Industry experts long have wondered how sports gambling operators would respond over time to New York’s 51% tax on gross gambling revenue, the highest such rate in the country.
The question for many people wasn’t if the operators would ask the state to rethink the rate, but when and by how much? It turns out, at least one state politician isn’t waiting to find out. State Assemblyman J. Gary Pretlow introduced a bill last week that would lock in the state’s tax rate on mobile sports gambling revenue at 51%.
Pretlow hasn’t said whether any of the five operators already taking bets in New York — Caesars, BetMGM, BetRivers, FanDuel and DraftKings — has requested such relief. Nor does the bill stipulate how long such a freeze would remain in effect.
It’s probably fair to conjecture, however, that the topic has come up a time or two in conversations between lobbyists and elected officials in Albany. Four more operators are expected to be operational by the Super Bowl, so the pressure on the legislature and governor’s office could ratchet up in the coming months.
Highly competitive early market
Intent on grabbing a big a share of the No. 1 gambling market in the country, operators have rushed into the Empire State with grandiose promotions and massive advertising campaigns. As is often the case, the bookmakers appear willing to take deep early losses to build brand loyalty. They hope a robust volume can make slim margins palatable. The questions arise for some of how much pain they can take and whether they’ll reach out for government help.
“The first operators are going to want the roads and highways paved for them. I imagine there’s going to be some desire to get them what they want,” said NESN gambling analyst Sam Panayatovich. “They are the first to the wall and they’re going to be bloodied first.”
Pretlow told Sports Handle’s Matt Rybaltowski that one of the reasons he launched the bill was to avoid what occurred previously with a few of the upstate casinos. They asked to renegotiate their tax rates after initially agreeing to them, a tactic Pretlow referred to as “bait-and-switch.”
The state has a lot riding on maintaining the sportsbooks’ tax rate. For one thing, the revenue projections it released this week are calculated with the 51% rate in mind. The state expects to obtain a total of more than $1 billion in revenue for education and other programs from the first three years of online sports gambling. But it also needs sportsbook operators to be comfortable enough with the operating conditions to stick it out over the long run.
Can massive volume make up for thin margins?
The industry is banking on volume to be successful in a state with 19.5 million people, many of whom are seasoned sports enthusiasts and, yes, gamblers.
“If we reach our maximum potential in New York, including the potential to eclipse even New Jersey at some point, [the tax rate] becomes a non-issue because of the volume,” state Sen. Joe Addabbo told New York Online Gambling recently. “We have a population that’s double that of New Jersey. We have a solid tourism base and we have a very savvy New York bettor. We also have the fan base. Many people perceive us as the sports capital of the world, so New York has a lot riding on it.”
Based on GeoComply data, New York already has surpassed New Jersey in volume. The geolocation company, which makes sure customers are within legal borders for betting, said New Yorkers conducted 17.2 million transactions the first weekend sports bets were taken online there and 17.9 million the weekend after. The same numbers for New Jersey, which has led the U.S. in online sports betting volume for several years, were 12.6 million and 13.1 million.
The question for the sportsbook operators, especially the last ones into the market, will be whether they can eventually build enough volume to overcome New York’s tax rate. While initial indications are that New Yorkers no longer are traveling to New Jersey to make sports bets, some people think that could change over time. If and when operators in New York reduce their lavish promotions, gamblers could look to take advantage of opportunities in New Jersey or Pennsylvania.
New Jersey’s tax rate on online gambling is 13% while Pennsylvania’s is 36%.
Photo: Kirby Lee/USA TODAY