The talk of tax rates on NY sports betting revenue continues well into this summer.
In a recent story from Front Office Sports, it was reported that New York sports betting operators are unhappy with the 51% tax rate in New York and the strict rules that prohibit the deduction of promotions. This is, of course, not necessarily new, as there has long been griping about former Governor Andrew Cuomo‘s ‘compromise’ that brought sports betting to the Empire State.
With Cuomo resigned, the calls for change seem to have grown louder. There has not been much noise from new Governor Kathy Hochul‘s office that there is going to be any change coming. But there now seems to be an ongoing effort to paint New York’s tax rate as unfair to the companies that bid that rate as a condition of entry to the market.
NY sports betting tax rate a massive success for state
State coffers are more stuffed with NY sports betting dollars than even bullish estimates expected. To quote Charlie Sheen, even in typically slow months, New York is “winning” the sports betting game, at least from a taxation perspective.
Despite criticisms of the process, Cuomo’s plan has generated just about $275 million in tax money in less than six months. That is more than any other state, regardless of when it launched sports betting.
For context, at the current pace (and with some round numbers,) it is going to take Mississippi about 45 years to earn that amount of tax revenue. At current rates, other states might be even farrther behind.
Taxes are not everything
Of course, if high tax rates are passed on to consumers in the form of uncompetitive lines to the point that unregulated options become more attractive than regulated ones, that would be problematic for the market. As yet, there are no widespread reports of New York lines being out of whack with the lines being offered around the country.
We have not seen reports of uncompetitive lines like those reported when the DC lottery initially launched its sports betting product. The companies operating in New York appear to be continuing to offer ample promotions to consumers, a sign many still see competing as important even as some books slow their push.
You knew the rules
Back in October 2021, when the much-discussed NY sports betting tax matrix came out, it was reported that the highest bid made in New York was 64% on gross gaming revenue. We have of course since learned that the nine-operator model won out which set tax rates at 51%.
While FanDuel produced research in August 2021 that showed the tax rate unsustainable, it chose nonetheless to participate in the market with its bid partners.
The decision to bid to enter the New York market was one that undoubtedly most, if not all, companies considered. Ultimately, some considered the proposed model to be too costly after learning the rules of the game, while some bid and were not chosen.
Others, like the nine companies who ultimately received licenses made a choice to participate in the market. There have been effectively no material changes to market conditions since these companies bid to enter the marketplace, other than exploding (and then contracting) share prices.
In asking to have the tax rate reduced, one would normally expect that the companies offer up something in return. It is not clear exactly what the companies have that New York could want beyond money.
There has been talk about opening up the market, and thereby lowering the tax rate, which might be one way of compromising. Suggestions have been made that more competition could make up for the lost revenue. But back-of-the-envelope math on that proposal simply does not seem to check out.
The companies in New York are among the nation’s biggest. Collectively, those companies almost certainly control more than 80% of the national market. It seems unlikely that adding more options would result in a sufficient uptick in betting volume to match the amount of money currently being brought in.
Opening NY sports betting market not a win for the little guy
If NY sports betting were to open up tomorrow and every sports betting operator that wanted to could enter the market, how much would change at the top?
When the final entrant launches in New York, nine companies will have had a massive head-start in the Empire State. Smaller companies will need to come in and try to compete against mostly bigger and better-resourced competitors after making an initial decision, likely based on financials, not to participate.
Don’t like the rules? Don’t play
The rules were set out clearly. Companies bid and agreed to play by them.
If a company does not like the rules, it can either evolve in a way that allows it to make money or leave the market. That is what companies do in a capitalist economy.
As some companies are now openly talking about how they do not want players who win on their platforms, it is tough to be sympathetic when the shoe is essentially on the other foot.
(Editor’s note: the views expressed by the author do not necessarily represent those of Legal Sports Report.)