For months, New York Assemblyman J. Gary Pretlow has expressed frustration with Gov. Andrew Cuomo’s intransigence on mobile sports betting, specifically with Cuomo’s demands for an elevated tax floor on sports wagering revenue that will rank among the highest in the nation.
When Cuomo pivoted on mobile sports betting at the start of the year, the three-term governor boldly proclaimed that New York could emerge as the largest market in the nation. But the market dynamics may change with Cuomo set to leave office Aug. 24 after announcing his resignation last week in the wake of sexual harassment allegations.
Hours earlier, the New York Gaming Commission revealed that 14 companies submitted applications to enter the state’s competitive bidding process for mobile sports betting ahead of an Aug. 9 deadline. Several companies still submitted bids, despite grave concerns about a revenue-sharing plan that contains a 50% tax floor on an operator’s gross gaming revenue (GGR) from mobile sports wagering. The companies continue to fret over whether it is possible to turn a profit with such a hefty tax rate.
The difference between lawmakers' competitive sports betting model and Andrew Cuomo's limited plan was the difference between "Heaven and Hell," Assemblymember J. Gary Pretlow said during a gaming conference today
— Ryan Butler (@ButlerBets) August 17, 2021
The commission is responsible for awarding contracts to a minimum of two platform providers and a minimum of four sports betting operators upon the completion of the bidding process, as detailed in a 130-page Requests For Applications released last month. Although the commission is scheduled to award the licenses near Christmas, the exact date for rollout has yet to be determined.
On Tuesday, a panel of top industry lobbyists and prominent New York politicians tackled issues related to New York’s launch of online sports betting at The Racing and Gaming Conference At Saratoga. Asked if Cuomo’s resignation will complicate the remainder of the process, Pretlow argued that it might instead help matters.
The race to $1B in sports betting GGR
Pretlow, chairman of the Assembly’s Racing, Gaming, and Wagering Committee, delivered the comments from The 1863 Club, a three-story trackside facility at Saratoga Race Course, the nation’s fourth-oldest thoroughbred racetrack. Midway through Saratoga’s 2021 campaign, Belmont Stakes winner Essential Quality and Pegasus World Cup champion Knicks Go have already captured graded stakes at the nation’s most prestigious meet. Located on the clubhouse turn of the historic track where top thoroughbreds galloped by, it was the site for panelists’ lively discussion on the future of mobile sports betting in the Empire State.
Upon its inclusion in the fiscal year budget, Cuomo projected that mobile sports wagering would bring New York state $357 million in Fiscal Year 2023 before stepping up to $500 million at maturity, two years later. A legislative bill, sponsored by Pretlow and Sen. Joseph Addabbo Jr., estimated that mobile sports betting would generate tax revenue of $350 million on an annual basis.
“If you know the budget process, when the governor gives us a budget he puts a number in there. He doesn’t have to prove that number,” Pretlow said at Tuesday’s panel. “Our number was real — everything was worked out in our number.
“I personally don’t think they will ever make the number that was predicted in the current budget. They never showed us once how they would come to that number.”
Assemblyman @JGPretlow is skeptical that Cuomo will meet the revenue target and still believes the legislative model is more beneficial for bettors.
Thoughts on how market may shake out following the release of the RFA
— Sports Handle (@sports_handle) July 15, 2021
Some operators are even more bullish about potential revenue. An analysis released by a Kambi-led consortium that includes five mobile sports betting operators (Caesars Sportsbook, Rush Street Interactive, PointsBet, WynnBet, and Resorts World) projects that a market with nine operators would generate $892.5 million in state tax revenue at a tax rate of 51%. A limited-operator model with four companies in the marketplace would produce about $808 million in tax revenue for the state, according to the projections.
Another estimate from a consortium led by FanDuel projects that the state would generate $600 million in GGR over the first full year of mobile sports betting, before increasing to $1.3 billion by Year 3. FanDuel‘s projection (preferred tax rate of 50%) is based on the assumption that only four companies gain access to the New York market, with DraftKings, BetMGM, and Bally Bet the others gaining licensure.
New Jersey bettors wagered $578.7 million on sports in July, translating to gross revenue of $55 million for the books at a 9.5% hold, the largest hold rate for the state since January 2020. While New Jersey’s year-to-date hold percentage hovers around 8%, a win percentage north of 6% can be difficult to attain. Over the last 20 years, the hold percentage in Nevada has eclipsed 6% six times, including a rate of 7.89% in 2006 — the only time the hold topped 7%.
In the 2020 U.S. Census, New York ranked fourth nationwide in population at 20.2 million, more than double that of New Jersey at 9.29 million. Since New Jersey generated a handle of just under $10 billion for the 12 months ended July 2021, a target of $20 billion in annual handle for New York at market stability is reasonable, said David Isaacson, senior vice president at Spectrum Gaming Capital. Isaacson gave a presentation on Spectrum’s comprehensive New York gaming market study at Tuesday’s panel.
