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New York Assemblyman Pretlow Warns Of Pitfalls With Cuomo’s Mobile Betting Model

Longtime state legislator concerned about trickle-down effects of high tax rate

Matt Rybaltowski by Matt Rybaltowski
July 15, 2021
in Industry, Regulation
NY Pretlow Skepticism

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As the sportsbook industry continues to digest a mammoth 130-page Request For Applications that will determine the landscape of mobile sports betting in New York, Assemblyman J. Gary Pretlow is warning the industry of a potential pitfall associated with the limited operator model.

When the New England Patriots edged the Los Angeles Rams 13-3 in Super Bowl LIII, Rhode Island sportsbooks took a bath, losing $2.35 million as the Pats covered a 2.5-point spread. Unlike a reinsurer that may incur millions of dollars in losses from a Category 5 hurricane, New York State is not taking on any risk if the Buffalo Bills win the Super Bowl. But under the model outlined in the RFA released by the New York Gaming Commission on July 8, a dominant victory by a New York-area team could cause the state to fall short of annual revenue estimates projected for mobile sports betting.

Pretlow’s concerns intensified when the commission outlined a complex tax structure for bidders interested in partnering with the state to operate mobile sports betting. The plan essentially establishes a tax floor of 50% on an online sportsbook’s gross gaming revenue. The commission plans to award contracts to a minimum of two mobile sports betting platform providers and a minimum of four mobile sports wagering operators before the market goes live.

“If you know sports betting, this is the one area of gaming where the house doesn’t always win,” Pretlow told Sports Handle this week.

At online sports wagering’s maturity, Gov. Andrew Cuomo’s administration projects that it will produce $500 million in annual tax revenue for New York, a figure that is met with skepticism by Pretlow. Under several projections, the New York handle must fall within a range of $15-$20 billion to meet the target, a number Pretlow thinks will be difficult to attain.

CategoriesScenario 1Scenario 2Scenario 3Scenario 4Scenario 5Scenario 6
Handle$20 Billion$20 Billion$15 Billion$15 Billion$10 Billion$10 Billion
Hold Percentage6%5%7%6%6%5%
GGR Rev Share51%51%51%51%51%51%
Tax Revenue To NY$612 Million$510 Million$535.5 Million$459 Million$306 Million$255 Million

Leading sportsbooks with the highest market share nationwide from FanDuel and BetMGM to DraftKings and Caesars/William Hill are expected to submit platform provider applications.

A plethora of options

Cuomo’s template is patterned after a model in New Hampshire, where DraftKings is paying the state lottery 51% of its online GGR from sports betting for exclusivity in the market. Pretlow, who serves as chairman of the Assembly’s Committee on Racing and Wagering, acknowledges that Cuomo’s plan can work if implemented properly. But Pretlow still believes the legislative model he constructed with Sen. Joseph Addabbo Jr. is more favorable for bettors.

The legislative plan called for a tax rate of 12% on an operator’s sports wagering GGR, along with an initial licensing fee of $12 million per mobile sportsbook. Addabbo’s bill would have allowed for the issuance of 15 mobile sports betting “skins,” or licenses, across the market, several of which guaranteed New York’s tribal casinos entry into the marketplace. By comparison, a successful platform provider must pay the state a one-time fee of $25 million before it begins operations in the Empire State.

The boys are back from barnstorming for another "Get A Grip" pod@SportsbkConsig & @dan_back break down the NY online sports betting "Matrix" + "Superbids" w/Guest @MattRybaltowski

+ Reflections on the sportsbook experience
🍎 https://t.co/ST65sJKs79

🎧https://t.co/TR0zAArnTx

— Sports Handle (@sports_handle) July 14, 2021

Hypothetically, the commission could issue licenses to 15 operators, or a number it sees fit to achieve the revenue target. However, a high tax rate could squeeze out smaller operators that cannot afford to conduct business in a low-margin environment. Pretlow indicated that it is too early to tell if a 50% tax rate will result in higher odds at legal sportsbooks in New York, if the companies decide to pass the tax burden along to customers.

