It was a seemingly innocuous quote, as these things go.
βWhat we did was copycat New Yorkβs law. We wanted to follow New York but go with a higher tax,β Rep. John Mizuno of Hawaii told Sports Handle. βWe said, βHey, New York got it passed, so letβs do what they did.β That was my request for the bill drafters.β
There was a slight twist, however, in the tax rate of the bill Mizuno filed last week in his attempt to bring sports betting to the island state: New Yorkβs rate is a nation-high (along with Rhode Island) 51%. Mizunoβs bill bumps that to 55%.
βI thought that would be a little bit of sugar on the top, to try and get lawmakers to support it,β Mizuno said.
And that βsugarβ may prove to be more like cyanide for the all-of-a-sudden spiraling stocks in the sports betting sector.
The bid to supply to NH Lottery, may have forever changed the outlook for the US sports betting industry. A tax rate/rev share to the state of 50% was set. New York used that as precedent and now Arkansas & Hawaii trying to follow. Not ideal for the #sportsbetting industry
— Dave VanEgmond (@Dave_VanEgmond) January 25, 2022
DraftKings? Trading below $20, after hitting $74 last March. Flutter, the parent of FanDuel? Trading at $70, down from its 52-week high of $119. Penn National, Barstoolβs corporate honcho? Trading at $43, down from its own $142 peak.Β
Itβs been a race for market share in the sportsbook world, and many observers see it as a race to the bottom, where eventually — and it might be happening now, if these stock prices are to be believed — the actual bottom line matters more than the promises of potential future riches.
There will be consolidation for sure, and some big names — Disney, Amazon, Fanatics — are bound to pounce at some point or another.
$PENN CEO says he sees more consolidation in the sports betting space
— Market Rebellion (@MarketRebels) September 24, 2021
Probably.
Unless β¦
High taxes, bad outcomes
Unless those bottom lines look too ugly.Β
And one sure-fire way for those bottom lines to bottom out would be for more states to follow New Yorkβs lead and slap 50%-plus tax rates on operators.Β
And why wouldnβt they? Early returns in New York point to the state overtaking New Jersey — possibly as soon as this very second — as the most robust sports betting state in the nation.
Pennsylvania, with its 36% tax rate, hasnβt exactly experienced lack of demand from operators seeking to offer their products.
Kind of makes you wonder β¦ why arenβt other states revisiting their comparatively low tax rates? And, furthermore, whatβs to prevent states that havenβt passed sports betting legislation — weβre looking specifically at you, California and Texas, home to over 20% of the nationβs population (and heck, letβs throw the Florida mess in there, bringing us to 27% of the population) — from following New Yorkβs lead, just like Mizuno is seeking to do in Hawaii?
Maybe for New York, but …
βWhat I was very concerned about when New York did this is exactly what is happening. Other legislators around the country saying, βWell, New York can do it, so can we,ββ said Brandt Iden, the head of U.S. government affairs for Sportradar and a former Michigan state senator who spearheaded the push for legalization there.Β βThereβs this great fanfare about New York, and itβs exciting and theyβre certainly off to a great start, but this high tax rate is not something the industry is interested in replicating at all, and I donβt think legislators should be either.β
Iden points to New York as a one-of-its-kind situation.
βIt only makes sense in this particular jurisdiction, and it only makes sense for the operators who got involved because they didnβt want to not be in New York, even if theyβre going to lose money at first,β he said.
Bill Pascrell III, a partner in the Princeton Public Affairs Group, echoes that sentiment, and then some.
βThe 51% tax rate makes New York the empire socialist capital for sports betting. New York essentially owns the books,β Pascrell said. βI think all the operators launched in New York because it’s got this cachet, itβs globally recognized. But right now New Jersey is the third largest sports betting market in the world, behind Germany and the UK. Maybe New York trampolines ahead of them, but I donβt think it happens. I think these sportsbooks are going to be buying limousine companies and pushing those players with promotional credits back to New Jersey.β
Pascrell said the tax rate is a state-by-state issue, and when he looks at the three big states still up for grabs, he believes at least two of them will end up with low tax rates.
Two out of three ain’t bad
βThe governor of Texas, Governor [Greg] Abbott — heβs up for reelection this year, and besides, you wonβt see gaming there until at least next year because of the biennial legislative session — but thereβs no way heβd OK a big tax,β Pascrell said. βCalifornia, you never know. Governor Gavin Newsom is pretty liberal, he might want to explore the New York option. And I will assure you Governor [Ron] DeSantis will not have a big tax rate in Florida, no matter what happens.β
As for existing states and their current tax rates? Iden thinks there may come a time when states with lower rates revisit the issue, but he doesnβt think that time is now.
βThere’s always the chance that legislatures can increase tax rates,β he said. βItβs very difficult to do that, because now you have an established industry that will lobby against it, What I think will be interesting is legislators who are up to speed on these issues will realize these operators are not profitable currently, and I would hope any legislator diving into it would see that now is the wrong time to raise taxes, as this industry isnβt making money yet.β
Iden added, βThe last thing we want to do is end up in a situation where you kill the golden goose before it even starts to grow.β