Executives from the two biggest mobile sportsbook operators in New York contended Tuesday that the state’s high tax rate could lead to dire consequences for the nation’s No. 1 sports betting state if legislators don’t lower it soon.
“We want New York to be the beacon of this industry and it can be, but the big early tax revenue numbers, not to mention the consumer safeguards expanded to New Yorkers, will prove to have been a fleeting achievement if we do not change the course for the long term,” said FanDuel President Christian Genetski.
DraftKings CEO Jason Robins went a step further, saying his sportsbook and others might soon offer New York bettors worse odds than neighboring states such as New Jersey if legislators don’t act to lower the 51% tax rate on gross gaming revenue. That rate is tied with New Hampshire for highest in the nation.
Robins compared the New York tax structure to that in France, where a high effective tax rate has impacted sportsbooks’ bottom lines and their ability to keep customers away from illegal offshore markets.
“It’s far too early to declare victory,” Robins said of New York. “The market is built on an unstable foundation.”
The discussion came at a joint legislative public hearing to review the first year of mobile sports betting in New York, hosted by state Sen. Joe Addabbo and Assemblyman J. Gary Pretlow, chairmen of their chambers’ respective gaming committees.
Record revenue at risk in 2023?
In the first calendar year of legal, regulated sports betting in New York, the nine licensed operators combined for nearly $16.2 billion in handle and $1.36 billion in gross gaming revenue (GGR).
However, the state’s biggest quarter for sports betting in 2022 was the first, when New Yorkers made 30% of their yearly wagers. The fourth quarter accounted for 29% of the yearly market share, bucking the trend in most states, and prompting some industry observers to predict declining revenue in 2023 and beyond for the state, which netted more than $692 million in sports betting taxes in 2022.
David Isaacson, senior vice president of Spectrum Gaming, a gaming industry consulting firm, testified at the hearing that New York does stand out in the U.S. market and predicted the high taxes would drag down earnings in 2023 and beyond. He said other states saw large increases in the fourth quarter that jump-started stronger second years of legal sports betting. He called New York’s situation “different and anomalous.”
“We believe this is happening because operators are pulling back on promotional spend in this market,” Isaacson said. “They’re more focused on their bottom line relative to the promotional blitz we experienced in Q1. We expect that under the current tax structure, operators will continue to limit promotional spending. So, in year two it is possible that the New York market could actually decline in terms of overall wagering volume, putting the state’s tax revenue at risk.”
Long-term gains versus short-term losses
Last week, Addabbo introduced SB 1962 that would expand the number of sport betting operators in the state from nine to 14 by New Year’s Day 2024 and to 16 by the following Jan. 1. The bill also would bring down the tax rate on GGR on a sliding scale. The rate would drop to 35% with 14 or more operators and to 25% with 15 or more operators.
The question legislators are facing is whether lowering the tax rate would actually lead to more taxes in the long run, a premise Genetski acknowledged was somewhat counterintuitive. Spectrum estimated in a report released to the legislature that the short-term losses to the state would be roughly $600 million in taxes, but Isaacson testified that he believed the state would make up for it in the long run.
“I have to say color me skeptical, and I only say that because I think there will be a natural cap on the number of people who will engage in mobile wagering,” New York Assemblywoman Carrie Woerner responded. “To recover $600 million is a big jump. I’m no fan of high tax rates, but I think this is a leap.”