How Can 51% Tax Rate Be Lowered? Start With Adding Online Sportsbooks In New York

Talk of the massive 51% tax rate for online sportsbooks in New York isn’t going away anytime soon.

Last week, DraftKings CEO Jason Robins — whose company’s stock has mostly plummeted — said there had been “chatter” about reducing the state’s 51% tax rate, which is the highest in the country.

But Sen. Joe Addabbo said there had been no such conversations. Although, he noted, anything can happen in Albany.

Sportsbooks are clearly concerned about creating long-term, sustainable financial success in the state. But with New York already taking in record tax revenue, there’s not exactly incentive for local policymakers to make any changes. In fact, Assemblyman Gary Pretlow introduced legislation that would prohibit operators from asking the state for tax reductions.

“I don’t think anyone is making money (in New York) for a long time,” one industry source told playin-ny.

But could New York lower that sky-high tax rate in the future? In theory, that seems possible.

Takes money to make money with NY online sports betting

Robins himself has talked about a two-to-three-year path to profitability in the state. Although that may be challenging.

Acquiring a big market share from jump-street has proven expensive — with Caesars, specifically, investing extravagantly in terms of advertising and promotional spend to grab an early foothold.

“New York is approaching as large as the rest of the business in Caesars’ Digital combined,” Caesars CEO Tom Reeg said.

Reeg did add on the operator’s latest earnings call, however, that Caesars plans to cut back significantly on those expenditures.

“I think (Caesars) said during their announcements (Tuesday) that customers acquired at the start of the state opening tend to have better characteristics than those that are acquired during the normal day-to-day running of something that has been established longer,” SportRadar’s head of US betting, Neale Deeley, told playin-ny. “So there was always going to be a bit of a rush at the beginning, and the market will find its own dynamics and settle out over time.

“These markets are going to be around a lot of years, and we shouldn’t focus on the first week or two to try to read the tea leaves and come up with the dynamics of how they’re going to function.”

NY sports betting tax rate goes against ideal model

Through Feb. 13, New York online sports betting operators accepted nearly $2.5 billion in bets, generating an incredible $78.5 million in tax revenue for the state. It remains unclear how much of that handle includes bonus money, such as free bets, which the state also taxes.

“I don’t want to get into a debate on what the right number should be,” Deeley said. “But we do always have to bear in mind that one of the reasons for legislating is to bring players inside the legal net, not outside it. And the more costs that are imposed on the legal industry that aren’t on the illegal industry, the less likely that is to happen. So I’m a very big fan of having a liberal market that casts its net around as many players as possible to bring them inside the regulated and supervised space.”

In 2016, a Copenhagen Economics study concluded that the optimal tax rate for online sports betting was 15-20% to keep wagers from going to the gray (illegal, offshore) market. But former Gov. Andrew Cuomo and his administration wanted to follow in New Hampshire’s footsteps with a 51% rate.

This went against what local NY policymakers like Pretlow and Addabbo desired — a model similar to the 13% tax featured in New Jersey. (New York online sportsbooks currently offer the same odds as NJ.)

Perhaps there is some sort of compromise to be made — such as not taxing operators on their promotional spend. But maybe the simplest move, as two industry experts recently suggested to playin-ny, would be to add operators.

How does adding NY sportsbooks reduce tax rate?

Going from nine online sportsbooks to 13 would reduce the tax rate from 51% to 35%, based on the matrix introduced by the New York State Gaming Commission during the license bidding process.

Read more: Assemblyman Pretlow Introduces Bill Amendment That Would Lower 51% Tax Rate

It would also provide the state with additional up-front licensing fees (that state has already collected some $200 million).

Who could come into the fold if online betting in New York does expand?

Bet365

Bet365, available in New Jersey and with prime outfield signage at Yankee Stadium, barely missed out on securing a license in NY.

The NYSGC ultimately could not determine whether including Bet365 would increase state revenue. Adding Bet365 would’ve also dropped the tax rate from 51% to 50%. Nevertheless, Bet365 is considered arguably the best sports betting operator in the world.

Fox Bet

It may have missed out on securing a bid in New York, but Fox Sports did reach an eight-year agreement with the New York Racing Association to air the Belmont Stakes beginning in 2024. Fox also has a 25% equity interesting in NYRA Bets that could expand due to a media rights partnership formed in 2021.

Fanatics

Fanatics apparently has online sports betting ambitions overseas. But it wasn’t that long ago when the growing sports apparel giant was hoping to launch its first sportsbook app in NY. Does Fanatics CEO Michael Rubin regret being part of a bid with Barstool Sports and Dave Portnoy? After all, Rubin could’ve joined another bid. Fanatics has been linked as a potential buyer for WynnBet’s online sports betting arm.

Penn National Gaming/Barstool Sports

Penn/Barstool wanted into New York. Their sour grapes after losing out doesn’t change that. Penn/Barstool has also been linked to WynnBet. Whether the NYSGC would want to work with Portnoy — given the recent allegations against him — is a very fair question.

Betway

Betway didn’t put in a NY bid, and it remains unclear if it would want one. But Betway does have a media-brand focused partnership with the Islanders, and one would easily find the operator’s logo on the ice at UBS Arena. Like Bet365, Betway is available in NJ.

Tech Giant

In the age of consolidation, will tech giants like Meta/Facebook, Google, Microsoft, Apple or Amazon enter the online sports betting sphere? Maybe. It might be more of a future idea at this point. And one would think they’d want to be in the Empire State.

“It’s one thing to try to raise money to the state, and it’s easy to see that higher tax rates will do that, particularly with the launch that New York had,” Deeley said.

“But I think we also have to look at it in the context of what’s the most sustainable, long-term plan so that the legal operators are not at a disadvantage to those who don’t want to play that way. We’re (SportRadar) clearly all-in on legal. It doesn’t take a genius to figure that one out. We just want to make sure that we don’t find ourselves on the wrong side of encouraging money to go off-shore.”