Massive 51% Tax Rate Could Have Ripple Effect On New York’s Online Sports Bettors

New York State Assemblyman Gary Pretlow never wanted massive tax rates for online sports betting operators. That was former Gov. Andrew Cuomo and his administration.

50% or greater? No thank you.

“I was opposed to (Cuomo’s) plan from the beginning,” Pretlow told playin-ny in October. “Everybody knows that.”

As it has been well-documented, though, lawmakers and regulators went with a 51% tax rate that easily stands as the highest such rate in the country. And that steep cost could have a ripple effect on the overall online NY sports betting experience.

NY online sports betting tax proposals had ‘difference between heaven and hell’

Pretlow and other state lawmakers wanted an open competition with a lower tax rate for New York, similar to wildly successful neighbor and competitor New Jersey. With a 13% tax rate, the Garden State just recorded back-to-back, record-breaking $1 billion months in terms of sports betting handle.

But that open competition argument didn’t work out for New York.

“You want my honest, unbiased opinion,” Pretlow said at an August conference in Saratoga. “The main difference (between our bill and Cuomo’s) is the difference between heaven and hell.”

Pretlow did attempt to reach out to the administration of new Gov. Kathy Hochul about trying to change the process. But his last-ditch effort went for naught. The state government won’t return to session until January. And Cuomo’s budget director, Robert Mujica, is still running the show.

As a result, the massive tax rate for NY online sports betting will stand.

The nine operators selected for licenses by the New York State Gaming Commission — FanDuel, DraftKings, BetMGM, Bally’s, Caesars, WynnBet, Rush Street, PointsBet and Resorts World — will pay 51% of their revenues to the state.

Welcome to Gary Pretlow’s online sports betting version of hell.

Incoming NY betting apps decline comment on approach to 51% tax rate

Online sports betting operators wanted no part in discussing their plans for New York and whether they might differ in the Empire State as opposed to others due to the massive tax rate. Several sportsbooks declined to comment on the matter, with others referring playin-ny to older quotes.

Within the industry, there is a concern that bettors will be given lesser promos and worse lines in New York. There has also been significant criticism that operators simply won’t be able to make any money, which will lead them to go back to the state and ask for a lower tax rate in a few years. It is worth noting that two of the most vocal critics, Dave Portnoy and Jay Snowden, saw their bid declined by the state.

“Nobody is going to make money,” said Portnoy, who later conceded during his Barstool show that he would’ve rather been in NY than left out.

“These companies that are already getting smashed and bleeding money are going to get killed in New York City. They’re going to have to spend millions, billions to compete, and they’re going to have to give all their profits away.”

Incentive, optimism remains for NY online sports betting

DraftKings CEO Jason Robins didn’t necessarily allay those concerns during his company’s Q3 earnings call. Granted, Robins also didn’t rule out the idea of New York ultimately becoming profitable for DraftKings in the future. So it does seem like companies do have incentive to draw customers in the new market.

New York online sports betting is expected to begin in early 2024, and be fully up and running by the Feb. 13 Super Bowl. Industry experts believe it has the potential to generate $500 million for the state annually, if not more, down the road.

“If we were to be awarded a license, I think we feel just like we do in other states that we can achieve the same long-term profit margins in New York,” Robins said. “There’s a lot of levers we can pull, such as cutting back on the rate of promotion, and spending less on external marketing. Those are things I would expect everybody in the industry to do, because I don’t think anyone’s going to want to run long-term at an unprofitable rate in any state.”

“Certainly early on we’ll approach it just like we do other states where we’ll invest into it, and look to that two-three year path of profitability. But I think over the long-term we feel we can achieve something in a similar range to what we’re achieving in other states from a long-term margin perspective.”

Pressure on NY to keep bettors in-state

New York does have potential. How could it not with a population of over 20 million and a rabid sports fan base?

But it is clearly behind the competition.

Industry estimates suggest that 20-25% of New Jersey’s sports betting handle comes from New York. So of the $2.3 billion NJ pulled in, Empire State bettors contributed between $460 to $570.5 million.

GeoComply also reported 38% of betting activity in Connecticut occurs in the southwest corner of the state along the I-95 corridor, or near the NY border.

Additionally, New York bettors who wager with illegal bookies might enjoy the benefits of receiving a line of credit and more flexibility with lines and pricing.

The pressure is on NY to convert those bettors and keep them in-state.

Bottom line: New York has to get online sports betting right

With long-term profits the goal, lousy promos and lines (potentially the byproducts of a high tax rate) won’t do operators in the Empire State any good. New York has to get things right.

“It’s all based on conjecture at this point,” New York State Sen. Joe Addabbo, a massive advocate of online sports betting, told playin-ny earlier in November. “Where does New York stand globally in terms of sports? It’s the sports capital of the world, as many people perceive it. And then you add in the tourism base, the population base, and we know our residents are just clamoring to get mobile sports betting because they’re on (the George Washington) bridge doing it close to New Jersey.

“So you know there’s an appetite, we have the potential, we know we can eclipse other states. But it all reverts back to the premiere product that we know we must have in order for residents to switch whatever they’re doing and stay with us. We’ll see. We have operators and providers that are willing to work with the 51% rate in New York and make it work. It really depends on the product.”