Applicants shall complete and submit a pricing matrix, the form of which is set forth in Appendix B: Pricing Matrix. This matrix requires the Applicant to set forth the tax rate that an Applicant accepts under varying competitive scenarios of total Platform Providers and Operators. An Applicant must provide a tax rate that is fifty (50) percent or greater for its Preferred Scenario. However, if the Applicant’s Preferred Scenario alone is less than the statutory minimum of two Platform Providers and four Operators, the Applicant must
instead provide a tax rate that is fifty (50) percent or greater for such statutory minimum
scenario. If an Applicant does not wish to participate in mobile sports wagering with
particular levels of Platform Providers and Operators, the Applicant should enter a tax
rate of 0 (zero). If a cell is left blank or unintelligible, such cell will be deemed to be a tax
rate of 0 (zero).

–New York State Gaming Commission RFA For Mobile Sports Wagering Platform Providers: Section 6.8. Pricing Matrix and Accompanying Analysis.

Pretlow thinks there is a strong possibility that Manhattan residents will continue crossing the George Washington Bridge in droves to bet on their phones in New Jersey if the odds in New York are less favorable than the lines offered in the Garden State. An untenable tax rate may also prop up illegal bookies if high net-worth individuals can find drastically better odds on the offshore market.

“The whales aren’t going to bet in New York because they’re not going to make the same amount of money as they would betting someplace else — they’ll continue to go offshore,” Pretlow said.

A possible ‘super bid’

The RFA is structured in a way that gives major sportsbooks a multitude of options in submitting a bid. The commission will allow companies to submit bids simultaneously, as both an operator and a platform provider. Under one scenario, BetMGM could submit an application as a platform provider with three mid-level sportsbooks (Bally Bet, Betfred, Golden Nugget, theScore, PointsBet, and WynnBet, among others) as operators. As a platform provider, BetMGM would be responsible for computing wagering payoffs, maintaining all wagering records, and submitting the requisite reports to the commission. The other books would operate on a network maintained by the platform provider, while BetMGM itself could become the fourth operator.

The commission also allows companies to submit multiple bids. Instead of flying solo, BetMGM and Caesars/William Hill could submit a joint application. At the same time, DraftKings and FanDuel could join forces under the same bid. Or, the four heavyweights could team up and construct a so-called “super bid,” while operating under the same platform provider. A tech provider such as IGT or Kambi could even serve as a platform provider, with the major sportsbooks as operators. The possibilities are seemingly endless.

“They could all team up together, it’s very possible,” Pretlow said. “They are going to do everything they can to maximize their profit because their expenses are going to be so high.”

With a wide pool of applicants, the aforementioned super bid possibility does not appear to rise to an attempt at collusion. If the companies propose a rate around 50% in the application’s “preferred tax scenario,” another company — say, Barstool Sportsbook, BetRivers, or bet365 — could jump in with a higher proposed rate. The commission is warning the industry to avoid bid-rigging or “collusive tendering,” a practice that occurs in some cases when applicants surreptitiously conspire to artificially lower the preferred tax rate.

The Commission has determined to impose a non-collusive bidding requirement in connection with this RFA, similar to the requirement set forth in State Finance Law Section 139-d. Each Applicant must warrant, under penalty of perjury, that its Application was arrived at independently and without collusion aimed at restricting competition. Each Applicant must further warrant that, at the time the Applicant submitted its Application, an authorized and responsible person executed and delivered to the Commission a Non-Collusive Bidding Certification on the Applicant’s behalf.

A week into the process, there is consensus that 50% will be a starting point for the final tax rate, according to several industry sources. Pretlow is in agreement on the tax floor, but he doesn’t expect the rate to be bid up to 55%.

“I really don’t know if anyone is going to go that high,” he said.

The applications are due by 4 p.m. ET on Aug. 9, the commission wrote in the RFA. A series of first questions by applicants is due Friday, with commission replies due on July 22.

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Matt Rybaltowski

Matt Rybaltowski

Matt is a veteran writer with a specific focus on the emerging sports gambling market. During Matt's two decade career in journalism, he has written for the New York Times, Forbes, The Guardian, Reuters and CBSSports.com among others. In his spare time, Matt is an avid reader, a weekend tennis player and a frequent embarrassment to the sport of running. Contact Matt at matt@usbets.com.

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