“This is New York, a top sports wagering market. There are big gamblers here and they are among the most valuable customers for sports betting operators — New York is very likely to exceed $1 billion in sports wagering revenue at stabilization,” Isaacson told Sports Handle.
|Categories||Scenario 1||Scenario 2||Scenario 3||Scenario 4||Scenario 5|
|Handle||$17 Billion||$20 Billion||$25 Billion||$20 Billion||$20 Billion|
|GGR||$1.02 Billion||$1.2 Billion||$1.5 Billion||$1.4 Billion||$1.6 Billion|
|GGR Rev Share||50%||50%||50%||50%||50%|
|Tax Revenue To NY||$510 Million||$600 Million||$750 Million||$700 Million||$800 Million|
Under more bearish projections, the state would generate about $360 million in tax revenue at a handle of $12 billion (with a 6% hold and a 50% tax rate). The estimates meet Pretlow’s projection of $350 million in annual tax proceeds. By comparison, Eilers & Krejcik Gaming partner Chris Grove testified at a June 2020 California hearing that the state could generate up to $503 million a year in tax revenue in a mature market. With the addition of mobile sports betting, the figure rises to closer to $1 billion, according to the gaming firm.
More than $64.5 billion has been wagered in the U.S. legal sports betting market ($64,539,523,571 precisely, at last reported count) since the Supreme Court’s PASPA decision in May 2018. During that span, sportsbook operators have reported about $4.53 billion in GGR, leading to $668.5 million in state tax revenues, according to Sports Handle figures.
Since top companies such as FanDuel and DraftKings have shown a propensity to market and promote heavily, Isaacson expects the trends to persist in New York given that it is viewed as a crown jewel of the market. The ramp-up in New York will be considerably faster than the one in New Jersey, he explains, as New Yorkers rush to bet on their phones after years of frustration. The companies also have the luxury of tapping into a vast database of New York customers, given that about 20% of New Jersey bettors reside in the Empire State.
FanDuel’s projection of $1.3 billion in GGR by Year 3 is reasonable, Isaacson adds, but the ramp-up will be more challenging at a 50% tax rate.
Sports betting under Hochul
New York Lt. Gov. Kathy Hochul, Cuomo’s successor, has said little publicly on the state’s impending launch of mobile sports betting. But this spring, the lieutenant governor addressed the tax implications of online sports wagering on a Facebook Live webcast with The Business Council of Westchester, in which she outlined the state budget. Hochul, who will become the state’s first female governor next week, is married to William Hochul Jr., senior vice president and general counsel at Delaware North, a gambling and concessions company.
“All the states around us allow mobile sports betting. New Yorkers travel across the George Washington bridge and place their bets in New Jersey, betting on our sports teams,” Hochul said. “The time has come, we need the revenue of $500 million a year.”
Though Hochul has vowed to remove any former Cuomo staffer implicated in his scandal, she noted on Aug. 15 that her administration will retain some of Cuomo’s commissioners for a period of 45 days. It is unclear if she will retain New York Budget Director Robert Mujica, the architect of Cuomo’s public-private partnership on mobile sports betting. The state’s new budget cycle begins in September.
“I’m pretty sure he’ll stay at least through the budget cycle. To get a new budget director now would be difficult for her,” Pretlow told Sports Handle.
Pretlow described Mujica as the “driving force” behind Cuomo’s intricate tax rate matrix on mobile sports betting. While legislative leaders pushed for a tax rate comparable to one in New Jersey, Mujica did not budge on a 50% tax floor, according to Pretlow.
“The person who writes the budget has the authority to do what he or she wants,” Pretlow said. “The legislature tried to interject their ideas, but the governor can always overshadow us.”
Complicating matters is a provision in the Requests for Applications that gives the commission the authority to implement drastic changes to the bidding process, including the ability to alter deadlines stated in the RFA, reject any or all of the applications submitted, and even withdraw the RFA at any time. One section enables the commission to waive any requirement in the statute that is not explicitly prescribed by New York’s statutes on sports betting.
1.16 STATE’S RESERVED AUTHORITY In addition to any authority set forth elsewhere in this RFA, the Commission reserves the sole discretion and authority to: A. waive any requirement of this RFA that is not prescribed by the PML Sections 1367 or 1367-a, or any defects of any Application if, in the judgment of the Commission, such waiver furthers the policy objectives of the PML
–New York Gaming Commission RFA: Mobile Sports Wagering Platform Providers, P. 11
Hypothetically, the commission could reduce the duration of the 10-year license period and alter the composition of its final tax rate determination. There is no statutory mandate on licensing duration in New York state. At another panel Tuesday, American Racing and Entertainment Chairman Jeff Gural suggested that the winning bidders may agree to a relatively high tax rate, then threaten to reduce marketing efforts over the next two years unless the state agrees to lower the rate. Gural also indicated that the commission could strip a sportsbook of its license in several years if the company fails to meet its own revenue projections, but he doesn’t expect that to happen.
When asked if a consortium could negotiate with the commission for a tax rate considerably lower than 50%, Addabbo admitted that it is possible, while noting that the state is entering “uncharted territory” in the coming months. Addabbo emphasized that the state still wants a 50% tax floor and that the applicants understand the state’s rationale. Beyond the consortiums, Addabbo noted that three lone bidders — theScore, Bet365, and FOX Bet — could propose a tax rate around 57-58% to sweeten their bid.
“The flexibility in the statute exists — the one thing we wanted to maintain rigidly was the time frame,” Addabbo told Sports Handle at Tuesday’s conference. “Everything else has some flexibility, so there could be some negotiations with the Gaming Commission and the entities going forward that could improve the product.”
Addabbo, chair of the Senate’s Racing, Gaming, and Wagering Committee, is still optimistic that New York will launch mobile sports betting by the Super Bowl.
“A different administration brings a different perspective. I’m optimistic because, for two years with mobile sports betting, it’s been very confrontational,” Addabbo said. “Hopefully, there will be a smoother road ahead.”