Cuomo, Lawmakers Far Apart on a Model for Online Betting

New York Governor Andrew Cuomo (l.) wants a single online betting vendor to pay a high tax rate in exchange for exclusivity. Market advocates say that’s counter-productive, and are pushing a bill that would allow up to 14 licenses.

Cuomo, Lawmakers Far Apart on a Model for Online Betting

In New York, it’s no longer a question of whether sports wagering is going mobile. The question is how. Depending on the answer, it could amount to tens of millions of dollars annually—maybe more—for one of the largest potential betting markets in the United States.

Hit by the pandemic with a fiscal crisis of epic proportions—New York’s budget shortfall is expected to total nearly $60 billion over the next two years—Governor Andrew Cuomo announced in his State of the State address earlier this month that he will no longer block the sector’s expansion onto New Yorkers’ phones and laptops.

What happens next is anybody’s guess. The maneuvering has begun between proponents of a single-operator, lottery-type setup, which Cuomo appears to want, and those who want multiple competing licenses. The latter camp is led by mobile betting’s principal advocates in the legislature, Queens Senator Joseph Addabbo, chairman of the Racing, Gaming and Wagering Committee in the upper house, and Bronx Assemblyman J. Gary Pretlow, who chairs the assembly’s Committee on Racing and Wagering.

Currently in New York, legal bets must be placed in person at one of the upstate casinos. As Cuomo acknowledged in a recent statement, the system “incentivizes a large segment of New York residents to travel out of state to make online sports wagers or continue to patronize black markets.”

Mostly, those bettors are going to neighboring New Jersey, where 14 licensed mobile sportsbooks are waiting to take their phone or computer bets. Those bettors are mostly traveling from the New York City area and environs. While estimates vary on their contribution to the Garden State’s annual win, a nation-leading $398.5 million in 2020, it’s certainly significant; the Cuomo administration says New Yorkers are generating around 20 percent of that total.

“By legalizing online sports betting, we aim to keep millions of dollars in revenue here at home,” Cuomo said, “which will only strengthen our ability to rebuild from the Covid-19 crisis.”

Paying for the Privilege

The administration believes the best way to do it is through a monopoly administered by the New York Lottery. Cuomo’s plan is similar to the New Hampshire model. There, all mobile sports bets pass through bookmaking giant DraftKings, which partners with that state’s lottery in exchange for 51 percent of the win.

Cuomo’s thinking is that exclusivity would allow a similar tax rate. State Budget Director Robert Mujina estimates that such a model could generate around $500 million a year for New York, according to recent reports on several betting news sites. A multiple-license model like New Jersey’s, by contrast, would generate only around $50 million, Mujica said.

To get to Mujica’s number, assuming a standard hold of 5 percent, the market would have to generate $20 billion in bets a year, which sounds almost unconscionably high. Or does it? Last year, New Jersey topped $6 billion in volume, despite a public health crisis that had major sports in the U.S. all but shut down through most of the spring and summer. And New York has more than twice New Jersey’s population.

But those who advocate a competitive, multiple-license model are skeptical.

“It happens very often that when you have one operator, you don’t maximize the potential,” as Steve Gallaway, principal of Global Market Advisors, a leading gaming research and consulting firm, told GGB News.

“The more companies you have, the more money you make. So if Cuomo wants to get the most he can out of this, he should welcome competition.”

Gallaway’s reasoning is this: “We know sports betting grows the market. But at the end of the day, the ’80-20 rule’ still applies. The majority of sports betting revenues are generated by 20 percent of bettors. And the majority of those avid bettors have bookies. (Bookmakers) have apps. They extend credit. They provide incentives too. They make it easy. You have to go in with a situation where you can compete.

“With a high tax rate, you guarantee you won’t be able to compete with the illegal guys. And it’s logical to give the licenses to the guys who are already operating in the state, the guys who are regulated, who have the experience and who know the market.”

Benefits of A Competitive Market

Experts elsewhere in the private sector tend to agree. They include attorney Jeremy Kudon, a partner in the firm of Orrick, Herrington & Sutcliffe, which lobbies on sports betting legislation on behalf of some of the major professional sports leagues and numbers DraftKings, FanDuel and BetMGM among its clients.

“I don’t see how a single operator can ever get there,” he told news site “You won’t have anywhere near the advertisements. You’re going to have a company that’s basically giving the state 51 cents of every dollar on top of all the other spending. It’s just not going to have a competitive product.”

PlayNY, a New York-facing news site based in Las Vegas, estimates the state’s online revenue potential at $800 million to $1 billion a year, and asserts that Cuomo’s single-vendor model would cut that by half.

Addabbo and Pretlow have jointly introduced legislation that would open the market to up to 14 licenses with two skins per license. It would cut in pro sports venues, racetracks and OTBs for a share of the wealth.

“We have an opportunity here, and I don’t want to miss the opportunity, not only with the revenue, but I don’t want to miss the opportunity with jobs,” Addabbo told SportsHandle.

Under his bill, mobile operators would pay a one-time $12 million fee and be taxed at 12 percent of revenue. Official league data would be required for settling in-play bets, for which the books would pay a royalty of 0.2 percent of handle.

His projection for the state’s take, based on “conservative market estimates,” as the bill states it, is $79 million.

Of course, that’s way below what Cuomo is looking for. No fan of online betting to begin with, the governor stated at a recent press briefing on the pandemic: “We want to do sports betting the way the state runs the lottery, where the state gets the revenues. Many states have done sports betting, but they basically allow casinos to run their own gambling operations. That makes a lot of money for casinos, but it makes minimal money for the state, and I’m not here to make casinos a lot of money. I’m here to raise funds for the state.”

Can They Meet in the Middle?

In research provided to GGB News, Truist Securities analyst Barry Jonas suggests the gulf separating the two sides will be hard to overcome.

“New York will continue to leave money on the table to the joy of its neighboring states (New Jersey and Pennsylvania) until it can find resolution, which does not seem likely in the immediate future,” he said.

Gallaway, though, believes there’s too much at stake for the two sides not to find a happy place somewhere in the middle where they can meet.

“It will happen. Look at how New Jersey has performed, and look at how many of those customers are crossing the bridges. Look at the heat map, it’s amazing. It’s a huge opportunity, and I hope they do it right.”

Articles by Author: James Rutherford

James Rutherford is a journalist based in Atlantic City. Prior to joining GGB News, he worked in Macau as an editor and writer with the English-language monthly Inside Asian Gaming. He is co-author of “Trumped! The Inside Story of the Real Donald Trump: His Cunning Rise and Spectacular Fall” (Crossroad Press, 2015).