Last month, mobile bettors in New York spent $1.05 billion across the eight operating sportsbooks. Despite June being its lowest monthly handle since the launch of the regulated market (the total of which was $350 million shy of New Jersey’s highest month on record), Governor Kathy Hochul recently announced that the state generated $302.2 million in tax revenue in its first six months of operation.
To put this into context, only three other states have achieved this nine-figure status since their markets launched – New Jersey, Pennsylvania, and Illinois. From November 2018 to May 2022, New Jersey generated $237.1 million in tax revenue. In the same four-year period, Pennsylvania generated only $28.5 million more than the Garden State. Analysts have calculated that it would take Mississippi 45 years to earn the same tax revenue total as New York.
Analysts have suggested that the launch of New York’s mobile sports betting market has negatively impacted several nearby states. Having eliminated the need to travel outside of state lines to place a bet, sharp declines in revenue throughout June have been reported from Indiana, New Jersey, and Washington DC. However, with three-month declines also reported in New York, it’s also possible that this trend results from fewer bets being placed in general.
Changing the Rules
Not all lawmakers in the Empire State are happy with its current mobile betting laws. Citing research by FanDuel in 2021 that described the 51% tax rate as ‘unsustainable,’ Assemblyman Gary Pretlow and Senator Joe Addabbo have attempted to dismantle the legislation previously enacted by Governor Andrew Cuomo.
Though Cuomo resigned in March, Pretlow and Addabbo’s legislation was rejected. Their proposal demanded that the state’s limit of nine sportsbooks expand to no fewer than 14 by January 2023, consequently reducing the state’s tax rates from 51% to 35%. Two more sportsbooks would be introduced by January of the following year, reducing the tax rate to 25%. Pretlow and Addabbo plan to reintroduce this legislation in next year’s sessions.
Opening the Market and Reducing the Tax
Several prominent New York lawmakers have backed this idea of lowering the tax rate and opening the market to more operators. However, evidence suggests that this won’t have the positive impact many think it will.
Despite its research advising on the unsustainability of the New York market, FanDuel decided to throw its hat into the ring nonetheless. Alongside Caesars and DraftKings, FanDuel is one of the most successful sportsbook operators in New York. Together, the three platforms account for 85% of the state’s overall betting handle. Even if tax rates were lowered and smaller operators could enter the fold, it is unlikely they could compete with the giants already established in the state.
A Potential Compromise
Some have suggested a compromise to settle the debate over whether or not to lower the tax rate. Instead of decreasing the 51% tax rate, the state would allow for deductions of promotional spending. Unlike states such as Arizona and Virginia, New York does not currently permit its mobile operators any tax breaks for promotional spending. Combined with federal tax, this means that operators in the state are being taxed closer to 77%.
However, more and more states are realizing the potential tax revenue they are missing out on by allowing promotional tax deductions. Colorado, for example, passed a bill in May that would end the tax breaks permitted in its original 2020 sports betting legislation. With Colorado as the catalyst and more states likely to follow suit, it is doubtful that lawmakers in New York will implement this strategy.
Though New York’s tax rate appears immovable for the time being, there are other changes to the sports betting legislation that lawmakers hope to see implemented in the future. Sen. Addabbo and Assemb. Pretlow have both expressed their desire to add more sports markets to New York’s mobile betting landscape, hoping to see player award futures and events added.
They also want to introduce self-service betting kiosks to New York’s stadiums and arenas. Additionally, Pretlow wants to add off-track betting parlors, claiming they should bring them back “before they meet their demise, because OTBs are going down fast.”