There’s no argument that New York State broke all records for sports betting handle since the January 8 debut. But for the four sportsbooks in operation, that record came at a cost: no profits. An analyst concluded the operators lost about $200 million.
The reason is simple. The goal is to sign as many new customers as possible and with each operator offering the same kind of bets, the competition rested on giveaways. Promotions amounted to as much as $150 per new account.
On top of the promotional costs, bookmakers paid the 51 percent tax on gross revenue and on promotional money.
“I got lucky by not winning a New York license,” a sports betting operator who tried and failed to secure a local license, joked to The New York Post.
When New York launched mobile sports betting, it was one of three states with a 51 percent tax rate, along with New Hampshire and Rhode Island. Sportsbooks may balk, especially when they have to spend so much to promote their operations to sign up customers, but the state has enjoyed a bonanza of riches in the first seven weeks. New York has realized $91.5 million for state coffers.
Should the U.S. expect an explosion of states following New York’s lead and setting taxes at 51 percent or close to it?
Ah…not likely analysts say. In fact, New York may eventually lower the tax rate.
“I don’t think it’s a unicorn, but I think as a model it’s going to be very selectively applied,” said Daniel Wallach, a gambling industry legal analyst.
California and Florida—the two largest states without legalized sports betting—seem to be on a different tack altogether. Instead of lawmakers creating the legislation, tribes and other stakeholders will take on that role, even if it means voters will have their say on the draft through a referendum.
“For the large part, they are operating through tribal entities,” Wallach said of the other large states. “The tribes are not going to be paying 51 percent to the state of California. That’s a non-starter, as I think it is in Florida.”
Hawaii legislator, John Mizuno, first proposed legalizing mobile sports betting with a 55 percent tax rate. If it worked for New York…yada yada yada. But he now describes that as an opening salvo for discussion.
“Maybe in Massachusetts, Hawaii, and Arkansas you could see some traction, but I think it’s going to be very limited in how it proliferates beyond New York. State governments are laboratories for experimentation, but what works in one state doesn’t necessarily mean it works in all states.”
There’s also this, according to NY Online Gambling. New York launched during the NFL playoffs with the Super Bowl and March Madness approaching. The rest of the year may not be as productive financially.
“It’s a very important market, especially for something like sports betting,” Ulrik Boesen, a policy analyst at the nonprofit Tax Foundation, said of New York. “I do think in the longer term, there’s a risk with this kind of tax rate, and it will limit the ability of the industry to prosper and for competition to be healthy.”
New York law allows the tax rate to fall to 35 percent if the state goes beyond nine licenses. As of early March, seven of the nine were operating.
Boesen also said New York taxes gross gaming revenue not net revenue, which is quite a bit higher and considers promotional costs as part of the revenue.
“I just worry about the prohibitive nature of it and the ability of these giants to compete properly,” Boesen said.
If the goal was signing up new people, the bookmakers succeeded way beyond their expectations. The operators signed as many as 2 million new accounts. The state said the handle through February 13 came to $2.4 billion.
“The volumes in New York were about two times what we were anticipating,” Caesars CEO Tom Reeg told investors. Since then, Caesars has cut back on its promotional spend.
DraftKings lost about $50 million in New York through the week ending February 13. FanDuel controls about 36 percent of the market, with DraftKings and Caesars at 25 percent and BetMGM at 10 percent.
“DraftKings is targeting a two-to-three-year path to profitability for the state,” CEO Jason Robins said.
Even as New York continues to gather a record haul of tax dollars from online sports gambling and works through the process of approving three brick-and-mortar casinos for the New York City region, some lawmakers have their eye on a potentially bigger prize, according to NY Online Gambling.
The man with the gambling plans has his sights set on iGaming. He is pushing for it to be part of the 2023 budget talk. Heck, iGaming may prove bigger than the hugely successful sports betting.
“The quick answer is, yes, we want to have that initial discussion on iGaming this year,” Addabbo said. “If we can put it in this budget, great.”
New Jersey has more than 30 sites offering a mobile version of a casino.
“In New Jersey and other states, while brick-and-mortar casinos were getting hit by the pandemic, iGaming numbers were going through the roof,” Addabbo said. “Even post-pandemic, there may be a population that is not crazy about going into large gatherings like you’d see at a casino.”
“New York’s proximity to New Jersey and the competition for gambling dollars and for customers is going to incentivize New York to try to beat what New Jersey’s doing, or at least have what New Jersey has,” said Daniel Wallach, an expert in gaming law.
Casino games provide more reliable revenue and higher margins than sports betting. New Jersey reported $1.37 billion in gross gaming revenues from online casino games in 2021 compared to $815.8 million from online sports gambling. That amounted to $205.2 million in taxes for the state, compared to $96.2 million collected from online sports wagering.
S8412 would allow commercial and tribal casinos to offer online apps and websites that would allow people to play slot machines and table games from their computers or mobile devices, according to The Center Square.
Addabbo, who chairs the Senate Committee on Racing, Gaming and Wagering, said New York would quickly become the national leader in online casino gaming, generating hundreds of millions of dollars in tax revenue annually as it continues to recover from the economic downturn caused by the pandemic.
Based on a 25 percent tax rate in the legislation, Addabbo expects $475 million in annual tax revenue for the state.
The bill would allow each casino to partner with two online gaming platforms that would need to be approved by the New York State Gaming Commission. Apps from casinos would be subject to an initial licensing fee of $2 million, while independent operators that partner with casinos would pay a $10 million licensing fee.
“We have long argued that states must consider regulating online casinos games along with sports betting,” said John Pappas, state advocacy director for the iDevelopment and Economic Association, an online gaming trade group. “There’s also those consumers who would like to go to a casino but are intimidated about playing and sitting down at a poker table or a blackjack table because they don’t really know how to play.”
Neighboring New Jersey is home to the largest online casino gambling market in the nation, with platforms there winning $1,366,891,492 from online gamblers in 2021. New York could see much more thanks to a population of about 19.5 million compared to the Garden State’s roughly 8.9 million. New York operators would likely be well north of $2 billion in winnings off players.
“New York quickly became the leading mobile sports betting market in the nation, generating nearly $70 million in tax revenue in a single month,” Addabbo said, according to The Center Square. “Similarly, if authorized, New York would quickly become the national leader in online casino.”
