Caesars CEO Tom Reeg said he believes the current legal NY sports betting model doesn’t benefit anyone.
The Empire State has a 51% tax rate for online sports betting that has drawn the ire of several executives.
“Well, the tax rate is ridiculous,” Reed told Legal Sports Report from the Indian Gaming Association Mid-Year Conference when asked what needs to change.
“New York chose a big cut of a smaller pie than they could’ve had in sports betting. They’ll have another bite at that with iGaming. California would have the ability to choose a smaller cut of a much bigger pie. I think the state would end up better off.”
From Jan. 8-Nov. 16, Caesars ranks third in online sports betting market share behind FanDuel and DraftKings.
Cuomo’s NY sports betting model
Under former Gov. Andrew Cuomo, NY implemented a sports betting system that was designed to make the state significant money in tax revenue.
So far, that has worked.
Through Nov. 13, NY has generated a record $577.4 million in tax revenue that has gone to education programs (98%), underserved youth sports programs (1%) and addiction programs (1%).
NY has also set new US records for monthly tax revenue in September ($73.1 million) and October ($74.3 million).
But operators like Caesars argue publicly and privately they are not as committed to growing the New York market as other states because of the high cost of doing business. This manifests in pulling back on new player offers and other marketing efforts.
Hochul touts tax revenue
Gov. Kathy Hochul, who was re-elected for her first full term, lauded the record tax revenue produced by online sports betting in a news release on the morning after she defeated challenger Lee Zeldin.
Hochul had projected $615 million in tax revenue for FY2023 (April 1, 2022-March 31, 2023). The state is currently outpacing those projections, raising $381.6 million in tax revenue with five months left in the fiscal year.
“From the beginning, we sought a structure that benefited taxpayers while the industry and the legislative representatives fought us tooth and nail in order to reap more of the profits for themselves. They said it wasn’t going to work but the proof is in the score — Taxpayers 1, Hacks 0,” Cuomo’s spokesman, Rich Azzopardi, told PlayNY in a May email statement.
Why operators want change
Online sports betting operators knew NY had a 51% tax rate when they accepted licensure in the Empire State.
Yet they’ve tried to change it, albeit unsuccessfully, via lobbying and legislative efforts.
The 51% tax rate will certainly be revisited in the upcoming 2023 state legislative session.
“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 during the entity’s May earnings call.
Efforts have failed so far
Last session, local policymakers Assemb. Gary Pretlow and Sen. Joe Addabbo introduced legislation that would’ve reduced the tax rate by bringing in additional online sports betting operators.
The bill language 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%). Addabbo and Pretlow originally advocated for a tax rate more in line with New Jersey, which imposes a 13% rate.
The bill was included in the one-house budgets for both the Senate and the Assembly — albeit with different language. But it failed to advance in negotiations.
NY sports betting model evaluation
“We’ll be in every major state other than New York, where you can’t make money, by next football season,” Fanatics CEO Michael Rubin said at the October Sports Business Journal’s World Congress of Sports.
Rubin’s Fanatics was perfectly open to paying the 51% tax rate before his bid — along with Barstool Sportsbook — failed.
Addabbo has said he’s open to revisiting the 51% tax rate this session. So long as the tax revenue going to educational programs isn’t impacted.
“We can’t adjust the tax rate if we see a reduction in educational funds,” Addabbo told LSR.
“We’ll ask our legal counsel and fiscal analyst to take a look at it,” he said.