Now that mobile sports betting has been live in New York state for one year, the gambling committees from both the New York Senate and Assembly held a joint hearing January 31 with representatives from the two biggest bookmakers in the market, FanDuel and DraftKings, to catch up and discuss how things have gone so far.
While there was certainly a lot of boasting about the success of the market’s first year, the two companies also warned lawmakers that the success could be short-lived if no changes are made to the existing gross gaming revenue (GGR) tax rate of 51 percent, which is currently the highest in the U.S.
At one point during the hearing, FanDuel President Christian Genetski relayed the findings from a recent study from Spectrum Gaming Group, which posited that the state’s sports betting handle will drop anywhere from 10 percent to 20 percent year-over-year.
Per Covers, Genetski told lawmakers that as the margins for bookmakers get slimmer, “they will not only reduce marketing and generosity, they may also be forced to adjust pricing in New York. That is how much it costs to make a bet, to ensure a higher hold percentage.”
The state currently allows for nine mobile sportsbook operators, but FanDuel and DraftKings are the top two by far in terms of market share. Thus, if more and more of the smaller competitors are forced to withdraw due to untenable market conditions, bettors would be forced to choose between less-than-stellar odds or offshore sites, and the last thing that lawmakers want to do is drive bettors to unregulated books.
Another disadvantage that operators have long bemoaned is the fact that New York prohibits deductions for promotional bets and other customer acquisition costs.
Jason Robins, CEO of DraftKings, told the committees that because taxable revenue earned via free bets includes the value of the free bets themselves, that makes the effective rate jump to over 70 percent.
“In a nutshell, we will likely be forced to offer a significantly worse value proposition for customers that are placing bets in New York,” said Robins, as reported by Covers. “This starts with the betting odds, where New York customers would receive worse odds than DraftKings offers in other states and that you can find in the illegal market.”
Additionally, the longer that the growth of the market is bogged down with heavy tax rates, the harder it will be to match revenue expectations, which could have adverse effects on the state budget moving forward.
Genetski said flat-out that he and others “do not believe that this level of economic success is sustainable with the current tax rate of 51 percent,” and noted that despite the fact the market has only been live for one year, “there are clear signs that the New York market has already peaked, whereas other states remain on a solidly upward trajectory.”
As one might expect, lawmakers have been reluctant to believe the negative forecasts, given the head-over-heels success that the first year brought. Because of that success, it will be a tough argument to win without demonstrable data showing marked declines.
According to Covers, even state Senator Joseph Addabbo Jr., who has championed gambling legislation in the state on numerous occasions, acknowledged during the hearing that approving tax breaks for bookmakers is “a very hard argument to make,” given that “there’s no foundation to say these numbers are suffering at this point.”
However, Addabbo did warn his fellow lawmakers that they must “stand ready to make those changes and improvements when needed and when the opportunity arises,” in order to ensure “we give New Yorkers of this state the best product possible, the best product in the nation.”
All of the state’s nine bookmakers will be eager to support Addabbo, who submitted legislation last month that proposes to expand the market to 14 licensees by January 2024 and again to 16 in January 2025, which would ultimately lower the tax rate to just 25 percent. Additionally, the bill would also clear the way for operators to deduct promotional spend from their revenue.
Of course, there’s no guarantee that the legislation will be successful, and Addabbo has submitted similar proposals in previous sessions to no avail.
