where it said it made a “concerted decision” to divert spend away from New York sports betting.
BetMGM slipped to fourth in the New York market in April, according to NY Gaming Commission revenue numbers.
Investing wisely in NY sports betting
CFO Gary Deutsch said BetMGM could no longer support the “irrational investment thesis” of marketing in a state with a 51% tax rate.
Deutsch explained:
“As rational allocators of capital with sophisticated investors in Entain and MGM, we simply can’t apply our capital against an irrational investment thesis. Players would never continue to play if the house always won. The house cannot continue to play if it’s always going to lose.”
House never winning NY sports betting?
Without tax writeoffs for bonuses, the effective tax rate is more than 100%, Deutsch said.
“We have hoped that the New York tax environment will be updated, and we can then again more aggressively pursue New York players,” the CFO added.
Tax armageddon confined to NY sports betting
That said, BetMGM CEO Adam Greenblatt noted “fears of New York tax contagion” were abating given recent tax frameworks in Ohio and Kansas.
Greenblatt said states need competitive tax rates to help defeat offshore competition.
‘It will become clear over time that these more sustainable tax environments result in greater player participation in the regulated as opposed to illegal market,” Greenblatt said. “This is in all of our interests.”
Black-market battle
Greenblatt said the black market should dissipate over time because of product superiority onshore and continued marketing by legal operators.
But he also asked for help from regulators to fight offshore books.
“As an industry, we have captured a good proportion, but certainly not all of the U.S.-based sports bettors who were active before PASPA fell,” Greenblatt explained. “One only needs to review search and traffic volumes for sites still serving the U.S. from offshore to build a fact base supporting this.
Indeed, softer data shows the black market is still thriving in US sports betting.
LatAm expansion?
Elsewhere, Greenblatt was asked whether BetMGM might look to other markets like Latin America, following its recent expansion to the Ontario sports betting market.
He said the agreement between MGM and Entain was exclusively for the US, but suggested there might be some wiggle room.
“Our shareholders have agreed specifically that BetMGM can compete in Canada,” Greenblatt said. “And then from a geographic perspective, that’s about as far as we’ve got so far. Does it make sense to look South? That’s certainly a conversation for our shareholders.”
First-mover advantage?
Greenblatt said BetMGM was also finding slower progress in Indiana, likely because it was late to the market.
“We’re still in a bit of investment mode, to be honest,” the exec explained. “Player value hasn’t been as high as we initially expected. So that state has probably an elongated payback curve versus our expectation. … Remember, Indiana was a state that we were a later arrival to. And our current position in that state reflects some of that.”
The CEO said it was an important reminder of being ready to go in new states from “day one.”
How about LeoVegas impact?
Greenblatt said MGM’s recent acquisition of LeoVegas had little impact on BetMGM, despite some analyst speculation.
“BetMGM is exclusive in the U.S. for our product sets,” Greenblatt said. “And so it doesn’t really affect us. I don’t anticipate it will have an impact on BetMGM at all.
“MGM and Entain remain fully committed to seeing the success of BetMGM here in our markets.”
Financial outlook
Going forward, BetMGM expects to draw around $450 million from its parent companies in 2022 and turn profit-positive sometime in 2023.
Truist analyst Barry Jonas noted BetMGM was a “clear market leader with omni-channel benefits,” but investor sentiment across the Interactive sector remained “highly negative.”
