Is Online NY Sports Betting ‘Broken’ While Revenue Pours In?

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NY sports betting

The jockeying around the online NY sports betting tax rate discussion at next year’s legislature already is underway.

New York online sports betting handle fell $33 million from Week 1 of the NFL season to Week 2. Operators combined for $297 million in NY online sports betting handle from Sept. 12-18 after combing for $330 million from Sept. 5-11. 

NY online sportsbooks amassed nearly $40 million in revenue from Sept. 12-18, though the hold was 13.4%. That is nearly double the national average since the fall of PASPA (7.3%.) 

Overall, NY online sportsbooks have combined for $11 billion in handle this year (Jan. 8-Sept. 18) with $866 million in gross gaming revenue and $442 million in tax revenue. 

Pretlow not surprised by handle decrease

Ever since launch, NY online sports betting has continued to set new benchmarks for the industry. During last season’s NFL playoffs, here are the full weekly handle totals for the Empire State:

While it is early in the 2022 regular season, the first two weeks have yielded far less handle. At the time of NY launch, however, operators were offering significant bonuses. Caesars, for example, was offering a $3,000 deposit match plus a $300 for new customers.

But those offers are no longer available, with many operators cutting back on marketing and promotional spend. They blame the state’s 51% tax rate, which hinders their long-term path to profitability. Operators were also taxed on their promotional spend. Combined with federal excise tax, Morgan Stanley equated the NY tax rate to 77%.

“Players would never continue to play if the house always won, and the house cannot continue to play if it’s always going to lose,” BetMGM CFO Gary Deutsch said in May. 

One issue: NY sports betting 51% tax rate

If the current trend of decline continues, operators could have more ammunition in their never-ending quest to get a tax reduction. Granted, operators knew the tax rate and the lack of promotional deductions when they signed up to do business in the state. So far, as NY has pulled in record tax revenues, their legislative and lobbying efforts at a reduction have been unsuccessful.

“To me, it’s not surprising,” Assemblyman Gary Pretlow told LSR Monday. “The incentives aren’t there. When operators were giving incentives, they were offering free play and matching play, and that was all included into the numbers. 

“But because they’re subject to this 51% tax, they’re not giving away as much money because they’re paying taxes on their own money. You’re going to see a decrease in handle because the money that you’re seeing now is all coming from the players and not necessarily from the FanDuels, DraftKings and MGMs of the world.”  

Gaming lobbyist pushes NY sports betting changes

Jeremy Kudon, a lobbyist for Orrick that has championed sports betting and daily fantasy sports legislation for the likes of DraftKings, FanDuel and BetMGM, tweeted Friday morning that the current system is “broken.” 

“The data clearly shows that a 51% tax rate does NOT work—especially if promo credits are taxed at 100%. As predicted, operators cannot afford to invest in promos, ads, or other tools necessary to develop the NY market—which is leading to materially lower handle figures,” Kudon tweeted. 

Kudon’s solution largely mirrored legislation Pretlow introduced this past session that did not pass. That bill called for the Empire State to go from nine NY sportsbooks to no fewer than 14 by Jan. 31, 2023 (which would lower the tax rate from 51% to 35%) and no fewer than 16 by Jan. 31, 2024 (which would lower the tax rate from 35% to 25%).

Second chance for some?

“How do you fix? (1) Add 3-5 operators who are committed to NY—will bring new incentives, ads, and license fees; (2) drop tax to 35%; and (3) don’t require operators to pay 100% tax on their own promo credits. Win/win for state and operators,” Kudon tweeted. 

That scenario would allow entities like Bet365, Fanatics and Barstool another chance to enter the NY market after they failed to secure licensure during the competitive bidding process. 

NY sports betting model will be revisited

Sen. Joe Addabbo and Pretlow have repeatedly said they plan to revisit NY’s framework later this year. Addabbo said any potential changes would have to ensure the state does not lose any tax funding for education programs. 

As per the legislative language, 98% of all tax revenue from NY online sports betting goes to educational funding. 

“I’m still of the belief that if we lower the tax rate, it’ll bring more individuals into (the market) and increase the overall play,” Pretlow said. 

Any changes could potentially hinge on how much tax revenue the state brings in from online sports betting for FY2023 (April 1, 2022 to April 1, 2023). Gov. Kathy Hochul’s enacted budget projects $615 million. From April-August, NY online sports betting has produced $234 million in tax revenue.

Pretlow: Numbers will rise if NY teams play well

But Pretlow wasn’t necessarily concerned about the Week 2 decrease. 

“The numbers are going to fluctuate for awhile,” Pretlow said. “When there are big games on the line, it’s going to go up. Opening Day, it goes up. The second week, who cares. The third week, nobody cares.

“You get to the fifth week or the 10th week and a New York team is somewhere in the hunt, it’s going to skyrocket.” 

FanDuel-DraftKings battle wages on

FanDuel and DraftKings continue to jockey for NFL weekly handle superiority. 

FanDuel had 37% of the weekly handle share ($109 million) from Sept. 12-18, compared to 35% for DraftKings ($104 million.) 

Revenue share was 44% for FanDuel ($18 million) and 34% for DraftKings ($13 million).