Is New York ‘killing the golden goose’ with high tax rate?

Industry advocates warn New Yorkers might still travel to New Jersey
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Some industry experts are questioning whether New York’s move into legal sports wagering could be dragged down by the nation’s highest tax rate on placing bets.

Speaking at the National Council of Legislators from Gaming States (NCLGS) conference in Austin, Texas, this week, industry lobbyist and attorney Bill Pascrell III created waves by comparing the state’s sports gambling approach to socialism. He amplified that comment in an interview with NY Online Gambling.

“When you’re taxing someone at 51 percent, with a thin margin, it’s essentially a socialist gaming empire,” Pascrell said. “The state is essentially their partner without having to spend any money.”

New Yorkers could travel to bet

Neighboring New Jersey taxes sports bets at a 14.25% rate while Pennsylvania has a rate of 36%. New Hampshire is the only jurisdiction that can match New York’s 51% tax rate on gross betting revenue.

To Pascrell, the high taxes will lead New York gamblers, particularly high-stakes players hunting for promotions, to cross the Hudson River into New Jersey. Estimates suggest that roughly 25% of New Jersey’s online gaming comes from New Yorkers traveling to the Garden State, Pascrell said. He doesn’t expect that to change much, even after New York gets online gambling up and running, which is expected to happen in time for the Super Bowl.

“The incentive for all of the major operators, and I’m not going to single anybody out, is they’re going to be buying buses, caravans, and limousine services to get their players to move across the river,” Pascrell said. “I think it’s very short-sighted of New York.”

New York state regulators approved online sports betting licenses in early November for nine operators, including DraftKings, FanDuel, Resorts World, and the online gambling arms of MGM and Wynn. The question is whether the size of the market and the caché of operating in the nation’s media capital will be able to overcome the hefty tax burden on operators. So far, casino operators proclaim they’re gung ho about getting New York wagering up and running.

“For FanDuel, we’re thrilled to participate in New York and it’s an exciting state,” said Stacie Stern, FanDuel’s government affairs director. “To the question of how it will affect other states, it won’t really. Every state has its own thing going. I just think that states really do cling to their own identities and do things in their own ways. Or, maybe they look at it as a lesson in what not to do. We’re happy to be there, because it would really be lousy to be on the outside looking in.”

Stern’s comments came at the ICE365 webinar on Wednesday.

Brandt Iden, a former Michigan legislator who led that state’s legalization and is now head of government affairs for Sportradar US, called the tax rates in New York and New Hampshire “astronomical” and speculated they could be back-breaking to operators.

“Where else as a legislator do we kill the golden goose immediately?” Iden mused, also on the ICE365 panel. “We prop up industries that need help. In 2018, this started becoming an industry, but we’re quickly killing the golden goose. If you tax the heck out of it, it will die. You’re not supposed to do that as a legislator.”

Could the tax rate change?

Pascrell thinks gambling operators will find it difficult to comply with regulations while managing an acceptable profit in New York. He wonders why New York didn’t simply adopt the New Jersey model of relatively low taxes.

“I don’t see how they’ll ever be able to turn a profit in New York and justify massive investment there which is needed to get a system up and running and done in a way that checks all the boxes: geolocation, age verification, cybersecurity, consumer protection, responsible gaming, and integrity. Those all cost a lot of money.”

Pascrell expects there to be pressure on legislators to ease the tax burden in New York in 2022, but said such changes are difficult to pull off politically.

“New York is certainly one of the brass rings. Many think it has the potential to be a crown jewel,” Pascrell said. “But when you put a tax rate in like that at its inception, you will see that that will have to be revisited. But tax rates are very hard to revisit either up or down. You have all of the folks on the business and commercial side that are going to want to push it down and then you have the folks in government who are going to want to push it up.”

Photo: John Minchillo/USA TODAY

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