Opinion: Sportsbooks Might Hate It, But NY Winning Sports Betting Game

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NY sports betting

There has been a lot of griping about the exorbitant NY sports betting tax rate and outrageous licensing fees.

(The equivalent tax rate happens to be the same as Delaware and Rhode Island, which awarded monopolies to DraftKings with little uproar.)

One might have expected things to settle down after New York sports betting actually launched and bettors had a place to bet legally without crossing state lines to New Jersey sportsbooks. But the complaints  seemingly picked up.

Who is complaining about NY sports betting tax rate?

Recently, DraftKings and BetMGM executives both took aim at New York’s tax structure as preventing the companies from profiting in the state. The problem is, New York has made a massive amount of money.

Former governor Andrew Cuomo‘s goal was to make a lot of money from sports betting, and the system did.

In fact, by the time the May numbers roll in, New York will have likely made more tax revenue than any other state, regardless of when those states launched.

What is all the complaining about?

LSR reported that during BetMGM’s recent investor day, CFO Gary Deutsch announced that the company was going to rein in its advertising in New York because the 51% tax rate cannot allow for paying out the same marketing spend. DraftKings CEO Jason Robins previously predicted that the company would reduce its advertising spending to offset the high tax rate.

Even New York politicians have gotten in on the act of criticizing the tax rates. The ever-quoted tandem of Assemblyman Gary Pretlow and Senator Joseph Addabbo Jr. have said they would support expanding the sports betting market.

While reports indicate the politicians would not support adding more operators if it were to affect tax revenue, it is not clear how adding more operators and lowering the tax rate would not hurt revenues, especially when one considers that a small handful of companies dominates virtually every market around the country.

Freezing cold takes?

Prior to launch, there were a lot of concerns about whether the New York market would be viable. One analyst firm suggested that the strong opening weekend was not sustainable.

While we are hardly deep into the NY sports betting life cycle, the market has certainly appeared more sustainable than many initially predicted. Even though promos are not deductible like in many other jurisdictions, companies including Caesars launched with generous offerings for new signups.

How well are things going in New York?

In just four months of mobile operations, New York state has generated more than $216 million in tax revenue from sports betting. Add to that the roughly $4 million the state collected from in-person wagering at the small number of upstate casinos that began accepting bets in July 2019.

The tax revenues from mobile NY sports betting are so incredible that at the end of April, only New Jersey and Pennsylvania had generated more tax money than New York’s mobile offerings.

By the end of May 2022, New York is almost certain to stand alone with likely close to $250 million in revenue for the state, something that even Pennsylvania has not accomplished with a three-year head start and 36% effective tax rate.

Is this sustainable?

The question of whether this is sustainable remains open. Certainly, many balked at the proposed tax rates and licensing fees when the vaunted tax matrix was released.

While BetMGM announced plans to cut spending and Caesars previously announced it was reducing marketing spend nationwide, it does not appear that anyone is willing to pack up and give away access to the New York market.

Is this being passed on to consumers?

At the moment, at least, it does not appear that the expenses of attempting to compete in New York are being passed on to the bettors themselves.

While there has always been the possibility that states with high tax rates would see less favorable products delivered to consumers, the market has appeared to be competitive enough nationally that has not yet happened.

The proposal to expand the marketplace and allow more companies in – thereby lowering the tax rate in accordance with the tax rate matrix – appears unlikely to create a market that would be nearly as lucrative for New York. As we have seen from other markets, allowing dozens of licenses is not a great revenue-generating ploy because at least 90% of the market is controlled by less than 10 companies.

There is no reason to believe that New York would be an anomaly in that respect. People will still be flocking to the largest and most-recognized operators.

What to make of this?

Despite continued lobbying spending, do not expect the New York legislature to decide to lower tax rates on sports betting. The biggest surprise of the success of the tax rate model in New York is that other areas have not tried to emulate it, yet. Perhaps, Kansas legislators do not think their state is the same draw to sports betting companies to command millions in licensing fees and a tax rate of 51 percent, or perhaps they just decided their new model is best. Either way, it does seem likely that as states like California and Texas gather increased focus commercial sports betting tax rates are more likely to resemble New York’s model than Kansas’s.