New Legislation Looks To Lower New York’s 51% Tax Rate By Adding Operators

New bill would require more than 14 licensed operators by January of 2023
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Legislation introduced in Albany Friday would add competition to the state’s booming mobile sports gambling industry and, in the process, lower the tax rate that has dragged down earnings for sportsbook operators.

Assemblyman J. Gary Pretlow filed a bill to amend New York’s online sports betting law to increase the number of licensed operators from nine to at least 14 by Jan. 23, 2023, and to at least 16 by Jan. 1, 2024. If the bill passes and the state doles out the desired number of licenses, the tax rate on gross gaming revenue for the online sportsbooks would come down from its current level of 51%, the highest in the country.

With 10-12 operators, the tax rate would become 50%. With 13 or more, it would come down to 35%. And with more than 15 operators, it would drop to 25%.

Sen. Joe Addabbo of Queens, long an advocate of adding more skins in the state, told NY Online Gambling he will soon introduce a companion bill in the state Senate. Both bills will be voted on by the gaming committees of the two branches of the legislature and, if passed, will be introduced on the floor.

Seeking more diversity

Pretlow discussed his unhappiness with the rollout of online sports gambling in the state during a live “Twitter Spaces” session Tuesday, saying the process made it difficult for smaller operators to compete in the state and made for a less diverse group of operators.

“The way that the rollout was defined by the governor kind of eliminated anyone except the biggest players,” Pretlow said. “I was looking to have 20 or 25 different ‘skins,’ at a much lower tax rate.”

Among the provisions in Pretlow’s amendment are that losing bidders from the initial round of applicants would be automatically eligible to reapply, operators that did not bid in the first round also are eligible, the deadline for 2023 submissions is Sept. 1, and at least two licenses are reserved for businesses that are at least 5% minority-owned.

Thresholds for lowering tax rate

The amendment also would exclude federal taxes and promotions from being taxed as part of gross gaming revenue, further lessening the tax burden on operators. Because “free bets” and other promotions don’t add revenue for the sportsbooks when the bettor loses, but are taxed as if they do, the effective tax rate is even higher than 51%. Many stakeholders and analysts have predicted that the 51% rate would be hard to maintain in the long run.

Some operators have said they don’t see a path toward profitability in the state for at least several years, largely due to the high tax rate.

“I think it will increase the sustainability of the market, but the tradeoff is likely less tax revenue, at least in the short term,” said policy analyst Ulrik Boesen of the nonprofit Tax Foundation.

New York adopted the 51% tax rate also used in New Hampshire and has garnered more than $104 million in tax dollars since launching Jan. 8. Of the nine licensed operators, eight are now accepting wagers in the state.

For the week ending Feb. 27, FanDuel led the way in terms of market share in New York for the sixth straight week, taking in $131.9 million in handle. Next up were DraftKings, which did $87.4 million last week, and Caesars, which had a handle of $68.3 million.

Overall, New York operators took in $350.3 million in bets for the week with a GGR of $25.4 million, according to the latest gaming commission report. Since the launch of mobile sports wagering, operators have booked $3.2 billion in bets with a GGR of $204.7 million.

Photo: Robert Deutsch/USA TODAY

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