Will New York Change Its 51% Tax Rate For Online Sports Betting Operators?

DraftKings CEO Jason Robins said in his company’s Friday earnings call there have been rumblings that New York policymakers are considering reducing the 51% tax rate charged to online sports betting operators in the state.

“There’s been some chatter of New York considering in its upcoming legislative session adjusting the tax rate down,” Robins said. “I think the approach we’re taking is a wait and see on that. And I think if that happens, depending on where it lands, then we’ll adjust accordingly. And if it doesn’t happen then we’ll adjust accordingly.”

New York’s 51% tax rate — the highest in the country — produced a record $70.6 million in tax revenue for the state over the first 30 days since NY online sportsbooks went live in January. DraftKings’ stock plummeted more than 18% Friday, to $18 per share.

“While anything is possible in Albany, there has been no discussion on tax rate at this point,” Sen. Joe Addabbo wrote in a text to playin-ny.

Addabbo has repeatedly said that he wants to evaluate the state of NY online sports betting in six to eight months. But it seems clear that operators like DraftKings would like a change sooner than later.

While successful now, NY betting apps concerned over tax rate

Robins has made no secret of his displeasure with the 51% tax rate — as have many others — and DraftKings has seemingly operated accordingly in New York. While not spending like Caesars in terms of advertising and promotional play, DraftKings did manage to move back up to No. 2 in market share behind FanDuel for the week of Jan. 31-Feb. 6.

Read more: New York Online Sports Betting Launch Far Exceeded Caesars’ Expectations

According to the company, it took DraftKings less than 24 hours to acquire 100,000 first-time paid customers in New York. That compared to 17 days for Arizona, 170 days for New Jersey, 312 days for Pennsylvania and 344 days for Indiana.

“NY customer acquisition has been so efficient, and the early player cohort rates have been so strong that we’re hopeful that with an appropriate tax rate, it can be a very profitable market for us,” Robins said. “But if not, we’ll make the necessary adjustments to ensure that it meets the 2-3 year payback, and it’ll be a very profitable market for us in the long-run.”

Worry abounds regarding sustainability

New York’s 51% high tax remains a significant talking point through the industry. Sportsbooks took in nearly $2 billion in mobile wagers over the first 30 days.

That’s obviously a massive number. As is the tax revenue figure. The state will benefit significantly from that, with 98% of the revenue going toward funding various education programs. But how much of that $2 billion represents promotional play, which the state also taxes? And can the industry achieve sustainable business?

“I have to believe (online sports betting) operators are losing a fortune in New York,” Tioga Downs owner Jeff Gural told playin-ny. “So the question is how long can they do that without either merging or asking for reductions.”

New York Yankees president Randy Levine, himself an advocate for online betting in New York, expressed similar concerns.

“That worries me,” Levine told playin-ny. “The volume is great and the state is making money. But if companies are losing money, they’re not going to be here.”

Could lawmakers lower the 51% tax rate?

But could change be on the way?

State Assemblyman Gary Pretlow would like it to happen.

Pretlow was vehemently opposed to the current NY online sports betting model in the state, preferring for a lesser tax rate/more open competition model that exists in New Jersey.

Yet Pretlow also introduced legislation to prohibit requests from online sports betting operators to request tax rate modifications.

“That’s really not a defense of the 51%. It’s actually a different directive by me to get more players into the market which would then lower the tax rate,” Pretlow recently told PoliticsNY.

“I’ve always thought that the 51% was too high. The state shouldn’t make more money than the operators, but under this way they do. The (tax rate) matrix that was given to us formally said that if there were more skins in the game, than there would be a lower tax rate. So this was a way for me to open up the market and get more players.”

Based on the NY tax rate matrix, going from nine operators to 13 would enable a reduction from 51% to 35%.

Will more online sportsbooks launch in New York?

Pretlow told PoliticsNY he expects the New York State Gaming Commission to offer more licenses by the end of this year.

“Absolutely, because in my conversation with some of the existing skins, there’s no room for promotional monies out of their 49%,” Pretlow said. “And they’re being taxed for the full amount of the promotional money that they’ve put in, which really isn’t fair because it’s really double taxation. So I’m looking at ways now to relieve them of that burden, and give them some ability to actually go on with the promotions.

“A lot was said when companies like Caesars were giving up to $3,000 promos for people opening accounts in NY. That’s unsustainable if they’re paying 51% of their gross gaming revenue in taxes.”

Pretlow told playin-ny in December 2021:

“I would love for promotional play, but not out of our money, no. And that’s another reason why I want to make sure they maintain the 51%. If you sign that deal, then don’t come around and say now we have to give free play. So reduce our 51% down to 43% or whatever number they come up with.”

Only time will tell on how these issues play out.